Raw materials are omnipresent
It is about "commodities", "materials", "hard assets" and "tangible things" that play a very important role not only in your life, but in the life of every person in the world. When you go to the supermarket or shopping center, you find yourself between all kinds of raw materials that are traded around the world. In your car or truck, you are also surrounded by brisk raw materials. Without the futures markets, where raw material prices are determined and regulated, things that we all need to live would be rare and often too expensive. These essential things include oil, natural gas, wheat, corn, cotton, soybeans, aluminum, copper, silver, gold, cattle, pigs, pork bellies, sugar, coffee, cocoa, rice, wool, rubber, lumber, and the 80 or so other things that are listed in the trader's bible - in the Commodity Research Yearbook.
Commodities are so ubiquitous that I don't think you can successfully invest in stocks, bonds, or forex if you don't understand the commodity markets. You have to understand them, even if you just want to invest in stocks and bonds. Commodities belong in every really well-diversified depot. With a commodity investment you can hedge against a bear market, galloping inflation and even a severe economic crisis. Commodities are not the "risky business" they are often referred to as. I believe that commodity investments will offer tremendous opportunities over the next ten years. For most investors, commodities trading is a mysterious land full of fabulous dragons.
Learn more about raw materials
Many intelligent and well-informed people do not know anything about raw materials. To do this, they know the P / E ratios of large and small stocks, study the balance sheets of high-tech and biotech companies, of semiconductor manufacturers and small banks in the southern states. These self-proclaimed “seasoned investors” track bond prices and yields more closely than baseball results and may even have an eye on the euro, the yen, the dollar and the Swiss franc. If they do know something, it is mostly second- or third-hand information that they have misunderstood and that usually includes a warning story about a brother-in-law who lost his shirt in soybean speculation. If an investor shrinks from commodities, he misses out on incredible opportunities - similar to Americans who never travel abroad because they don't know the language or customs there and fear that they will be humiliated or deceived as a result.
You cannot ignore an entire market sector - at least not if you really want to be considered an “intelligent investor”. If you have a friend who is heavily involved in the stock market and who never even thought of buying a technology stock in the 90s, who didn't notice what was going on in the world of Microsoft, Cisco, Amazon, eBay and even IBM was going on, you will surely find its behavior strange. And yet most investors in the commodities sector have behaved in exactly the same way. One reason for the positive development of companies and stocks in the 80s and 90s was that raw materials were in a bear market: low raw material prices took all pressure on costs and margins off those companies that need raw materials for their operations.
When does the bubble burst?
Anyone who believed that the commodity bear market would end in the late 90s also saw the end of the bull market in stocks. The commentators on CNBC were smiling and advising to buy more dot-com stocks - while the smart investors left the market and turned to commodities. You could see that rising costs would soon weigh on profits - and that stock prices would follow profits. We're not talking about trifles here. The raw materials market is the largest market in the world - apart from the securities trading centers. The annual production of the 35 most actively traded commodities, the prices of which are recorded daily in New York, Chicago, Kansas City, London, Paris and Tokyo, is worth $ 2,2 trillion.
The volume of money traded on the commodity exchanges is several times higher than on all stock markets in the USA. (The sales of the over-the-counter commodities trading are again many times higher than the sales on the commodity exchanges.) And wherever there is a market, you can also make profits. I know your daily business pages, financial magazines, and CNBC are mostly devoted to the stock market. If you believe the media and other stock market "experts", then the stock bull has always been hiding around the next corner. But the millions of investors who listened to the experts' chatter about the new economy from 1998 to 2000 have suffered huge losses on stocks and are still struggling to get their money back. The shrewd investor seeks ways to buy something of value cheaply, always keeping an eye out for dynamic change ahead that could make that investment even more valuable. Today both of these apply to raw materials. The bear market ended in 1998 as prices neared their 20-year lows (which, adjusted for inflation, were in line with prices during the Great Depression).
What does the stock market have to do with philosophy?
