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Saving, Investing, And Storage

Jun. 08, 2020 10:20 AM ET1 Comment
David Merkel, CFA profile picture
David Merkel, CFA


  • And now for something that seems completely different: commodity investing.
  • Commodities should be viewed as storage, not an investment.
  • Holding a commodity with a price you think will correlate strongly with the prices you will experience in retirement is not a bad idea. That said, it is storage.
  • As such, I encourage you to mostly invest, and store a little.

This should be a short post. Buffett likes to own T-bills when he doesn’t have anything that he wants to buy. Why? He is storing value until the time comes when he can buy something that he thinks offers a superb return over the long haul.

And now for something that seems completely different: commodity investing, when it was introduced in the nineties, offered “yield” from rolling the futures contracts from month-to-month. That ended when the trade got too crowded, and the “yield” went negative. The ETFs that pursued these strategies were inventory financing charities in disguise. They still are, even though their strategies are more complex than they were.

Think for a moment. Why should you earn a yield-type return off of owning a commodity? Really, that should not exist unless there is a scarcity of speculators willing to let producers hedge their risk with them. There is a speculative return, positive or negative, from holding a commodity, but in the present environment, where there is no lack of people willing to hold commodities, there is no yield-like return, unless it is negative.

As a result, commodities should be viewed as storage, not an investment. Do you think in the long run that gold will be more valuable than it is today? It might be wise to store some away. That said, you have to be careful here. In inflation-adjusted terms, most commodities have gotten cheaper over time, with occasional violent rallies that convince people to speculate (all too late).

Storage is not investing. Storage tucks something away, and it will not change, even if its price changes because of changes in the economy.

Investing is far less certain — you can lend to or buy equity in a venture which could produce astounding returns, or you could lose it all, or something

This article was written by

David Merkel, CFA profile picture
Please note that I do not read comments posted here, nor respond to messages here. I don't have the time. If you want my attention, you must seek it directly at my blog. David J. Merkel, CFA — From 2003-2007, I was a leading commentator at the excellent investment website RealMoney.com (http://www.RealMoney.com). Back in 2003, after several years of correspondence, James Cramer invited me to write for the site, and now I write for RealMoney on equity and bond portfolio management, macroeconomics, derivatives, quantitative strategies, insurance issues, corporate governance, etc. My specialty is looking at the interlinkages in the markets in order to understand individual markets better. I no longer contribute to RealMoney because my work duties have gotten larger, and I began this blog to develop a distinct voice with a wider distribution. In 2008, I became the Chief Economist and Director of Research of Finacorp Securities (http://www.prnewswire.com/cgi-bin/stories.pl?ACCT=109&STORY=/www/story/02-08-2008/0004752449&EDATE=). Finacorp went into liquidation in June 2010, after which I decided to open my own asset management shop, Aleph Investments, LLC. I manage stock and bond portfolios for clients. Until 2007, I was a senior investment analyst at Hovde Capital, responsible for analysis and valuation of investment opportunities for the FIP funds, particularly of companies in the insurance industry. I also managed the internal profit sharing and charitable endowment monies of the firm. Prior to joining Hovde in 2003, I managed corporate bonds for Dwight Asset Management. In 1998, I joined the Mount Washington Investment Group as the Mortgage Bond and Asset Liability manager after working with Provident Mutual, AIG and Pacific Standard Life. My background as a life actuary has given me a different perspective on investing. How do you earn money without taking undue risk? How do you convey ideas about investing while showing a proper level of uncertainty on the likelihood of success? How do the various markets fit together, telling us us a broader story than any single piece? These are the themes that I will deal with in this blog. I hold bachelor’s and master’s degrees from Johns Hopkins University. In my spare time, I take care of our eight children with my wonderful wife Ruth. Visit this site: The Aleph Blog (http://alephblog.com/)

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Comments (1)

thkalinke profile picture
Thanks for the imagery, David.

I'm a huge fan of simple, visual models. For example, before I bought a single share of stock, I played poker. When I finally started investing (and through to the present), I invested like I played poker. New card improves hand, bet more; new card sucks, fold and wait till next hand. Sweep winnings into a more conservative investment, such as my pocket. Now you gave me a new image, that of investing in commodities as I would toilet paper. When COVID hit, I had a case of toilet paper stored in the pantry, LOL.
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