Wednesday, April 14, 2010

29. Commodities Investment

The following is a draft report, before I forget.

An e-mail to invite me to the talk below. 2 reminder phone calls from the organisation the day below and on the day when I was late, showed that this organisation means business. In talks, it is best to take notes if you want to learn from another industry and to review. The talk was well attended as the room was almost full of older people above 30 years of age.

My impressions from this talk:
1. The Singapore's savings and fixed deposit interests are less than 1% and inflation will erode the spending power of the savings.

2. Investment in high quality funds over 5 to 30 years as part of your investment diversification should be done. Expect around 5% return per annum over the 5 years.

3. Expect around 8% return per annum when investing in funds dealing with good quality shares.

4. Do research to find out which funds are high quality and their portfolio.

5. Regular investment in a balanced fund. Invest monthly so that you need not worry when the market rises or crashes. 5% return per annum is better than fixed deposit interest rate of less than 1%. For example, monthly investment of $250. Global equiies return 7.44% and global bonds return 5.23% per annum as long term investment in the last 20 years. Much higher returns than fixed deposits. The average Singaporean retirees normally invest in fixed deposits in the POSB and do not know any other alternatives. CPF rates are 3.03%? Fixed deposit rates are 2% in Singapore. Mini-bonds are NOT bonds.

In 1939 - 2003
1. 70% you make money
2. 30% you lose money.
Any 3-year period, you make money
Any 5-year period, it is good for you.
Any 10-year period (long term), you should have better returns.

6. The Straits Times Index has shot up 100% as at April 2010 compared to Oct 2008. Oct 2008 was the economic crisis level when shares were at the bottom. Therefore many people have had missed the boat. The STI was 1,500 in Jan 2009. Now in April 2010, it is 3,000. Its peak is 3,800. When will it peak? Economic cycles are shorter nowadays. 4 years from now, it will peak at 3,800? I can't understand how the speaker comes to this conclusion or I have heard incorrectly.

May 1932 Great depression
Jul 1982 Worse recession in 25 years
Dec 1994 Most dramatic Fed tightening
Oct 2008 Economic crisis
Apr 2010 Said to be in the expansion (boom) period. Commodities will outperform. Interest rates will rise.

Australia. The following may be of interest in students studying in Australia.

1. Interest rates are record lows except in Australia.
2. Unemployment has decreased more than expectations.
3. Australia is a commodity producer.
(Implication? Invest in a country that is a commodity producer). Buy commodity shares in Australian companies?

Singapore News in Apr 15, 2010
Singapore's inflation rate will increase from 2% to 2.5% according to April 15, 2010 news I have just heard. The economy has rebounded unexpectedly.

4. The following topic was educational as the speaker said 2010

Gold prices still have not reached their peak. In Jan 1980, the lady speaker said that gold was selling at the peak of US$1,816 but two participants said it was S$800 as they bought or sold gold for their wives.

The speaker said it was US$800. The US$1,816 was the figure adjusted for inflation at 2010 rates, the lady explained. "In 1980, an HDB flat was not selling for $1 million dollars!". I can't recall HDB flats selling for $1 million in 2010.


Focus on gold as the real interest rate is low and gold is relatively cheap. To evaluate, assess how many number of barrels of oil will buy 1 oz of gold. In Jan 1980, gold prices were at its peak of US$1,816 and the number of barrels was 48.2. In Nov 2009, gold was cheap when it could buy 15.2 barrels. This is because gold supply is down. The trend is for central banks to buy gold and so demand will increase.

Silver - Smaller market. Silver outperforms gold if its price rises. Invest in 10% of your diversified portfolio.

Platinum - Still high demand despite recession as European Union regulations require cars to have catalyst to reduce toxic emissions. Auto catalyst needs platinum. Invest in 5% of your diversified portfolio.

In summary, hold commodities esp. gold and metals to hedge against inflation for a long-term portfolio. Base metals prices were high last year (2009). The last 20 years were deflationary. Now, we are in the inflationary environment and the 20% bond and 80% equities formula may not be relevant. Commodities should do better than both.

In the economic cycle
1. Slow down
2. Recession
3. Recovery - equities and properties
4. Expansion

Agriculture, metal and energy. Agriculture is the last one to rally. Metals had their best performance in 2009. In 2010, consider gold price as an alternative investment for growth.

A simple rule: Be fearful when others are greedy but be greedy when they are fearful.


An International Portfolio in Commodities (lst Hour)

Because commodities are an area which have not been represented in investment portfolios, this market is relatively inefficient. Opportunities to outperform the market are much more likely to occur in an inefficient rather than a more developed market environment.” And like many asset classes, the long term is made up of a series of medium-term cycles, in which prices move up and down as supply and demand fall into and out of alignment with each other.

Looking ahead to the next few years, we see good reasons why the long-term and medium-term trends are highly encouraging for commodity investors.

· Why Commodity Futures?

· Outlook for Commodities in the 3 broad groups: Metals, Agriculture and Energy.

· How to take part of the exciting opportunities of Commodity Futures?

A Winning Investment Vehicle – Zurich (2nd Hour)

· How best to position yourself to take charge of the market rally

· What are the best periods in history to invest?

· A winning investment strategy with Zurich

Key Speakers:
1. A substitute lady speaker from Schroeders
2. Alan Tang - Chartered Financial Consultant, Certified Financial Planner, Chartered Life Underwriter , Senior Branch manager (PIAS), Money Sense Speaker (MAS)

Having done more than a thousand talks for corporations, unions, ministries and statutory boards, Alan is a revered speaker in the financial seminar circuit. He is not just effective in delivering the message, but his lessons will dramatically improve your finances.

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