When it comes to commodities, Jim Rogers is perhaps the man that commands the most amount of respect. After all, he was amongst the first few investors to predict the stellar bull run in commodities that has lasted for around a decade now.
However, the recent sell off has sparked concerns whether the winning streak has run its course and it is all downhill from here on. Who better to answer this question than the legendary Rogers himself? Thus, if the bow tie sporting investment guru is believed, the bull run in commodities is far from over.
In conversation with a leading financial portal, Rogers opined that downturns are normal. That is what markets do as per him and will continue to do that. But commodities such as coffee, gold and oil remain on track for a long term bull market, he asserted.
Rogers seemed to show a strong liking for agricultural commodities in particular. He believed that there are huge shortages of agriculture developing. He also put forward a very interesting statistic to drive his point further. He opined that the average age of a farmer in the US is 58 years currently and within 10 years, they will turn 68. Thus, agriculture will hurt us all over the next couple of decades according to him.
Rogers also voiced similar concerns about oil, arguing that known supplies of oil are continuing to decline worldwide. He also termed as ludicrous the recent gesture by international policymakers to release 60 m barrels of oil from strategic reserves. "The world uses 86 million barrels of oil every day. So releasing 60 million barrels of oil is what, two-thirds of a day of consumption? I kept thinking: This must be a typo!", he is believed to have said.
Rogers could well be right in his assessment. After all, supply for commodities cannot fall short of demand every now and then without there being structural constraints.
But the big question is how does one take advantage of this trend? The very fact that commodity prices are all about supply and demand makes the determination of their intrinsic values an almost impossible task. This can thus result in a completely wrong entry and exit strategy, making one susceptible to a permanent loss of capital.
Therefore, commodity investment could perhaps suit only those investors that are closely associated with the commodity and are well versed with the demand and supply factors. For others, it is always better to stick with identifying companies with strong pricing power, run by an honest management team and available at attractive valuations.