Commodities for beginners?

I've been on the lookout for the right type of investment for me after I sold some shares and want to put my savings to work. After seeing Mark Shipman on the Late Late show ([broken link removed]) I agree that there is serious money to be made from emerging markets like China etc and commodites look very interesting. I bought his book yesterday and hope read it this weekend, but wanted to see if anyone here wants to throw in their two cents, and if anyone can point me to some good sites to learn more about commodities.

Just found precious thread on Mark Shipman here

Re: Commodities for Beginners???

I saw the show myself and was very impressed with mark shipman, I have also just bought the book, apparently it is flying out of the bookstores. I have been invested in oil companies and agricultural companies for the last few years and have done well. There are a few websites which got be onto it moneyweek.com being one althought to get the juicy information you have to subscribe although they have alot of excellent free stuff aswell, gold.ie is an excellent irish one specialising in gold and silver investments but also has excellent international articles on commodity investing and financial information. There is very little in the irish media or stock market on commodities so you will be investing and researching abroad.

Re: Commodities for Beginners???

colly said:

I agree that there is serious money to be made from emerging markets like China etc and commodites look very interesting

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There is serious money to be lost also.

Jim Rogers has a good book on the subject http://www.amazon.com/Hot-Commodities-Anyone-Invest-Profitably/dp/0812973712/ref=pd_bbs_sr_1/104-2833506-8064744?ie=UTF8&s=books&qid=1178985221&sr=8-1 (Hot Commodities: How Anyone Can Invest Profitably in the World's Best Market.)

Re: Commodities for Beginners???

Just remember that the top of both the US real-estate and tech-stock booms were marked by the emergence of books purporting to help the ordinary investor "get in on the action".

The commodity bull market has been running since late-2001, during which time oil prices have increased over 300%.

Be sure to satisfy yourself that you are not engaging in the commodity equivalent of paying $800 a share for Nortel shares in March 2000.

Re: Commodities for Beginners???

Colly,

I would be interested in what you think of the book. I have to say I was also impressed with MarK Shipman on the Late Late Show, but would also be very cautious, hence agreeing with some of the other posts as well.

Post back and let us know what you thought of the book.

I have investigated the commodity market, particularly in relation to agriculture (particularly sugar, cotton, grains and coffee) and there does appear to be some opportunity for a diversified portfolio. I have read Shipman’s book and Jim Rodgers’ book and would like to balance my equities with some commodities. I would like to invest €5k to €10k initially across several of these commodities.

I have an Interactive Brokers account and I have investigated the following and would appreciate feedback:

Futures contracts – probably the best, but out of my league. You would need to spend a minimum of $10-$15k for the commodities above. Crude oil is traded in 1,000 barrel contracts… a nice $66,000 purchase.

Exchange Traded Commodities – I hold some of these e.g. Deutche Bank ETC baskets (DBA, DBC) which is performing as I would expect. However, ETF securities on the LSE are not performing as well as I would have expected. These ETFs invest in futures and have to roll contracts; dealing with contango (longer-dated futures are more expensive than near-month contracts) in a very basic fashion - see USO (United States Oil) Fund for example poor performance. However, I am continuing to build my investments here.

Spread Trading/Betting Commodity spot price – This was recommended in Shipman’s book. I have never liked the idea of spread trading, but I am open to all ideas.


I would be interested in people’s experience in spread betting commodities:

-Can you roll your bet from quarter to quarter – taking a long term position? i.e. 5 years +
-What are the commissions percentages like over an annual period?
-Who is the best spread betting provider for this type of operation?
-Any other information?

IG Index offer spreads on a fairly limited number of commodity futures, and it is possible to roll over your position. European/UK opportunities in this field seem few and far between, certainly compared with what's available in the States. However, the Shipman and Rogers books might make commodities a bit sexier over here, and the opportunities may increase.

Del3D said:

Futures contracts – probably the best, but out of my league. You would need to spend a minimum of $10-$15k for the commodities above. Crude oil is traded in 1,000 barrel contracts… a nice $66,000 purchase.

