Your Questions About How To Invest In Commodities

Maria asks…

Do you know that Pitguru is a company giving advice on opening futures calls and daytrading recommendations?

Business, Trading, Investing, Commodity, Futures

John answers: is the best website for U.Sign up & take Ur future trading courses now.Good luck 🙂

Richard asks…

I want to invest in commodities ?

I want to invest in commodities trading in through mutual funds. However, I don’t want to trade directly in commodity futures. Are there any index funds in India that invest in commodities? Also, is it a smart idea to invest in commodity index funds instead of commodities directly? As I understand it, index funds are safe because, I don’t have to invest more money when the commodities do down.

John answers:

A Mutual Fund is a New Issue when purchased. It is a long term instrument. By its very definition, there can be no direct correlation between that, and the commodities market(s). Commodities are usually short-term investments. Many contracts are 90 days or less.

Commodity futures, and indices, are an extremely poor investment for a novice. They are all short-term prospects, require one to act quickly (in the purchase/sale), and therefore are unsuitable for one who does not “sit” at trade desk.

Donna asks…

What do you think about investing in commodities?

Some say it is risky but then again gold, cattle, and other commodities will likely never be worth nothing. Thoughts?

John answers:

You are missing an important technical point about investing in commodities — generally you are investing in derivatives (oh, no!) not the commodities themselves. So, yes, they can actually be worth nothing.

There are some exceptions, like GLD the exchange traded fund that physically holds the gold it invests in, but most commodities investments are contract based.

Commodities investments are really only one of two things: speculation or hedging. (I am not talking about people and businesses that actually buy, sell, or use the actual commodities in question)

Hedging involves exposing a very limited amount of your assets to an “opposite condition” to what you “hope” will happen to protect yourself if you are “wrong.” For example, you invest 50% of your money in stocks and 45% of your money in bonds but you put 5% in gold just in case the world melts down and inflation goes way up. In that “crazy scenario” your bonds drop 50%, your stocks go down 75% but your gold goes up 1000%, cutting some of your losses and giving you something to live on. You are actually “hoping” that your bonds go up by 5%, your stocks up by 25% and your gold down by 10%.

Speculation, on the other hand, is the gamble that you are running a better than even chance of payout with a relatively high (let’s call it at least 25%) chance of complete loss. If the ratio between oil and gas historically runs at X:Y and it is currently not at X:Y, you bet 1% of your speculative portfolio that it will return to the historical average in Z number of days. If you are wrong, you loose it all (1%), but if you are correct you gain 500%.

Sidenote: Actually, if you are good speculator, you will most likely stop your losses at something less than 15% 2 times out of 5, breakeven 2 out of 5, and hit the home run 1/5…if you are just “good” you will still limit your losses, but hit a home run 1/10.

Linda asks…

How to invest in commodities?

How to invest in commodities like gold, corn, silver, oil and etc?

John answers:

How? Open a futures account, fund the account, and buy something.

You can invest in commodities by buying the commodity. Buy gold at your local coin or jewelry store or online.

Or you can trade commodity futures.

Notice the difference. One is “investing,” and the other is a “trading” environment. If you don’t know the difference, I would suggest waiting a year or so until you read a few books, develop a Trading Plan, and test your plan on a simulator for several months.

Or you can trade/invest in commodity ETF’s.

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Thomas asks…

Do you think most of the gains in the investing world are caused by stupid unsophisticated investors putting?

their money into investments they don’t understand, the benefits of which flow to the few who actually know what they’re doing?

I get that feeling by reading this section of YA and the people who want to invest in commodities and such who don’t even have a basic understanding of investing or even how business works.

John answers:

There is a percentage of people who wade into investing without much knowledge but they don’t last long IMHO. Every investor talented or not makes good moves and bad. Many have made and lost fortunes several times over. So it is not just the naive newbie that loses money….don’t forget if they are not limited by their own talents….professional advisers work with them and make mistakes as well as reap the rewards.

The stock market is not there to fleece the new guy…picking a good stock is not a slam dunk.

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