For the past 20 months, the Dow, the S&P and the Nasdaq have gone virtually nowhere.
Meanwhile, some foreign markets have been going steadily higher, and some sectors of the
Why? What is the most common factor that has made the biggest difference between failure and success for stock investors?
Answer: Surging commodity prices.
With few exceptions, companies, sectors and countries that benefit from surging commodities have gone up. But companies, sectors and countries that are hurt by surging commodities have gone down, or at best, treaded water.
And no wonder!
Commodities Surge While Stocks Zigzag
In late 2001, the Commodity Research Bureaus index of commodities futures was trading in the low 190 area. Now, in early August, it has surpassed 320, up over 68%.
Moreover, while the stock markets overall performance has been erratic, the performance of the commodities has been steady:
In 2002, the stock averages fell, but commodities marched higher …
in 2003, stocks rose, and commodities continued to rise …
in 2004, stocks were mostly flat, but commodities rose again, and …
in 2005, stocks have been flat, but commodities have risen even more.
And if you exclude energy and gold mining companies from the stock averages, the comparison is even clearer: Stocks mostly down; commodities steadily up.
The past and recent pattern of steadily rising commodities shows up on monthly charts and on daily charts.
You can see it in grains, other foods, metals, building materials and energy. Its unmistakable and undeniable.
As to the future pattern, anything is possible and nothing is guaranteed. But we see nothing on the horizon that can overturn the growing imbalance between demand and supply.
Nor is the growing demand just a passing phase: Right at this very moment, we are smack in the middle of one of the most dramatic population explosions this planet has seen since the agricultural revolution in the early days of civilization.
World Population
Growth Exploding
Until recently, less developed countries, with high population growth rates, represented a smaller share of the worlds population, while more developed countries, with low growth rates, had a pretty big share.
Now all that has changed. In terms of the sheer number of people within their borders, the less developed countries now tower far above the more developed countries. And its their demographic pattern thats driving the trends for the entire planet.
Theyre driving the push toward modernization. Theyre driving the yearning for democracy. And theyre driving the demand for commodities, especially energy.
When will we see an end to this huge growth spurt in the world population? Probably not before the middle of this century.
So if youre waiting for the population-driven demand for commodities to ease, youd better be both patient and young. Because it could take at least another 45 years.
The worlds supplies, meanwhile, are limited. And technological advances in extracting or producing more commodities are falling far behind the advances in demand.
How to Profit From
the Commodities Boom
Fortunately, you dont have to pile up on the commodities themselves. Nor do you have to expose yourself to the unlimited risk of buying commodity futures contracts.
Instead, you can choose from a wide range of stocks and mutual funds that benefit directly or indirectly from rising commodities. And you can do so with varying degrees of guidance:
If youre a do-it-yourself investor and you feel you dont need on-going assistance from experts, consider an energy-based mutual fund or stock. Just be sure not to go overboard, limiting your investment to a modest portion of your overall liquid assets.
One of my favorites is Enerplus (ERF) a Canadian royalty trust that has provided high dividends and surprisingly rapid capital appreciation. Or, if you want to broaden out, you may also want to consider one of the
If youre looking for continuing expert guidance, but you still want to make all the investment decisions yourself, subscribing to a regular publication with a good track record can make a very significant difference.
And right now, among all those that Im tracking, Larrys Energy Options Alert appears to have the best performance overall. Since its devoted to the purchase of options, it can be volatile.
And losses are entirely possible. But your risk is strictly limited to the amount you invest, while your profit potential is virtually unlimited. With oil and oil shares in a long-term, vibrant uptrend, any correction is an opportunity to jump on board.
If you want an advisor to make your investment decisions, consider a professional money manager. Some rules of thumb in picking the best one for you …
- Make sure you are in general agreement with the managers outlook and investment philosophy.
One of the main advantages of hiring someone to manage your portfolio is to relieve you of the burden to let you concentrate on your business or just enjoy life. If youre going to be second-guessing each decision or losing sleep over it, you may as well go back to doing it yourself.
- Make sure youre comfortable with the risk the manager is going to be taking on your behalf.
The best yardstick, in my view, is the maximum drawdown the most an investor could have lost by joining when performance was best and … then quitting when performance was worst. - Dont forget the track record.
Just bear in mind that you can never know with certainty what the future track record is going to look like.
Weiss All-Star Growth;
Rifle vs. Shotgun
Managed by
Steve Chapman
This week, I interviewed Steve Chapman, Vice President of Weiss Capital Management and the manager of Weiss All-Star Growth, an individually managed program.
Since his current investment focus is directly and indirectly related to the commodity boom, I thought youd appreciate his insights, especially with these areas continuing to march higher …
Martin Weiss: Before we even consider the potential for profits, can we first talk about the downside?
Steve Chapman: Yes, thats very important.
Martin: Commodities prices have been marching higher now for over three years. Ditto for energy prices, which have been going ballistic, especially in the past few weeks. So some people may be thinking its too late to jump into them now. What is your view?
Steve: Youre going to see corrections. For example, take crude oil. Weve had a major run-up in prices, and a correction is certainly possible. But a correction is one thing. A major trend reversal is another entirely. I just dont see anything that would cause a major trend reversal at this juncture.
For example, those developing countries with big populations and big population growth theyre not just growing. Theyre modernizing. Theyre not just going to need more food. Theyre going to want more cars, driving up the demand for metals and gasoline. Theyre going to want more homes, driving up the demand for lumber and cement. The kind of demand growth you normally see in years is happening in months.
