Commodity Trading & Trend Following

Inflation is another major concern for all investors today, especially those living off of a fixed income. Rising prices are a wealth destroyer. Rising prices eat into the returns of all types of assets. When interest rates go up, bonds get hit. Stocks fall as the cost of loans increase and in many cases companies can not pass along the additional cost. Thus their profits are squeezed and stock prices fall. Real estate prices fall as demand falls due to increased cost of mortgages. The only asset class to flourish is hard assets. Another appealing aspect of commodities lies in the ability of this asset class to act as a hedge against inflation, in other words appreciating in value when inflation kicks in, thereby off-setting losses incurred elsewhere in a portfolio; as a result of a price increases.

The ability of hard assets to protect an investor’s principle against inflation, is relatively easy to grasp. Inflation is an increase in prices, and as such will generally include an increase in the prices of raw materials, which are inputs in both goods and manufacturing processes. In other words, inflation is not likely to occur unless the prices of raw materials, including oil, metals, and agricultural commodities; are on the rise.

However investing in commodities can be volatile and there are always drawdowns and long periods of elusive profits. There are no ways to avoid losses when trading. The goal is to “try” to keep them small.

I personally believe we will experience severe inflation and the majority of our families money is in trend following strategies. When/if there is inflation we will try to ride the trend of rising prices as a pose to being destroyed by them.

Past performance is not necessarily indicative of future performance.