Enterprising Investor Forum

Value in Commodities Wednesday, January 28, 2009

Rest assured that the commodity boom is not over, we believe that prices will probably start to pick up again in late 2009, most probably coinciding with the start of a long and difficult economic recovery process.

As we all know, the sharp decline has been quite spectacular – notice the July 2008 peak – as you can see hereafter in the 2 year DB Commodity Index ETF (DBC):

It is no surprise that in the current economic climate, demand has softened significantly but this does not mean that we will never see growth again! Demand will remain under pressure but not indefinitely.

The next months will be very important to try and understand what shape this recovery could take but in any case, the Value Investor should closely monitor developments in the overall commodity spectrum.

Investment Styles Tuesday, January 27, 2009

In his book ‘Traders Guns & Money’ Satyajit Das takes readers through the knowns and unknowns in the world of derivatives.  He offers a very cynical and witty account of life in the financial markets and especially in the trading rooms, where wealth is transfered everyday risking other people’s money!

He also offers an insightful explanation of ‘Fund Managers Investment Styles’, that we thought you might find interesting:

• Index Funds = The fund manager invests to match some index like the S&P500 > The fund manager has given up trying to beat the market.

• Active Management = The fund manager tries to pick stocks that will do better than the market > The triumph of hope over experience. You, the investor, are paying for the experiment.

• Momentum Investing = The fund manager chases whatever is going up > The lemming or crowd theory of investing; the investment equivalent of a Finnish proverb: ‘Shit must be good, millions of flies can’t be wrong.’

• Value Investing = The fund manager invests in undervalued gems that he has uncovered through research > Pure luck or you hope that the fund manger has inside information.

• Yield Enhancement = The fund manager invest to generate above market income > You are taking on a whole lot of risk. You will be lucky to get your money back intact.

• Portfolio Insurance = The fund manager guarantees that you investment, at least 90%, is safe > Hang on, wasn’t a return of principal the least you are entitled to?

• Structured Investment = the fund manager will specifically design investment  strategies to fit your exact risk and return parameters using sophisticated investment tools and financial products > A pure con job to charge you more fees.

• Alternative Investment Strategies = the fund manager will invest in hitherto unknown assets – weather derivatives, catastrophe bonds, art, stamps, etc > You are an investment pioneer, good luck!

We will review his book shortly.