This is my field and the best part is that it is very easy to read for me which will not be the case for everyone who reads book reviews on this blog. ‘Hot commodity’ and ‘Hot commodities’ are two different books. Earlier one is a book full of lust and unlimited sexual erotic fantasy while the latter is all about commodities in which you can invest in futures. Futures of a commodity is defined as a price for a commodity sometime in the future. This time frame is defined for all commodities that are traded on exchanges around the world. Jim Rogers, author of this book, is to the commodity world what Warren Buffet is to stock markets around the world. He is famous for growing his portfolio by a spectacular 4100 % when the S&P index grew by 10% in early 70s to 80s.
First and foremost, he dispels all fears about investing in commodity markets. He talks about the common phrases that people use when you talk about commodity investing in a crowd like the one ‘my brother traded in commodity market and he lost his shirt’. He describes this fear by people’s greed and not being disciplined but most importantly leverage is the downfall of many. Leverage is best described as that every tick (movement) of cocoa futures is 10 MT (or 1 lot!) and price per lot is US$ 30,000 (US$ 3000 PMT assumption) but when you have trade cocoa futures, you need to pay only 10% of that amount. In this scenario, it is great if the market goes up you might earn admirable ROI but when the market tanks, it will wipe out all your margin money. Another thing that Jim Rogers talks about is do read about the commodity that you are going to invest in. After all, it is fundamentals that move the markets – demand and supply. If you have studied that well then you have a sure shot chance of knowing the direction of the market. Accurately predicting the direction of the market is not easy but the well read ones can certainly see it coming. Some of the commodities that he talks about
Lead – underrated commodity. Supplies are dwindling due to environmental hazards associated with it but batteries require them and demand will be stable or increase. so buy!
Gold – for the past 20 to 25 years gold has given a negative return in entire list of commodities. There is a supply glut and demand is not increasing
Coffee – Coffee with no origins coming up can possibly go only upwards. Good time to buy
Copper – With no mines coming up, copper can go only one way which is up as demand for copper is likely to be stronger and get stronger over the years. buy!
Other thing that Jim mentioned in this book is that commodities and stocks have a relationship which is inversely proportional. When stocks are down in the dumps, commodities ride on a bull. Interesting thing – I will surely notice it next time