Today I want to share a few great snippets of information you can use…
Our favorite investment, silver bullion, was up over 80% in 2010. Readers who have heeded our relentless encouragement to buy silver (dating as far back as 2005) are now sitting on major gains. But where do we go from here? Some folks on Wall Street are looking at these recent gains (which they said couldn’t occur) and are once again calling a top.
Analyst Adam Hamilton from Zeal Intelligence just wrote a fantastic article putting silver’s gains into historical perspective. If you are invested in silver – or thinking about doing so – I implore you to read it.
A Newly Improved Tool for Vetting a Stock Broker
It’s important that the person(s) handling your investments be both well-qualified and well-behaved. Some brokers, unfortunately, aren’t. You can look into a broker’s background to uncover credentials, customer complaints, disciplinary actions, and other tidbits via FINRA’s BrokerCheck web page (brokercheck.finra.org).
FINRA (the Financial Industry Regulatory Authority) recently expanded its BrokerCheck database to include records that were previously unavailable online. Through the free service you can also look up brokerage firms to find out if they are in good standing.
You may be reassured by what you find – or alarmed. Either way, it’s worth getting the down-and-dirty on to whom you’re paying commissions!
Tell Me More about Risks with Investing in Commodities
Mike F. writes: In the November newsletter, you warned of political threats to ETFs that hold commodities contracts. I am (was?) prepared to buy ETFs for food/agriculture products as well as energy. Is the situation too volatile to do so? What options do I have, as I believe commodity prices will continue to rise?
Position limits and other controls on vehicles that hold futures contracts inhibit their ability to accurately track their respective underlying commodity components.
In addition, pricing anomalies on the futures exchanges (e.g., “contango”), which may be exacerbated by regulations or simply market conditions, force ETFs to pay premiums when rolling over their contracts. That causes serious underperformance over time.
In 2010, USO and DBO, which hold crude oil futures, underperformed the spot oil price by 14%. Natural gas futures fared even worse. UNG lagged behind natural gas prices by an astounding 24%!
The bottom line is that anything to do with futures contracts should be viewed as a short-term speculation, not a long-term investment. We did suggest agricultural commodities as a speculation in 2010 (via RJA) and did end up banking nice profits on it, in part because the tracking error associated with agricultural contracts tends to be relatively mild.
In general, though, the best way to gain direct exposure to raw commodities is to own physical precious metals (gold, silver, platinum, and palladium) as a proxy. To play energy and agriculture for the longer-term, it’s better to own shares of companies operating within those sectors. An easy way to do that is via the Rogers Hard Assets Producers ETF (HAP), which also gives you exposure to mining companies. For a sector-specific diversified investment that holds only those stocks tied to agriculture, consider Market Vectors Agribusiness ETF (MOO).