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Wealth Building – Through Commodity Investing

I added the absolute must reads category a few weeks ago as an aide for people to quickly figure out what this site is about.  My challenge, since everything seems like a must read, is to not include each article in that category.  However, today, will you please go back and read “The No-Brainer Investment Strategy to Double Digit Returns.”  If you want to make serious money in the stock market over the next 10 years it will be in commodity related stocks.  This is my opinion, but I believe it is supported by research outlined in the article.  I realize that six months in the scheme of things is a small sample set, but let’s look at year to date results in the markets.

As of 7/14/2006

DOW 0.2%
S&P 500 -1.0%
NASDAQ -7.6%
SOX -14.7%
CRX 14.5%
GLD 27.7%%
CEF 39.5%

I have no idea how the DOW is calculated, but a few weeks ago it was within points of its all time high.  How can an index be near all time highs when its largest components Microsoft, Intel, GE, Pfizer, Home Depot, Wal-Mart and IBM are near multi-year lows?  Historically tech leads the market. Which way is it leading now?  The NASDAQ and SOX (Semiconductor Index) are significantly negative year to date.  The CRX is a new index to many of you.  It is the Morgan Stanley Commodity Related Equity Index.  The name is self-explanatory.  Its results year to date support the thesis that we are in a commodity cycle.  GLD is an ETF tracking Gold – pretty good return for a barbaric relic.  I had to do a double take when I saw CEF’s year to date return.  I have spoken about CEF more than any stock on this site.  Please go read the DCA Experiment for more details. 

It is human nature to gravitate to the familiar.  This year the familiar is letting many down: Intel -28.4%, Home Depot -16.4% and Microsoft -14.8%.  In closing, do yourself a favor and check your 401K year to date returns.  Most funds will be negative.  Unfortunately, most 401K plans do not have commodity related funds amongst their selections.  Remember cash is a position also.  A 4-5% return from a money market is better than watching your money disappear.

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The CEF Experiment

I am setting up a experiment with the objective to demonstrate that the average investor can reap double digit returns with a simple dollar cost averaging strategy.  See the June 9th’s article on the “No Brainer Investment Strategy to Double Digit Returns” for the basis of the methodology.  We will use two ETFs to validate this theory – Central Fund of Canada (CEF) and Market Vectors Gold Miners (GDX).  Each month we will purchase $1000 of CEF and GDX and compare it versus the S&P 500. Purchases will take place at the close on the 4th of each of month unless it falls on the weekend or holiday.  In that case it will be purchased at the next day’s close.

As of June 5, 2006 CEF was outperforming the S&P 500 13.02% vs. -0.64%.  CEF is compounded monthly.  S&P 500 is YTD return without compounding. Continue reading “The CEF Experiment”

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The No-Brainer Investment Strategy to Double Digit Returns

This has been a painful month in commodity land especially for anyone who bought around May 12, the peak of the most current gold rally.  Since then, investors have lost 20% from its high of $730/oz to Friday’s (6/9) close of $608/oz. Those that purchased on the last day of this past year have a slightly differently perspective.  Gold closed on 12/30/05 at $517.  Over the past five years gold has averaged a return of 15% per year. No one wants to suffer through a 20% draw down in 4 weeks, but a 41% return in 4 ½ months was simply unsustainable. This is why I am a strong advocate of dollar cost averaging.  If you made the decision to try commodity investing and went all in on May 12, you are probably ready to give up now.

Continue reading “The No-Brainer Investment Strategy to Double Digit Returns”