Hot Commodities: How Anyone Can Invest Profitably in the World’s Best Market
By Jim Rogers 2004, Random House Hardcover, 250 pages $25.95
©2005 Reprinted with permission of Active Trader magazine (www.activetradermag.com)
REVIEW BY ACTIVE TRADER STAFF
In his latest book, Hot Commodities, Jim Rogers lays out his argument why stocks, bonds, and currencies are not currently the best available investment options. It’s a good, fast read and will appeal to investors who don’t know a futures contract from an ETF.
Rogers, who launched a commodity index fund in 1998 (see main story), recounts having discovered that, while the investment world was wrapped up in increasingly overpriced stocks in the late 90s, commodities were at their lowest inflation-adjusted levels since the Great Depression.
He’s no commodity newcomer: As cofounder of the Quantum Fund, Rogers made his initial fortune during the commodity boom years of the 70s. His argument today is that because of fundamental conditions — i.e., dwindling supplies and increasing demand — many commodities have the potential to rally well into the future. He points out, for instance, that there have been no new oil reserve discoveries or new major mining projects in recent years. And there is — and will continue to be — huge demand from China for many commodities (including agricultural commodities), a country that used to be a net exporter of commodities.
Hot Commodities is not an investing strategy handbook, per se. Rogers admits he’s no market timer; his approach is to find something cheap and hold on for a long ride. He thinks commodities are the place to be, but he says everyone needs to do their own homework on individual markets. He encourages would-be investors to research the supply/demand situation for a commodity, and he provides examples of the kinds of questions you’ll need to ask and answer to assess these variables.
Rogers also presents overviews of different trading vehicles, from futures and futures options to commodity funds. Chapter 4 is devoted to explaining futures contracts and the mechanics of trading them. (Among other topics, he advocates bypassing high leverage, which is good. But many readers might be surprised to discover how expensive commodities can be when you trade them without margin.)
Chapter 5 is a key chapter that explains the monolithic role Rogers believes China will play in the global commodity markets. As he writes, “A growing economy with 1.3 billion people needs things.” China has the world’s hottest economy and has become the leading consumer of a number of commodities.
In chapters 6 through 9, Rogers takes a closer look at a handful of markets — oil, gold, lead, and coffee — and gives his take on how they’re shaping up for the future. These are useful chapters in that they provide a kind of template of Rogers’ supply and demand analysis.
For investors and traders who are unfamiliar with commodities, the book does a good job of demystifying these assets and makes a case for why they should continue to appreciate in the coming years. (Rogers refers occasionally to a Yale University study that analyzed commodity performance from 1959 to 2004 and found commodities have provided better returns, less risk — and functioned as a better inflation hedge — than stocks or bonds.)
Experienced futures traders who don’t use fundamental analysis won’t find much in the way of specific trading ideas in Hot Commodities, but they should feel encouraged and validated by the evidence Rogers brings to bear in his argument that commodities are the current investment hot spot.