The Handbook of Commodity Investing

Foreword

“Those who cannot remember the past are condemned to repeat it.”—So wrote the philosopher and poet George Santayana about a hundred years ago. He was not writing about commodities, of course, but doubtless he would recognize the conundrum present in today's capital markets. Powerful commodity cycles of significant duration—such as the one we are in—are extremely rare events, separated by such long interludes of weak performance. When they do occur, there are few people around with the specialized knowledge necessary to understand them properly. In other words, each generation of fund managers and asset allocators has to learn afresh about the market characteristics of commodities. This lack of knowledge, together with the opaque nature of many terminal markets, gives commodities an aura of mystery, with the news media often portraying the exchanges as little more than casinos and labeling the market participants as “speculators” rather than “investors.”

By trivializing and demonizing investment in commodities, the news media is to some degree responsible for deterring fund managers from making appropriate and profitable asset allocation decisions. For example, at the bottom of the last commodity cycle, the Financial Times reduced its commodities coverage to an eighth of one page—tantamount to a news blackout. Small wonder then that many institutions forgot how to trade commodities altogether and had zero asset allocations to commodities. Armed with this handbook—which ...