Philosophy, Politics and Economics (PPE) as a degree was conceived in Oxford in the 1920s, particularly at Balliol College. This combination was intended as an alternative to the classic subjects and to prepare those who, as British officials, were to administer the Empire. Of course, the British didn't realize at the time that the Empire was already on its last legs. Today I know enough about college education to wonder if sending out many pompous PPE graduates might even have accelerated the decline of the Empire. The United Kingdom was the richest and most powerful country in the world in 1918. If you looked at the world map, you saw only red. The Empire was everywhere. Global trade flourished in the 19th century; there was the integration of the world's economies, which opened up everywhere - mainly to the advantage of the maritime power of Great Britain. It was an exciting time from an economic, social and artistic point of view.
But all empires end up taking over and spending too much money. In 1918 the British Empire was already corroding from within. The blood and money that the Boer War had cost sparked the same international turmoil that a century later sparked by the incompetent politicians of a subsequent empire - the United States. The Americans arbitrarily wasted lives and resources on pointless ventures in Vietnam and Iraq; they overused the nation in every way: militarily, geopolitically, and economically - not to mention the moral aspect.
How do you become a successful investor?
My hometown Demopolis is in the middle of Alabama, where the Black Warrior River meets the Tombigbee River. It is the largest city in Marengo County and is located in the middle of a region that includes parts of Alabama, Georgia and Mississippi and is historically known as the Black Belt. It is called that because it has rich and fertile arable land that has supported the growth of huge cotton plantations for 200 years. Some of them survived the abolition of slavery, but none survived the weevil that killed the seed pods of plants.
When I was a little boy, my friends and I dug this earth for bait, and then we spent the rest of the day fishing. Catfish are omnivores and bite almost anything they can smell. You can smell almost anything too, and on a hot summer day, worms are easier to find than crickets. I was about eight years old and we were digging for worms in the garden of our house. Then my cousin Wade, about ten months older than me, made a remark that I couldn't do anything with at the time, but that sticks in my mind to this day as if it were yesterday. "If we continue digging, we'll get to China at some point." I already knew then that the earth was a sphere, but it wasn't until I had a globe available - I was an avid researcher even then - I was able to really appreciate the fact that directly across from Alabama, on the other side of the planet, was the vast land mass of the People's Republic. Covered in dirt and sweat, I would actually come out there again if I only had the energy to keep digging.
The rise of Asia
Decades have passed since then, my life has not been quite as straightforward, but today I actually live on the threshold of China. And I have two little daughters with blue eyes and blond hair who are as fluent in Mandarin as they are in English. How did I come to live in Singapore today? This, too, has something to do with digging, albeit in a different way; not quite as laborious, but not with less energy. It is the result of my tireless efforts to experience firsthand how the world works, to determine the real connections - and only for myself. I have traveled around the world twice; once on a motorcycle, once in a car. I've studied them from the ground up, recording changing circumstances in more than 100 countries over those five years. From my point of view, the story and its consequences cannot be understood from an armchair. You have to research the source. For me this has proven very rewarding; both personally and materially. And it had to happen that I ended up here. Far away from rural Alabama, instead in the largely Chinese-influenced outpost at the southern end of the Malay Peninsula. If history confirms anything, it is the opinion of the ancient Greeks that the only constant thing is change. The spiritual father of this thought was the philosopher Heraclitus, who declared in the 6th century BC that it was impossible to step into the same river twice. Success in life is measured by the ability to anticipate change. My move to Singapore was in response to my realization that the world was in the midst of a historic turning point, a dramatic change in framework conditions, marked by a gradual loss of American leadership and on the other hand the rise of Asia.
I am writing this amid a global financial crisis. Most politicians assure you that this crisis is a temporary phenomenon. We are told that things will get better. I don't want to deal with that at all. It is my responsibility to tell you that it is unlikely that things will change for the better in the long run. The incredible debt burdens in many countries will massively change the way we all live and work. Many old institutions, traditions, political parties, governments, cultures and even nations will go into decline, even collapse or simply disappear - as has always been the case in times of political and economic upheaval. For example, the investment bank Bear Stearns had existed for decades when it went down in 2008. The financial services firm Lehman Brothers, which collapsed that year, had been in business for more than 150 years. The collapse of these long-established, global corporations is an example of the changed conditions faced by many American institutions. Harvard, Princeton, and Stanford may not know yet, but they could be on the way to bankruptcy. Museums, clinics, and other institutions that we know and love are facing problems, and we will see many of them disappear during the financial or economic upheaval that is ahead. Some have called me an alarmist, a kind of modern Kassandra. But none of what I forecast for the future has to be a cause for panic or even come as a surprise. The wind of change is blowing, it is blowing from China, and it is doing so in a predictable way. We don't experience anything unusual; the story only turns to a familiar page. And throughout human history, such situations of transition have created opportunities for observant people. So I'm extremely optimistic about many future developments.
