What do you think about investments that aren't in style? There are some investments and markets that people hate so much that they aren't talked about much. These are investments and markets that aren't talked about much in the financial media and are near the bottom of their trend graphs.
I sometimes like them. They are the ones that could give you a return of 1,000% or more in a reasonable amount of time. I say "sometimes" because investments are often disliked for good reason: the price of any market shows a lot of wisdom.
But the market is not always right. At any given time, there are investments that should be worth a lot more than what they are worth on the market. This will change at some point, which is why I love looking at hated investments. Making a list. Waiting for things to change. When the signs are right, getting in well before the crowd.
That's why I've been keeping an eye on the commodities market for a while. It's a bad performer that hasn't done well over the past 20 years. When you account for inflation, the value of investments in commodities has gone down a lot during this time. And let me ask you something: how much attention do you think general commodities get, besides small pockets like gold and oil? Do you see books about them when you look through your local bookstore's investment section? Do your friends brag about their most recent investment in commodities? No, because right now, even though prices are moving up steadily, commodities are still not very popular. If they keep going up, as I think they will, this could be the start of a long-term commodities bull run and a great time to invest.
Did you know that commodity prices have been going up for a while now, almost without anyone noticing? Coffee, copper, wood, and sugar are just some of the commodities whose prices have gone up by 40% to 80% per year in recent years. The exciting thing is that this could just be the beginning of a long bull run for commodities. Considering that most investors still avoid commodities like the plague, there could be exciting times when the world finally wakes up and smells the coffee, so to speak.
Investing in commodities makes sense because demand is going up and supply is going down.
The smart investor knows one thing: no matter how much a product costs now, its price will eventually change to reflect the basic equation of supply and demand. Yes, we do have bubbles. Anyone who put money into "Useless Dot Com PLC" in 2000 when it had a PE of about 967 can attest to that. But in the end, the market corrects itself. Markets and companies that are priced too high come crashing down with a loud thud. And markets and companies that have been undervalued get re-rated.
Why are their ratings changed? Because the market knows that something isn't right. In the case of Useless Dot Com PLC, the market realised that the company (which, by the way, doesn't exist) was just sitting on some cash with a crazy business plan and no demand for its main business activity or product. The market value of Useless Dot Com PLC went down because of this.
When it comes to commodities, the market has no choice but to re-rate the market higher because (as we'll see) there is a big difference between demand and supply. Global demand is much higher than global supply, which will drive prices up and up in the long run.
Why the global demand for many goods is going up while the supply is going down.
China and India, two countries that are on their way to becoming superpowers, are growing quickly at the moment. As a result, they are consuming more and more goods to fuel this amazing growth. China is already one of the world's biggest consumers of commodities like platinum, steel, copper, iron, and several other metals. Its population is also pretty young. The country is in the middle of a building boom, which has created a huge need for raw and processed metals. India imports more gold and silver than any other country and is the fourth largest consumer of crude oil in the world.
Both India and China are becoming global superpowers. In order to do this, they will consume a lot of commodities at a rate that is almost impossible to keep up with over the next 20 years.
Now is a good time to get in on the boom in commodities.
