When we make an equity investment, we are expecting to capture some of the value that the company creates by utilizing its assets in the market place. At the end of the day, this number is captured in GDP growth, which I believe is pretty close to the long term excess return on stocks. This makes sense, because the companies are worth more than the sum of their parts over time, and this value accrues to the investors.
However, commodities are an investment in a physical item - while the price may change based on supply and demand and expectations, a barrel of oil doesn't create any new value (unlike a company, which does). Therefore, does it make sense to invest in a commodities fund (such as PCRDX/PCRIX or DJP) over the long term? You may take some profits along the way, but these profits are not due to true economic value creation, just fluctuations in prices.
I am wondering if commodities are more like the currency markets, where individual traders can make speculative profits but the total system is a zero sum game. Contrast this to the equity markets, which is not a zero sum game.
If an investor is looking for inflation protection, maybe it's better to stick with TIPS or other inflation-linked bonds?
However, commodities are an investment in a physical item - while the price may change based on supply and demand and expectations, a barrel of oil doesn't create any new value (unlike a company, which does). Therefore, does it make sense to invest in a commodities fund (such as PCRDX/PCRIX or DJP) over the long term? You may take some profits along the way, but these profits are not due to true economic value creation, just fluctuations in prices.
I am wondering if commodities are more like the currency markets, where individual traders can make speculative profits but the total system is a zero sum game. Contrast this to the equity markets, which is not a zero sum game.
If an investor is looking for inflation protection, maybe it's better to stick with TIPS or other inflation-linked bonds?