Crises and transitions
At the beginning of the 19th century, smart people went to London. A hundred years later, the smart people moved to New York. And if you're smart at the dawn of the 21st century, head to Asia. In another hundred years, the cycle of change may lure people to any other place. At the end of the first millennium, all those wise people went to Cordoba, the prime of Islamic Spain, at that time the intellectual center and the most populous city in the world. I moved to Asia in 2007, and more importantly, I moved there with my children. In your life, knowledge of Asia will be essential for success. And speaking Mandarin will prove as important around the world as being able to speak fluent English is today. In the 1920s and 1930s, power and influence in the world shifted from Britain to the United States. The loss of British leadership was compounded by a financial crisis and political mismanagement - which many people didn't realize until 20 or 30 years later. Now power and influence are moving from the United States to Asia, the loss of American leadership is being accelerated by the same forces, and these changes, too, go unnoticed by most of the people. The transition towards Asia coincides with a second historical shift. In the face of a financial crash, the world is on the verge of transition, away from finance, a cyclical shift away from financial corporations as the source of wealth. Throughout human history, there have been phases in which the financiers have had the upper hand and others in which this role has been played by the producers of real goods: farmers, miners, energy suppliers or woodcutters. In the 1950s, 1960s and 1970s, before the big bull market, there was little going on on Wall Street and in the City of London. That will happen again. The Geldschefflers are experiencing a decline, and the "woodcutters and water carriers" will now inherit the earth, as it is already written in the Book of Joshua.
I have examined the historical forces responsible for the changes described. And because I lean towards the simple hypothesis that nothing lasts forever, I agree with the remark of another great thinker, Albert Einstein, who stated, “Only two things are infinite: the universe and human stupidity. As for the universe, I'm not so sure. ”One thing we must not forget: Kassandra, the Trojan princess who got on everyone's nerves because she warned against bringing the Greek wooden horse into the city, has got herself at least one thing impressed on people's minds: She was right. One of the aims of this book is to explore how we got to where we are now and how we can prepare for the future. I'm going to share with you some of what I've learned from a life in finance, as an investor, and as an adventurer; Lessons I learned in my youth and on the streets that took me from the Black Belt to the other side of the globe in this city-state in Southeast Asia. A lifelong journey during which I got to know the whole world.
The adventure in the markets
My adventure in the markets began in the spring of 1964. I was just finishing my senior year at Yale and then got to Wall Street pretty much the same way I got to this elite university: I stumbled into it.
