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Is now a good time to buy into commodities?

(7 posts)
  • Started 4 months ago by jeffshepherd
  • Latest reply from bjrad

  1. jeffshepherd
    Member

    Hi everyone,

    I'm a novice investor when it comes to ETFs and commodities so I'm looking for some advice.

    Is now a good time to start investing in commodity ETFs and if so which commodities look a good bet at the moment?

    Thanks,
    Jeff

    Posted 4 months ago #

  2. Donato
    Member

    Hi Jeff . . .
    The short answer is that it depends on your time frame. The long answer is always a bit more complicated.

    You say you are "a novice investor when it comes to ETF's and commodities". This might imply that you are an experienced investor in other areas. If this is so, and you have been successful, then just apply the same techniques, strategies, or state of mind you have been using.

    I you don't have much experience at all in any areas of investing, the best advice might be to keep your strategies simple and be sure to study risk management. The hardest thing about risk management is actually sticking to it; for any number of reasons we seem to get emotionally attached to our investments. Even for me, it's still hard to sell something when I should, like oil (USO) recently. I bought it low awhile back, and then when it turned around recently I had to sell. It was hard and it hurt (emotionally). Of course now, looking back, I feel good. At some point, I'll probably buy back in.

    Following the trend is the simplest way to make money. The tricky part is determining when the trend is changing, or how long to wait. We are currently in a rather "unique" economic environment. Possibly the best advice I can give (besides understanding and applying risk management) is to use trend lines, moving averages, and view charts in several different time frames. Always remember to look at the big picture, e.g. daily, weekly, and monthly charts. A good charting service can be an essential aid in making decisions.

    Three months ago commodities looked good. Today, the markets are turning. At least they appear to be. The safest bet is to wait and see which direction the market chooses. Today, solely using a 200 day MA would result in missing out on a lot of gains. Try playing around with 20 and 50 day MA's, and be sure to learn how to draw a proper trend line. Also be sure you have a brokerage account that has low or no fees for transactions.

    To specifically answer your question, the only commodity I currently own is natural gas (UNG). It is for a long term investment. Personally, I think it is a good buy now. And yes, it may still loose value over the next several months or more. You should not use funds that you need to pay current bills with. A good argument can be made that it is still trending down.

    One portion of a risk management strategy might be to never put more than ten percent of your investment funds into any one equity. And further, those funds allocated for the specific equity might not want to be put in all at once. To help reduce emotional decisions, determine your entry and exit points (risk) before you enter the trade.

    Bottom line . . . A chart is a chart . . . Don't over think the underlying security.

    Posted 4 months ago #

  3. roughbert
    Member

    All I would add to Donato's reply (and it's from from my own experience) is:

    1. Make sure that your broker allows you to set and update automatic stop losses. Use them!

    2. There are ETFs which allow you to take a short position on a commodity too!

    3. See 1.

    Posted 4 months ago #

  4. mktlines
    Member

    Goldman Sachs Commodity Index (GSCI) ETF - GSG technical chart for reference:

    Commodity ETF chart

    Posted 4 months ago #

  5. Thomas
    Member

    It really depends on which commodity you are talking about. Everyone has a different setup. Jim Rogers has a commodity index fund so that is a diversified way to play all commodities. Personally I like gold and I analyze gold at my blog http://www.bestonlinetrades.com

    Timing is crucial with commodities. We are not talking about the SP500 here. So if you do decide to jump into this area you need well defined tools to determine when to get in and when to stay out.

    Posted 4 months ago #

  6. jeffshepherd
    Member

    Hi everyone,

    Thanks for your replies and sorry for not getting back sooner. I will read all of your replies with interest and post again if I have any questions.

    Jeff

    Posted 3 months ago #

  7. bjrad
    Member

    Jeff,
    I'm very late to the conversation and agree wholeheartedly with the other's advice. Managing risk is key. In the commodity world, read alot about any industry possibly related to the commodity in question and then use Industry Group to analyze (hopefully as early as possible) emerging trends that jive with your interpretation of the news related to the commodity and the products produced therefrom. As you suggested ETFs & commmodities are fairly new to you, TAKE YOUR TIME! Make sure you know how individual ETFs are structured (does it hold stocks? fixed income? trade futures?, etc...), the tax implications as related to what type of account you're trading in, the difference between ETFs and ETNs (an issue when you're looking at commodities), and know their charts!

    Good luck!

    Brad

    Posted 3 months ago #

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