Speculating or Investing?

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When a person rst comes to the commodity markets, he/she is initially attracted by the
high returns possible. They have been contacted by a broker or have seen something
on FNN and have been told of the “easy” money available to them in the markets. They
are told there is a lot of money to be made. There is ! Unfortunately, none of it has ever come
easy to me. It’s been said that over 90% of the people end up losing in the futures markets. That
probably is accurate. Have you ever seen those disclaimers stating to risk only money that you
can afford to lose? Does that tell you something? Speculating is a risky business! Is there a way
for Mr./Mrs. Joe Average to turn speculating into investing and take an above average return
out of the market? The answer is YES!…and it is above 90% accurate! The method is so simple
that you will probably say, “It can’t work!” Folks…it does!
Before we go any further let’s dene speculation versus investing. The word speculation
conjures up mental images in my mind. I would not classify these images as conservative. How
about the word investing? Different image, correct? What are you trying to do with the money you
have to “play the market?” What do you want it to do in one year? Do you want it to double, triple
or (dare you think) quadruple? The chances for doubling and above are very close to nil ! Your
chances are so low you have to look up to see bottom. That’s low!
Let’s spend a minute looking at the safest investment vehicles around. The rst that
comes to mind is passbook savings. There are no minimums and it earns 5 1/2%. The next
and probably as safe would be some type of money market account or a small T-bill or
treasury bond. You can expect to earn 79%. These are all very conservative and very safe.
Right? The next would be some type of mutual fund. You can expect (if history is a judge) to
earn between 8-18%. In the past they have been moderately safe. Since mutual funds are
predominant buyers (versus short), if the markets are moving up they do well. If the market
goes down so does your investment.
The next investment we should look at is real estate. Historically, real estate has made
more people rich than any other investment vehicle. It is moderately safe but requires (generally)
a large capital outlay and substantial time for it to grow in value. If you are managing it yourself
you will also have to deal with tenant problems. Not fun!
Let’s move onto the un-conservative (maybe the wording is high-risk) investment vehicles.
Your list may not be the same as mine! They are stocks and commodities. This list is not all
inclusive but you get the idea of what I am speaking of. There is no doubt that when the market
is right stocks and commodities can make a bundle. Especially commodities! Since we know
the opportunity exists to make big money….WHY(?) don’t we? Why is it that fully 90% of people
lose in the open-outcry markets. The reasons for failure in the markets is beyond the scope of
this article but sufce it to say we all have some losses.
Since the opportunity denitely exists for great gains maybe there is a way to cut the risk
and earn a moderate prot. My denition of moderate is 25-50% per year. THIS IS POSSIBLE
WITH ALMOST NO RISK! ! ! (If you think this return is low in the commodity markets I would
suggest that you take a look at the yearly returns for any of the publicly traded commodity
funds handled and traded by “professionals”) The minimum amount of capital you will need is
approximately $6,000. With this amount you will be trading on the Mid-Am exchange only! ALL
Traders World 287
of our trades will be low risk and all will be BUYS ! The basics of this “system” are from the
book, “YOU CAN’T LOSE TRADING COMMODITIES”, by Robert Wiest and this article is being
written with his kind permission. I have several methods with which I trade with. All, but this one,
are my own discoveries. I have taken 30% of my trading capital and put it into this conservative
method. IT WORKS… I AM USING IT NOW! Your question should be,-”If you are a successful
trader, why use somebody else’s work”? This method is so dumb simple you can’t go wrong!
Have I peaked your curiosity yet? This article, if you apply it, is worth the cost of your yearly
subscription to this magazine many times over.
Okay, let’s get going. This method won’t work with stocks. By the way, Mr. Stock Trader,
what is the lowest price a stock can get to? In 1929 a lot of them got to zero ($0). There are
even a few today that reach this level! On the other hand, what is the lowest price that soybeans
ever got to? This year November soybeans reached $5.96 per bushel before they started back
up. Why didn’t the price go further down? Physical commodities have intrinsic value. The price
cannot go to zero! At least it never has in my recollection. If nothing else, government programs
set a support level that prices rarely achieve on the downside. The last time that corn got to
$2 a bushel there were a slug of advertisements in the live-off-the-land magazines (Mother
Earth News) for wood stoves that burned corn. When corn is under $2 … corn is a better “wood”
(dollar for dollar) than wood. Go gure! If you believe that commodities have intrinsic value then
let’s just pick the bottom and ride it back up! That should be simple, right? Wrong, wrong, wrong
soybean breath! Picking bottoms and tops is an exercise in futility. Well then, what do we do? I
have already told you we will have between 20-50% return and trade above 90% ACCURATE!
SOUNDS IMPOSSIBLE! You are probably asking yourself…”When is he going to tell us!” Drum
roll, please! We are going to SCALE TRADE!
Let’s set some basic rules and then spell out how we will apply them:
1.Take a 5 year weekly chart of the commodity you want to look at and divide the high
and low into 1/3 rds.
2. If price IS NOT in the lowest third (or getting ready to move into the lowest third ) of the 5 year
price range, DO NOT scale trade this commodity.
3. If the commodity that you are looking at is currently in or is entering into the lowest third
estimate the lowest price that this commodity could reach on this move down.
4. Re-estimate the lowest price but set it lower than #3 (worst case scenario).
5. Establish how much money you have to invest (not speculate) in this commodity.
6. Start in the bottom 1/3 of the last 5 year range and buy on a scale down.
7. Sell on stops as prices rise.
8. Continue looking for other opportunities and follow steps 1-8 again.

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