With the recent Barron's cover story predicting a major
fall in the price of oil and other commodities due to a correction of
speculative buying, I am reminded that:
1. American investors view the world like one of those New Yorker
cartoon maps where America is Manhattan and places further away rapidly
melt into obscurity. In the minds of most investors, including Barron's, what
happens in America dominates the whole world. So, Barron's writes that
there is speculation in commodities and America's economy is getting
weaker so commodities are headed down. But what about the rest of the
world's economy? A non-U.S. perspective on commodities is posted below.
2. That said traders in New York can heavily influence global
oil prices and there may well be substantial elements of speculation in
New York mostly on the bullish side as Barron's points out.
Such speculation could result in a commodities correction. In fact we
know that there have been and will be corrections in the current bull
market for commodities.
How to reconcile these two truths? Speculators function as a bridge
to the future that they see coming. When the trends they expect come
to pass and everyone can see what is happening, traders exit with a
profit. But if some part of the future arrives that seems to prove the
speculators wrong, some specs may exit with a loss. If they stay until
the end game and are wrong, they will lose. Often big.
There are no guarantees in the short term game of speculating. My approach called Tsunami investing
is a long term buy-and-hold strategy. There is little doubt that the
Tsunami is actually taking place. The trick is to recognize when the
Tsunami stocks have completed the great bulk of their run and the time
has come to move on. In the meantime, the other trick is to stay
invested and don't get too cute. I may have views about the short
term and may tweak the portfolio to reflect them, but the key to
whatever success I have had as a Tsunami investor is to own good
companies in the area of the Tsunami and simply hold on. I doubt that
all the portfolio tweaking in response to my short term speculative
opinions have made me any money at all.