Everyone is getting into commodities these days. At the lunch table, I hear people discussing about oil, gas, copper, uranium, gold and silver and how they are making a killing on some obscure outfit that is prospecting for natural gas. If you are planning to invest in commodities or even if you are not, check out Bill Miller’s recent market commentary. Mr. Miller cautions that emerging markets and commodities could fall:
Investing is all about probabilities, and just because there appears to be a strong consensus prices are going to keep going up, doesn’t mean that is wrong, or right. The consensus does tend to be wrong at the turning points, being invariably bullish at the top and bearish at the bottom. Remember all the advice to go to cash AFTER the 1987 Crash, since it was clear a depression would follow. Or how “risky” the high yield bond market was in the summer of 2002 AFTER the Enron and Worldcom collapses led to record spreads? I can’t help but be skeptical of the advice to start or increase a position in commodities AFTER the biggest bull move in 50 years.
So, what does Mr. Miller like now? He thinks that US equities and more specifically large caps are particularly attractive.
Today people want commodities, emerging market, non US assets, and small and midcap stocks. Those were all cheap 5 years ago and had you bought them then you would be sitting on enormous gains. But 5 or 6 years ago, everyone wanted tech and internet and telecom stocks, and venture capital and US mega caps. The time to buy them was in 1994 or 1995, when they were cheap. But in 1994 or 1995, people wanted banks and small and mid caps, which should have been bought in 1990, and well, you get the picture.
In other words, don’t chase performance and buy low and sell high. Mr. Miller concludes his commentary by saying:
Given the choice of buying Commodities with a capital C, or buying capital C—Citigroup—at current prices, I’ll take the latter. Check back in 5 years.