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You don't need to pay the entire contract up front! The balance is only due on the settlement date. You need only put up a margin. However, if the price changes significantly your broker may request you add more to cover your margin or they may decide to close the contract. You can buy long-dated contracts (up to six years for oil) but these are not as liquid as front and near month contracts. Nymex also offer mini-contracts.

Del3D said:

Exchange Traded Commodities – I hold some of these e.g. Deutche Bank ETC baskets (DBA, DBC) which is performing as I would expect. However, ETF securities on the LSE are not performing as well as I would have expected. These ETFs invest in futures and have to roll contracts; dealing with contango (longer-dated futures are more expensive than near-month contracts) in a very basic fashion - see USO (United States Oil) Fund for example poor performance. However, I am continuing to build my investments here.

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You have identified the very problem here. The contango cripples these investments, it is estimated that the price needs to appreciate 10%pa just to keep pace with the contango losses. I am aware of at least one trader who keeps a rolling short position on front month oil contracts to profit from the contango.

Del3D said:

Spread Trading/Betting Commodity spot price – This was recommended in Shipman’s book. I have never liked the idea of spread trading, but I am open to all ideas.

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Shipman likes them because profits are tax free, if I remember correctly. However, the interface is generally conducive to overtrading and overleveraging. Be very careful.

Del3D said:

I would be interested in people’s experience in the spread betting commodities:

-[FONT=&quot] [/FONT]Can you roll your bet from quarter to quarter – taking a long term position? i.e. 5 years +

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You can but you will be murdered by the contango and exposed to temporary fluctuations of the front month contracts. Why not just purchase a long-dated contract on the Nymex?

Del3D said:

-[FONT=&quot] [/FONT]What are the commissions percentages like over an annual period?

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None, they profit from the spread.

Del3D said:

-[FONT=&quot] [/FONT]Who is the best spread betting provider for this type of operation?

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I like Delta Index but everybody has their own choice.

room305 said:

You don't need to pay the entire contract up front! The balance is only due on the settlement date. You need only put up a margin. However, if the price changes significantly your broker may request you add more to cover your margin or they may decide to close the contract. You can buy long-dated contracts (up to six years for oil) but these are not as liquid as front and near month contracts. Nymex also offer mini-contracts.

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Thanks Room305; that is very helpful and informative... The Shipman and Rodgers books are short on the detail of actually trading commodities (despite claims to the contrary) - Are there any on-line sites or books that you would recommend that provide good quality further reading on these points above?

room305 said:

You don't need to pay the entire contract up front! The balance is only due on the settlement date. You need only put up a margin. However, if the price changes significantly your broker may request you add more to cover your margin or they may decide to close the contract. You can buy long-dated contracts (up to six years for oil) but these are not as liquid as front and near month contracts. Nymex also offer mini-contracts.

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I would add also that imo, if you ever have to worry about margin then your trade sizes are too big for your account. Just to be very clear lest the op have any doubt, futures contracts are " marked- to- market " ie profits or losses on futures contracts are actually settled each day and not on a net basis on expiration of the contract.

demoivre said:

I would add also that imo, if you ever have to worry about margin then your trade sizes are too big for your account. Just to be very clear lest the op have any doubt, futures contracts are " marked- to- market " ie profits or losses on futures contracts are actually settled each day and not on a net basis on expiration of the contract.

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Indeed. Apologies if I did not make that clear. The margin must *always* be sufficient to cover contract losses otherwise the broker will simply close the contract. On a typical oil contract, the initial margin requested will be around $3,500. A $4 move in the spot price would see you stopped out.

Del3D said:

Thanks Room305; that is very helpful and informative... The Shipman and Rodgers books are short on the detail of actually trading commodities (despite claims to the contrary) - Are there any on-line sites or books that you would recommend that provide good quality further reading on these points above?

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The posters on the Green Energy Investors board tend to be quite knowledgeable even if it is not always a busy site. One or two of the posters probably know Mark Shipman personally. The board is very welcoming to newcomers so do not be at all afraid to ask questions.

