Comments on: Why are commodities risky assets for investors?

By: tbernst

tbernst — Sun, 03 Jan 2010 07:13:49 +0000

When investing in commodities combine volatility and patience and risk is minimum. Paper losses on commodities become gains over time. Stocks are much more dangerous, tech stocks in particular or a more obvious example, Japanese stocks which still have not recovered from the lows of the early 90′s

By: greenhunter

greenhunter — Fri, 01 Jan 2010 04:45:05 +0000

thankyou

By: greenhunter

greenhunter — Fri, 01 Jan 2010 04:44:10 +0000

hi I have a silver eagle collection is it true that silver is so low that their not going to make silver eagle coins. do you know the word on this or some one who does please get back to me thnakyou

By: mdspatsy

mdspatsy — Fri, 18 Dec 2009 21:15:38 +0000

Dear Writer,
Your views on this subject are quite relevant and are quite interesting for further analysis.
Yes. All essential things to be purchased, stored for day today needs are a must to any individual.
On other side, commodity future markets are risky and to be watched on current trends and some introspection towards it for proper handling and whether it will be fetch more profits at the time of delivery,prices are within our reachable levels and it should not bite our purses and should not face some criticisms from our family and from our self.
Good article for intelligent introspections for prospective buyers and to prospective sellers.

By: MrBill

MrBill — Thu, 17 Dec 2009 09:43:39 +0000

Dear Reuters, two days ago I spent considerable time forumulating a comment about commodity markets. I regret now that I did not save it as you have not published it either. It was definitely on-topic and not remotely offensive. It was based on my over twenty years of trading commodities. It would be better if you did not accept readers’ comments if you are not going to publish them. It is a waste of everyones’ time. Thank you.

By: MrBill

MrBill — Wed, 16 Dec 2009 08:54:19 +0000

Well, another reason that commodities are inherently risky is that they are not interest earning assets. They cost money to store. The cost of carry.

Therefore, a long-only investor can only make a positive return if the price rises. If a bond fluctuates in price the holder still receives the coupon, and an implicit yield to maturity, unless they have to sell early at an inopportune time.

The same for stocks. At least for stocks that pay a dividend. But with commodities you literally have to buy low and sell high, or with futures sell high and buy low, to make a profit. And because there is a buyer and a seller at every price the chances of making a profit at any entry price is a slim 50/50.

The payout profile – that looks like a barbell – also adds to the return volatility if only half of all trades are profitable. Add in taking profit too soon, or leaving losses to run, the returns not only become worse, on average, but become asymmetrical.

Those that own storage and physical facilities, and can arbitrage both the cash and the futures market, can hedge their bets and improve their chances of capturing more of the aggregate profit over investors who can only buy or sell the futures. It is a true insiders game, so amateur investors start with a few strikes against them from the get go.