Brice, Your friend is definitely telling the truth. many commodities are at or near multi-year lows while stocks are at all-time highs. A lot of people look at gold or oil as a proxy, but there are lots of commodities doing much worse than gold or oil.
That being said, commodity funds are not as safe as equity and bond mutual funds, nor are they are regulated. Since they are small, the fees and expenses tend toward the ridiculous side of the ledger. And, since the manager basically takes your money and uses margins, the volatility can be huge. Some commodity funds use only spreads, and they are safer. But those that do straight buys and sells do occasioanally lose every dime and shut the doors. Of course, you also get a few 200% and 300% up years.
Another problem I have had with commodity funds over the years is that every one I have seen has been a trend following, TA fund. Which is one reason so few make any money. Although many stock and bond people have caught on to the fact that TA is a fraud, the vast majority of commodity folks have not.
So, when you combine high risk, huge expenses, TA, and trend following, I find it hard to love these things. That being said, if I were ever going to buy one, now would be the time. I would want a clear idea of what my manager was attempting to do. Or, more likely, I would look for a person who has done well occasionally, like a Richard Dennis, if he's still alive and working.
I think commodity stocks tend to be a better value, as many of the larger and/or more efficient players can make money even when the commodity is heading south. For example, the price of gold has been down for a long time, but Barrick and Newmont still make money and even pay modest dividends. Impala pays a very large dividend. Most big oil cos. have a decent dividend. That is something no commodity, and certainly no commodity fund, offers.
I determine targets through my valuation model and a time line. In other words, I may say that Impala is worth $35 in three years, but it is only worth $20 in one year. If the stock went to $21 tomorrow, and the fundamentals that were plugged into the model hadn't changed, I'd probably start losing a third or more.
MB |