For example, here is a discussion on trading long dated oil contracts

He also mentions in the book about other industries that would benefit from the commodity boom such as transportation.

I know the transportation industry hasn't done well over the last year but if you single out the Water Transportation sector(which he mentions) you can see that it has been buiding momentum since the start of 2007 (up 27% since start of the year vs. 8% for the S&P500). There is loads of talk on the web of it being the 'hot' sector right now. Obviously his book was written before this so he was right in this prediction.

I can't mention any individual stocks on this website but use a stock screener for Water Transportation sector and you can find them yourself.

Didn't Rabodirect recently introduce the ROBECO CHINESE EQUITIES FUND
< [broken link removed] >

Haven't had a chance to study it yet.. I know it's rated as being high risk but it will still be a lot less risky than investing in one chinese company.. I'm gonna throw a few hundred into it in the next few weeks..

Shipman interview was excellent.
Haven't read the book yet but we will.

Very good article today on commodities:
The commodities bull market has another decade to run, the legendary investor tells Financial News
[broken link removed]

It is wrong to compare the huge Nasdaq bubble with the supply and demand driven recent increase in commodity prices from massively undervalued levels (especially if one considers the massive increases in the money supply and continuing and accelerating inflation in the last 35 years).

When there are a number of commodities brokerages in Ireland and you here the taxi man up the road and the clamper guy down the road are buying commodities then it will be time to sell.

When askaboutmoney.com has as many posts on commodities and gold and silver as it does on property tor equities then it will be time to sell.

When the Irish Times and Irish Independent start listing the prices of coffee, sugar, platnium and palladium prices then it will be time to sell.

Finally, when there are commodity supplements rather than property supplements or at least commodity sections in newspapers of some 2 to 3 pages then it will be time to sell.

We are a long way off yet.

Eagle Star have a commodity fund which tracks the GOLDMAN Sachs commodity Index
Its 69% in energy because of the way the weightings are
Made a 44% return in 2005 AND -23% in 2006

hi,
just read the shipman book and currently reading the rodgers one. They seem to have two very different approaches, shipman being the trader and rodgers in for the long haul.
it seems easier to get into trading commodities (with delta index etc) than do what rodgers recommends (via an index fund)
Anyway my question is does anyone know where I can go to invest in a commodity index fund(and not the eagle star one which is too heavily invested in the energy sector)?
and will this involve going overseas?

Many thanks

You can buy futures in the Reuters Commodity Index Fund as per
Should we go long the Reuters-CRB Index? By: Peter Zihlmann
http://news.goldseek.com/ZihlmannInvest/1180105320.php

Silver remains the cheapest and most historically undervalued of
all the commodities as per
http://www.moneyweek.com/file/28810/why-the-silver-price-is-set-to-soar.html

A word of warning on commodity indices -
Commodities indices do not always track the inderlying asset.
The Goldman Sachs Commodities index was down last year even though
commodities were up and the commodities in the GSCI were up - due
to futures contracts rolling.
See http://www.ft.com/cms/s/a378d634-b54b-11db-a5a5-0000779e2340.html
The GSCI has not been as profitable for all the investors who use
it to get commodities exposure. Last year it lost about 15 per cent
on a total return basis. Goldman itself had a record year. The
customers’ yachts weren’t just small, they were under water.

where can you buy Reuters Commodities Index or Goldman Sachs Commodities? What broker can I use.

Blackhorse B said:

hi,
just read the shipman book and currently reading the rodgers one. They seem to have two very different approaches, shipman being the trader and rodgers in for the long haul.

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I read it myself and that's not what I'd take from it - Shipman expressly states that he considers himself an investor and contrasts his style with short term traders.

Interestingly, though, if you look at Shipman's website (http://www.trend-follower.com) he lists his current investments and of eight open positions, all but one are in equity indices. There is only one commodity investment, in gold. Unfortunately, no information is given as to the relative size of his investments.