The Complete Guide to Investing in Commodity Trading & Futures

The problem for most people is they insist on treating commodities trading as a get-rich quick scheme, akin to playing the lottery or gambling in a casino. Commodity trading is a business; just as in any business, you do the proper research, build a plan, and examine your risks before you make each sale, deal, or transaction. This is what separates the professionals from the amateurs. As in any business, hard work and dedication yields results; profits don’t just “happen.”

Dennis’ firm belief was that successful trading was a talent that could be learned and it was not an innate talent, possessed by only a few gifted individuals.

Selling a soybean contract short is worth two years at the Harvard Business School.”

— Robert Stovall, Managing Director, Wood Asset Management

Commodity futures perform well in the early stages of a recession, a time when stock returns are generally poor.

Commodities may also provide a hedge against other “event risks,” a catchall phrase meaning the risk of financial crisis, war or other political events that may cause other assets to fall. The demand for raw materials typically rises in these events, and the raw commodity is seen as a safer haven than the corporate world.

during the famous world wide recession of the 1970s, commodity prices skyrocketed again.”

According to Jim Rogers in Hot Commodities, “The longest bull market in commodities began during the Great Depression in 1933 and grew even stronger during that period, and thirty years later,

Factors in other investment markets are also undergoing change. Stock prices appear overpriced on an historic basis. The elemental measurement of the value of a stock, the P/E (price/earnings) ratio is currently at extreme highs on the NASDAQ in comparison to past markets. Can the equity market continue to support these inflated prices? Current low-interest rates make the bond market a very uninteresting alternative to either stocks or commodities. Yields on government bonds are extremely low and good corporate bonds with better yields are extremely expensive. Real estate market values seem also to have topped out,

(A New Look at the Commercial Traders, August 2005) put it very succinctly: “The commercials need the commodities but not the price swings. The speculators need the price swings but not the commodities.”

major study by K. Geert Rouwenhorst of the Yale School of Management International Center for Finance and Gary B. Gorton of the University of Pennsylvania, Finance Department (“Facts and Fantasies about Commodity Futures” Yale ICF Working Paper No. 04-20, February 28, 2005) concluded that during the prior 45 years, commodity futures had about the same return as stocks with less risk, have outperformed bonds and are a better hedge against inflation than either stocks or bonds. (