In high school, I was an avid member of the Key Club, a student-run service organization and part of Kiwanis International. Until 1976 only boys were allowed to become members there. Becoming a member of the Demopolis Key Club was something of a big deal, as the local sponsor had decided to only accept five new guys a year. The year I was chairman, the Demopolis club won the World's Best Small Town Key Club award. At that time, Yale University gave a four-year scholarship to a member of the Key Club International every year. It was through that scholarship that I heard about Yale. Without the Key Club, I would never have applied. I was absolutely certain that I was going to the only school I applied to besides Yale: the University of the South in Sewanee, Tennessee. The focus there was on the humanities and there was a close connection to the Episcopal Church. I was accepted into Sewanee shortly after submitting my application. It wasn't until April or May, long after my father sent Sewanee the mandatory $ 50 enrollment fee, that I received a thick envelope from Yale. It said I had been accepted and received the Key Club Scholarship of $ 2000 a year. I was amazed. I was 17 then and knew little about Yale other than that the university was based in New Haven, Connecticut. My parents knew enough, however, to appreciate the importance of my acceptance into Yale. Both were college graduates. They had met at the University of Oklahoma, where they were both members of the Association of Excellent Academics. My father studied petroleum engineering, my mother the humanities. It was a tremendous thing for them that I was going to study at Yale. I still remember mine
Father said, "I'm a little worried that we're going to have to hand you over to this bastion of liberalism in the north." But in reality, he and my mother were delighted. My father's joy was later dampened a bit because he was not refunded the $ 50 he sent to Sewanee. In 1960 in Demopolis, $ 50 was a lot of money. It's still a lot of money today, but then its value was about five times what it is today. I was the oldest of five brothers and one of fewer than 50 students from my high school year. Soon I showed them all the exaggerated Sense for my own importance, although in the end I was just lucky. I did Big Max right away, but my bloated self-esteem was only meant to be short-lived. It soon dawned on me: Oh no, now I have to go to Yale. And suddenly I got scared because I knew I was overwhelmed. What will i do now On my way to Boston for the Key Club National Convention that summer, I got off the train in New Haven and went to the admissions office in Yale. I wanted to know why I was accepted. I hoped by asking this question I would get some idea of what to expect and what these people expected of me. The head of the admissions office looked up my file and asked, “What do you mean? You did best in your class. In some subjects you got full marks. Even your average was close to full marks. ”Yes, but that was in Demopolis. My God, I thought, these people think I am intelligent and believe that I know something.
The competition at the university
I felt completely unprepared to compete with graduates from prestigious preparatory schools in the Northeast. So I drove to Yale a little earlier and was willing to study harder than anyone else. Then, as I can remember, there was an exam and one of my classmates said he was going to study for five hours to prepare for it. "This exam is worth five hours of study," he said. I found his argument very strange. My method was to study until I mastered the subject, and then a little more to be on the safe side. That was my method in all areas; my brothers and I inherited this discipline from our parents. There is no such thing as "enough". You just keep learning, working or researching; no matter what the task is. I wish I could apply this trait to my children today. I wish I could call my parents and ask, "What pill did you give us?" Call it discipline, call it diligence or work ethic - we all have them, my brothers and I. I don't know where that came from. I wish I could identify the gene for it. I'm sure not the only one who appreciates the value of perseverance. We all know smart people who are unsuccessful; we all know talented people who are unsuccessful. Persistence makes all the difference.
The cost of tuition, board and lodging at Yale was $ 2300 a year at the time. So with my $ 2000 scholarship, I was missing $ 300 from the start - plus the cost of books and other expenses. So I worked a few hours a week as a temporary worker in the dining room and took other part-time jobs at the university whenever I was there. Work experience in youth offers quantifiable benefits. Not only does it teach the value of money, but it also helps you develop your own identity. When you learn to manage your own finances, you gain a tangible level of autonomy. I was financing my own car early in life, long before I came to Yale. When I was six years old, my father taught me that "money doesn't grow on trees" and insisted that I pay for my baseball glove myself.
The best prognosis for a happy life
I went to Braswell Hardware in Demopolis and picked out a glove that was $ 4. I took it home and every Saturday I stuttered 15 cents from the shopkeeper, Cruse Braswell, until the purchase price was paid in full. Years later, the dean of a business school quoted a university study and told me the best predictive factor for a happy adult life is a paid job in adolescence. All in all, I had a great time at Yale. I chose history as my major and was the helmsman of the rowing team for the first two years of my studies (not for the last year). I even got into acting a little and had a few leading roles. One of these performances was directed by John Badham, who graduated in 1961. Can you imagine what a success his film Saturday Night Fever would have been had he remembered me and given me the lead? But as much as I liked it, I didn't get into it too intensely; for the same reason I was no longer a helmsman in my final year of study. I preferred to spend the time studying. And this discipline paid off. I wasn't as smart as everyone else, but I graduated cum laude. And like so many other college graduates, I had no idea what to do next.
My applications were accepted by Harvard School of Economics and Harvard Law Schools and Yale Law Schools, but it could have been medical school too, I was so excited to be able to choose between them all. What I really wanted was to travel. As a boy I had read Dickens' Pickwick Papers with enthusiasm. The pickwick club gentlemen and their strange adventures may have played a role in developing my wanderlust. Even then, at the age of 21, I knew that simply moving around - in my case from rural Alabama to a famous and respected college 1000 miles from home - was an important part of my education. That opened my eyes and I learned a lot from it. "And what do those who only know England know about England?" Wrote Rudyard Kipling in "The English Flag."
