An investment opportunity contrarian investors dream about

by , 25 March 2019
An investment opportunity contrarian investors dream about
You may or may not have heard of Jim Rogers, but he's one of the world's most successful investors.

In the 1970s, Jim Rogers' Quantum Fund delivered a 4,000%-plus return to investors, while the S&P 500 gained just 42%.

This incredible success early in his career enabled Rogers to retire at the age of 37!

But this isn't the reason why I bring up Jim Rogers today.

It all has to do with the commodity crisis from 1990 to 1998. This is when the commodities market collapsed and prices rapidly approached a 20-year low - which was equal to Great Depression levels.

Because of this, one of the world's largest investment banks Merrill Lynch, decided to quit the commodity trading business.

They simply weren't making money.

This is where the legendary Jim Rogers comes in…

Instead of following the institutional investors and fleeing, Jim Rogers saw this as a perfect opportunity and made the ultimate contrarian bet…

In 1998, he started the Rogers International Commodity Index. From 1998 to 2008, this index soared 500%!

So why am I telling you this?

Well today, a similar situation is going on. And it could be the kind of investment opportunity contrarian investors dream about.

Let me explain…
 
 
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Another major investment bank gives up on commodities
 
Investment bank, Goldman Sachs is giving up on commodities.
 
Commodity prices have lost two-thirds of their value since their peak in 2008. And Goldman Sachs have decided there's no money to be made in the commodities business. 
 
In February 2019, Goldman Sachs said, “The business uses too much capital for too little profit”.
 
It's a major shift from one of the world's most powerful investment banks. And this decision tells us that the market sentiment towards commodities today is terrible.
 
Despite the negative perception, Rogers believes, “…it’s the time to buy commodities again. I would say to you, write it down — commodities are going to do better than stocks.”
 
This is setting up a huge opportunity to make money.
 
Just remember, when Merrill Lynch closed down its commodity business in the late '90s after years of underperformance, the company almost perfectly nailed the bottom in commodities. The decade that followed proved to be one of the best ever for commodity prices.
 
Now, Goldman Sachs is doing the same thing. And that makes a long-term commodity bull market, a real possibility.
 
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Commodity prices have kicked off 2019 with a bang
 
Commodities like platinum, palladium, silver, gold, iron ore and copper have all seen price increases this year. And with uncertainties like trade wars, Brexit, the Brazilian tailings dam disaster, etc, prices could rise further.
 
So how can you take advantage?
 
Well, you could invest in ETFs that track commodity prices, but hedging your bet on prices alone can be quite risky.
 
Instead, you could invest in commodity producers that could make you even bigger returns.
 
One of my favourite ways to play this commodity boom, is through one diversified JSE listed mining company.
 
It’s a company that produces and sells copper, platinum, coal, iron and manganese ore. 75% of its profits come from iron and manganese ore.
 
Thanks to higher prices, the company recorded double-digit profit growth in its latest half year results. But with the way commodity prices are soaring, the company could generate even better profits in its full year results.
 
In addition, as the company sells commodities in dollars, a weakening rand will elevate its profits even higher and also generate the company a lot of cash flow. And higher cash flow means higher dividends.
 
In fact, if you invest in this company before 2 April, you’ll be eligible to receive a net interim dividend of 320c per share, which will be paid on 8 April. So you have to hurry if you want to take advantage of the coming commodity boom.
 
See you next week,
Josh Benton,
Managing Editor, Real Wealth
 


An investment opportunity contrarian investors dream about
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