I have a lot of new readers lately, and people have been asking me how exactly to get started investing in commodities. Most people have standard brokerage accounts for trading stocks, and most do not have an account that allows them to trade futures. Very few of the major stock trading services offer futures trading.
So here I’m going to share a few ways that you can invest in commodities right from the comfort of your stock brokerage account. So all you need to do is sell your overvalued, sinking US stocks, say a few Hail Mary’s, go wash your face, and you’ll repent as soon as you return to your keyboard.
By the way, I would love for this to be an open discussion – please reply in the comments section if you have other ideas.
Exchange traded funds have boomed over the past few years, and there are now ETF’s that track just about anything you can think of. Here are a few ETF’s you may find useful:
GLD (streetTRACKS Gold Trust) – tracks (roughly) the spot price of gold.
DBA (PowerShares DB Agriculture Fund) – invests in sugar, wheat, corn, and soybeans (25% each).
DBC (Deutsche Bank Commodities ETF) – full breakdown here.
RJA (Rogers Commodity Index – Agricultural component) – Maybe my favorite from none other than our here, Jim Rogers. Details here.
I’ve owned only GLD in the past, none currently. I wish I had drank my own Kool Aid earlier on this and put my stock $$$ into some of these (my regular stocks are down 5% for the year in case you’re wondering – getting hammered like everyone else).
The trick with these commodity funds and ETF’s is that they traditionally have weighted gold and metals heavily. And everyone here knows that we believe agricultural is the place to be. If the US hits a recession, $100 oil could look quite expensive and may drop. But it’s hard to see the agricultural items dropping far, if at all – China and India and the rest of the world will continue to eat, after all.
So I’m intending to do some research on these quite soon. Again, comments welcome if you have thoughts. Now onto the next topic:
Of course we can buy stocks that are not named Apple and Google as well – we can also pick specific plays on the commodity picture. Here are a few of my favorite themes:
1. Gold producers – When gold goes up, gold producers go up much, much more. Why? Say a gold producer is selling gold at $900/ounce, and it costs $500/ounce to pull it out of the ground. Profit of $400/ounce. Gold jumps to $1200/ounce – increase of 33% (on par with each of the last 5 or so years). Profit is now $800/ounce. So their profit is leveraged with the price of gold – which is why when gold moves higher, share prices skyrocket for gold producers.
My favs: I own NG and AUY currently.
2. Oil service providers – I mentioned before that oil could drop – but it’s not going to drop to $30/barrel. If it does, we’ll load up on some contracts! But there are many oil exploration activities that are wildly profitable at $90/barrel goo that don’t make sense at $30 or $40. Think guys who help locate oil in the ground or deep seas.
My favs: DWSN (owned previously), HAL, BHI
3. Energy producers – The trick here is to find the guys with killer reserves that are also growing. Many of the big producers are struggling for new finds. For some reason I’ve been able to find Natural Gas producers with more promise – maybe because the US still has some NG left, while we are tapped out of oil.
My favs: APA (own currently), CHK (owned for much of the last 3 years, not currently)