The Tyler Group News Barcelona: Commodities Are Dreadful — and Have Almost No Place In Your Portfolio

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The Tyler Group News Barcelona

• Commodities Are Dreadful and Have Almost No
  Place In Your Portfolio

http//www.businessinsider.com/commodities-have-al
most-no-place-in-your-portfolio-2013-4
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• One of the things I really hate about the current
  Wall Street environment is how so many people
  have been fooled into thinking that commodities
  are a necessary part of your asset allocation.
   Ive been pretty hard on commodities over the
  years (see this detailed piece here).  I think
  its mostly just a ruse to sell another group of
  products and I think its really dangerous.  But
  even worse, I just think betting on commodities
  is fundamentally flawed thinking.  Not only are
  you speculating in a zero sum game involving
  production-less input costs, but youre directly
  betting against human ingenuity.  I dont like
  either of those bets.
• If one actually takes a look at the long-term
  real returns of commodities you realize theyre
  actually quite dreadful.  Even if we cherry pick
  a decent period that includes a big boom like the
  last 20 years we still see pretty awful
  performance.  Over the last 20 years commodities
  have returned just 1.6 per year over the last 20
  years (see figure 1).  Thats a real return of
  about MINUS 1.
• http//www.businessinsider.com/commodities-have-al
  most-no-place-in-your-portfolio-2013-4

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• I prefer to think of commodities as something
  that is an input or a means to helping us
  innovate.  If youre bullish on oil price
  dynamics you shouldnt go buy barrels of oil and
  store them in a locker somewhere.  You should
  find the companies who leverage the use of that
  commodity and will benefit by innovating through
  the use of that input.  Dont bet against
  innovation.  Bet on it.
• I say all of this as I see the silver bubble
  (that I discussed back in 2011 when silver was
  40 higher) come crashing down.   Sensible
  portfolio construction starts with understanding
  the role of specific assets in the economy and
  how those various assets fit into your portfolio
  in particular ways.  I dont know why this theme
  of commodities as an asset class has taken off
  over the last 10 years, but it sure doesnt seem
  to be helping anybody except those selling the
  idea.
• http//www.businessinsider.com/commodities-have-al
  most-no-place-in-your-portfolio-2013-4