The Hindu Business Line : Investment Nuggets

Widely travelled and contrarian in his views, Jim Beeland Rogers was the co-founder of Quantum Fund along with George Soros. Rogers has repeatedly demolished the myth that investing in commodities is more risky than investing in stocks and makes a strong case for holding at least some proportion of your portfolio in `real' assets. His views on commodities and his experiences are captured in his books — Investment Biker, Hot Commodities and Adventure Capitalist.

"Many investors seem to have forgotten a hard reality: There are frequent periods when stock markets don't do much."

"It's much more effective to build a company quietly and soundly during a down market than it is to, say, try and ride a boom-and-bust cycle during a high-flying market."

"Commodities are a great investment during an inflationary period because increases in the price of raw materials reflect the rising costs of goods. In addition, commodities tend to zig when the equity markets zag. During that flat period for the US stock market between 1966 and 1982, the commodity markets were booming".

"Historically, there has been a bull market in commodities every 20 or 30 years, and I think we're already in the throes of a new one. And while raw materials can lose value, the price of a commodity will never go to zero. When you invest in commodities futures, you're not buying a piece of paper that says you own an intangible piece of company that can go bankrupt. You're buying a contract to purchase a real, tangible bushel of corn or several hundred pounds of coffee."

"How about buying shares in commodity-producing companies instead of buying commodities themselves? That's about as far as some financial advisers will go in the direction of commodities. But investing in commodity-producing companies can turn out to be an even riskier bet than sticking with buying the things outright. Supply and demand will move the price of copper, for instance, while the share prices of Phelps Dodge, the world's largest publicly traded copper company, can depend on such less predictable factors as the overall condition of the stock market, the company's balance sheet, its executive team, labour problems, environmental issues, and so on. Oil skyrocketed in the 1970s, but some oil stocks did not do that well. The Yale study found that investing in commodities companies is not necessarily a substitute for commodities futures. The authors found that from 1962 to 2003,"the cumulative performance of futures has been triple the cumulative performance of 'matching' equities".

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