Right now, I feel there are still too many so-called experts on Wall Street who see oil prices coming back down. So every time you get a slight correction in oil, like you saw yesterday, for example, they rejoice. And believe me, theyre not rejoicing just because of the one-day decline. Theyre doing it because theyre hoping its the beginning of a deeper, longer lasting decline. I think theyre wrong.
Martin: Youre running a managed mutual fund account program called Weiss All-Star Growth. How does that tie into energy and commodities?
Steve: Im not married to energy and commodities. But since inception and for the foreseeable future, thats been one of my large concentrations.
Martin: Please be more specific.
Steve: Ive been investing mostly in specific SECTORS that benefit from rising inflation and commodity prices and in COUNTRIES or REGIONS that are driven up by rising commodities, plus by other factors, of course. I have not been investing in the broad
People talk about bull markets and bear markets. But I think those terms are hard to apply today. What we really have in the
Martin: So your performance is not really correlated to the S&P or the Dow?
Steve: Not at all. Its more correlated to global or regional indexes such as the MCSI or the EAFE.
Martin: Is that intentional?
Steve: No, not really. Its more incidental to the programs current allocations. In the search for performance I use more of a rifle approach. Not a shotgun approach. So that has naturally taken me away from the broad domestic market, to the areas that have been doing well.
Martin: And that’s been mostly overseas and sector related?
Steve: Yes.
Martin: Give us some examples.
Steve: Im in one mutual fund that gives me a side door into
This also puts me into companies that are suppliers of commodities energy, steel, concrete, other basic materials. Plus consumer goods and services.
Martin: You still havent given us a name.
Steve: Eaton Vance Asian Small Companies (EVASX), for example. You get the higher
Martin: But isnt that a load fund? Dont your clients get clipped up front with a high, front-end load charge?
Steve: Yes, it IS a load fund. But NO, our managed clients DO NOT pay a front-end load charge. They dont have to pay a penny of it. Thats one of the advantages of this program, one of the advantages of using us as an adviser. The reason is we’re participating in a “no-transaction-fee” mutual fund platform. Our clients can get access to many of the best mutual funds to some of the most highly qualified portfolio managers. With no load.
Martin: No fees?
Steve: No, I didnt say that. We still charge our management fee. Thats the only way we get paid. But our annual fee is far less than the one-time loads youd have to pay if you bought the fund shares directly yourself.
Martin: Do you also invest in no-load funds?
Steve: Yes. And there you get the same advantage whether you invest directly or through us.
Martin: Within, say, the gateway-to-China-type stocks, which do you prefer?
Steve: In this program, I dont pick individual stocks. I pick what I consider the best mutual funds with the best portfolio managers in the areas or sectors I like the best. They pick the individual stocks.
In other words, my role is to monitor and manage the managers. Right now, for example, a small cap specialist could be beating all of his benchmarks for small-caps and doing a great job of it. But if the whole small-cap sector is down, it’s no victory for the client.
Martin: Please elaborate.
Steve: The sector could be down 30% and the manager could be down only 10%. So hes beating his benchmark by 20 percentage points. Thats supposed to be great. But for the investor, its a defeat. You don’t want someone who’s going to help you lose LESS money. You want someone who is going to MAKE you money.
Largest Educated,
English-Speaking,
Labor Force
Martin: What other areas do you have your clients in right now?
Steve:
Martin: Why
Steve: It boasts the largest, highly educated, lowest-cost, English-speaking work force in the world. I think thats even better than
Plus, I believe the Chinese revaluation of the yuan, however small, is bound to have a substantial spill-over effect on
Martin: Because Indian goods will now be more competitive than Chinese goods?
Steve: Yes. And also because
But let me skip over to
Your family runs a school. So you appreciate the importance of education.
Martin: True. But I was in
Steve: The cost of living may be high in
These are small-but-old economies that are now rapidly-growing, independent nations, thanks to democracy. I like to think of them as small-cap countries.
Martin: Are you mostly overseas?
Steve: No. I have a balance between international regions and certain domestic sectors, especially energy, like Fidelity Select Energy (FSENX). That’s one of the no-load funds we own.
Martin: You talked earlier about load funds in which your clients dont pay the load. How much are they saving there?
Steve: On the load, typically, theyd be saving anywhere from 4.75% to 5.75% of their total investment in those particular funds.
Martin: Thats substantial. Can you name a few that you like?
Steve: Oppenheimer Int’l Small Company (OSMAX) and MFS Emerging Market Debt (MEDAX). The latter is among the top emerging market bond funds this year.
Martin: How can investors find out more about your program? Track record, fees, minimum investment, etc.
Steve: On our Weiss All-Star Growth web page. Our just give us a call at 800-814-3045. I think youll be pleasantly surprised.
Martin: Thank you! Lets talk again soon.
About MONEY AND MARKETS
MONEY AND MARKETS (MAM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Larry Edelson, Tony Sagami and other contributors. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MAM. Nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MAM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical inasmuch as we do not track the actual prices investors pay or receive. Contributors include Marie Albin, John Burke, Michael Burnick, Beth Cain, Amber Dakar, Scot Galvin, Michael Larson, Monica Lewman-Garcia, Julie Trudeau and others.
2005 by Weiss Research, Inc. All rights reserved.
