Last night I picked up a book written in 2006, looking for a history on the commodity. What I found was the book “Global Perspectives on Investment Management: Learning from the Leaders.” The book covers many topics, including ethics, private clients’ optimization, dynamic policy portfolio mix, CDO market and low PE investing, etc.
While the article on the credit market also looked impressive, the section on emerging market (of course, it was super bullish) was intriguing. Not only many points that were identified proved not to be right (crude demand in Asia to 40m bbl/day – it is now 30m bbl/day), what was striking was how persistent the downward trend of commodity price was in the late 00s.
It has been a 30-year straight downward trend from 1970. I also double-checked it through the GSCI commodity index chart and IMF global CPI-based inflation data back to 1970. What I can tell is that the inflation-adjusted commodity price has a flat trend, and the last ten years were out of one standard deviation. I attached three charts for your info.
I then just got wondered how the financials of energy companies have been during that period. Looked at Exxon and from 1980 to 2000, annual net income was $5bn on average, while since 2000, it has been around $20-25bn.
So that tells something about the current market – trying to figure out what the right expectation should be although ten years ago we did not have a clue and now we still do not have it. My question is – why do people (herd in the market) try to forecast what they know they are not able to do?
I would just do not touch that mystery box. It has been said many times, but people tend to believe that they can do what they cannot do. That adventurous spirit is (I think) why human being has been successful in exploring new opportunities – finding a new continent, landing on the moon, and flying in the air.
It is beneficial for those activities that can move our society forward, but as far as investing is concerned, that just increases “swings” and leaves both a substantial profit and a massive loss. You do not need to take your bat and swing if you are not convinced – as long as you remember what you can learn from the past.