From Yale to investment
I always had the feeling that a lot of people at Yale didn't really fit in because they had traveled a lot. It has always been my passion to know and see more of the world. A few years earlier I had told my girlfriend at the time, Janet Corley, about this longing. "I'm 16 years old," I complained, "and I've really been nowhere." The worldly experienced Janet showed me her sympathy: "I'm 16 and have been to many places," she said. “I've been to Birmingham, Mobile, Montgomery, Tuscaloosa…” To broaden my horizons, I applied for various overseas scholarships. By the time people came on campus looking for graduates for their companies, I already had a Yale scholarship to study philosophy, politics, and economics at Balliol College, Oxford. This was my chance to go abroad, and it had the added benefit of having two more years to decide what to do with my life. (And secretly I had the fantasy of taking part as a helmsman in the legendary boat regatta between Oxford and Cambridge.) I was already very eager to leave. Now all I needed was a job for the summer.
Dominick & Dominick Inc., one of the oldest private investment firms in the USA, was looking for new employees at Yale. It was one of several companies that I set up interviews with on campus. I didn't have much success at the other companies, but I got on really well with Joe Caccioti from Dominick & Dominick. He'd grown up on the streets of the Bronx and somehow made it to Harvard; I'd grown up in the remotest province of Alabama and somehow made it to Yale. We seemed to have a lot in common - with one major exception: Dominick & Dominick were looking for full-time employees. "I can't get a full-time job with you," I told him. "But I'd love to work for you in the summer." Dominick & Dominick, founded in 1870 and one of the senior members of the New York Stock Exchange, didn't usually turn up at Yale every spring to look for temporary workers for the summer search. For some reason - probably at Joe's insistence - the company made an exception in my case, and in the summer of 1964 I started working on Wall Street.
Departure to Oxford
When I left for Oxford that fall, I knew exactly what I wanted to do for the rest of my life. Before I went there, all I knew about Wall Street was that it was somewhere in New York and that something bad had happened there in 1929. I didn't know there was a difference between stocks and bonds, much less what that difference was. I had no clue about currencies or commodities. I doubt I knew then that the price of copper went up and down in those markets.
That first summer at Dominick & Dominick, I worked in the research department answering telegraphic questions from brokers: Does General Motors pay a dividend, and if so, how much? I blossomed digging information. I also worked in the trading room, where the company acted as a market maker for various stocks that weren't listed on the New York Stock Exchange. This was OTC trading in the time when NASDAQ did not yet exist. I learned a lot about how transaction-based markets really work. Once the executive board member asked me where I went to school. I replied that I had been to Yale. He said, "Well, we don't want too many red-bellies and tiger cubs here." By that he meant the Harvard and Princeton graduates. When I met him, I took the opportunity to ask whether I should study economics. He said, “They won't teach you anything useful there. Come here, sell soybeans empty, just once, and you will learn a lot more about the markets than if you waste two years studying. "
Working on WallStreet
It was an exciting summer. I saw the world in a way I had never seen before. Suddenly my studies of history and current events were more than theoretical exercises - they were of practical value. My passion for getting to know the world now had a purpose. As a history student, I found it fascinating to learn how markets were affected by global events. Most importantly, for the first time in my life I really realized the predictable ways in which global events were influenced by the markets. I realized that everything was connected. I learned that a revolution in Chile affected the price of copper; hence the prices of electricity and houses - all prices around the world. It affected everyone, even homeowners in Toledo. I also learned that if you were able to predict a revolution in Chile, you could afford a pretty good life. That summer I discovered my future. Indeed, on Wall Street I was paid to indulge my passion for research.
And I would be paid a lot if I did it right. On Wall Street, I was rewarded for doing what I love to do. It was the first of two summers with Dominick & Dominick, and I knew immediately that after my stay at Oxford I would be studying law. I wouldn't go to business school. And I would go back to work on Wall Street as soon as possible.
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