I Don’t View Commodities As Investments
October 11, 2009 – 5:39 pmPerhaps it’s merely an issue of definitions, but I don’t consider commodities an investment. Gold, silver, oil, corn, or art for that matter are grouped together in my mind as non-investments. In my mind an item is an investment if it produces cash flow, even if it’s at some point in the future. After all, growth in an investment like a stock comes from a variety of sources but ultimately will reflect the growth of earnings (potential cash flows).
Although I’m sure many will disagree, I don’t consider my home an investment. It may go up in value due to inflation, all other homes somehow get destroyed, or people just want to pay me more for it. However, it’s not an investment in my mind. It simply appreciated, but it didn’t produce any cash flow.
Likewise with gold and oil, I’m not against someone “investing” in those items. You may even make a ton of money doing it. You’ll just be speculating the the price is going to go up, and if you’re right you’ll glad you did. In and of itself gold, oil, and art have no intrinsic value beyond what others are willing to pay. They don’t produce earnings, so you’re left only with (potential) appreciation.
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One Response to “I Don’t View Commodities As Investments”
So, by your definition what is an “investment”? Have you excluded blue chips like General Motors, because you’re speculating management won’t run the enterprise into the ground? Or any other equity you are trying to buy lower than you intend to sell it for? That leaves fixed income stuff, which doesn’t strike me as investing so much as savings. It’s a puzzler.
I’m not a commodities guy, though I covered those markets at The Wall Street Journal years ago. And I agree with you about homes not being investments either. I think of them as use assets – something you get immediate good out of, and maybe sell later without taking a loss.
Keep writing, I always enjoy reading.
By Gene at www.kitchentablenomics.com on Oct 11, 2009