valueinvestor123

Commodities: Is It All Over?

I think people often say things like, "we are in a long term commodities bull market" or a "long term global infrastructure story" and they make the fatal mistake of ignoring valuation. They also seem to ignore the inevitable cyclicality of both. I have certainly employed the buy and hold strategy over the years to a select group of stocks in my personal account. For instance, I have owned some stocks in my personal account for over 10 years and the growth and compounded return on these names has been tremendous. However, I think that what investors don't realize about commodity and infrastructure names is that often times these stocks get well ahead of themseleves and are already pricing in growth for years to come. For instance, yesterday I bought CBI. I think it has tremendous long term value here in the mid 30's. However, I would have never bought it when it was in the 50's and 60's because to me at those prices the stock is already giving the company credit for the great growth you are seeing. I think that especially with commodities you need to be disciplined because these things often gain a lot of momentum quickly and can lose it just as fast. That is why a buy and hold strategy with a commodity fund like the DBA makes no sense. The DBA is not something similar to Berkshire Hathaway, Altria, or any other blue chip company you can name. There is just too much momentum in it by investors who don't understand commodities. So while the DBA may be worth $60 (just picking a price) in 5 years if you believe in a commodities super-cycle, unlike a blue chip stock I think you need to take profits when you have them and then rebuy on the inevitable dips.