NOT too many Malaysians follow ice hockey; those who do know of Wayne Gretzky, a phenomenal Canadian player, who retired in 1999.
A huge part of Gretzky’s success stemmed from being better than any other ice hockey player in the world at reading the skating trajectories and puck-hitting patterns of his teammates and opponents.
Interestingly, the greatest investor of our time, Warren Buffett, pointed out eight years ago during the global financial crisis concerning stock investment naysayers, “In waiting for the comfort of good news, they are ignoring Wayne Gretzky’s advice: ‘I skate to where the puck is going to be, not where it has been’.”
Gretzky’s modus operandi can be used by investors to filter near-term statistical “noise” to help us take the long view of evolving human consumption patterns to determine where tomorrow’s investment “pucks” might be.
For instance, in 1900, 1.6 billion people lived on Earth. One hundred years later, it was more than 6.1 billion. Now, in late 2016, it is 7.4 billion, with an expected 9.6 billion in 2050 and 11 billion in 2100.
Only those with a decent level of financial literacy, coupled with internal emotional fortitude and large cash reserves, will succeed as investors. All three factors are needed for abiding investment success, but here I’m going to focus on the value of financial literacy as I link it to demographics and commodities.
FIRST, why is financial literacy vital?
In a recent newspaper article, Federation of Malaysian Consumers Association secretary-general Datuk Paul Selvaraj pointed out: “A lot of people are not managing their credit cards well. They need to know how to save, how to manage debt and how to invest and plan for retirement.”
SECOND, in any financial literacy enhancement programme, learning the building blocks of portfolio construction is crucial.
The usual blocks of a portfolio are the three core asset classes of cash, fixed income and equities. Nonetheless, savvier investors, who take time to understand and invest in two other asset classes, namely investment real estate and alts, or alternative investments, are able to beef up their long-term wealth accumulation prospects because of their low correlation to the usual driver of portfolio growth, equities.
THIRD, commodities are my favourite segment within the alts class. Other segments of alts, according to the 2016 World Wealth Report, are hedge funds, structured products, private equity, derivatives and foreign currency.
The reason commodities are my favourite is relative simplicity. Success or failure hinges on our capacity to work out the prospects for specific commodities in the decades ahead.
Using Gretzky’s advice as our guide, we will try to figure out where our long-term investment puck goes. For instance, we might use our analytical skills to figure out what the growing human population worldwide will need more of in
the next 34 years. My guess: everything.
Commodities are the stuff of life; they are real, tangible assets. We use an endless, growing array of commodities every day.
As I wrote in an earlier column some months back, in Scott Frush’s book, Commodities Demystified, he writes: “Commodities... represent the food we eat, the fuel we use to power our automobiles, the metal we utili(s)e to make (jewellery), and the lumber we use to build our homes. Without commodities our civili(s)ation would not exist today.”
I place a great premium on a person’s desire to learn about economics, business and personal finance. It is a criterion I use when I vet potential clients of my financial planning practice.
Similarly, those readers who wish to succeed in commodities investment would do well to figure out the global supply and demand estimates for the commodities that most interest them, such as oil, gold and coffee.
Once genuine interest has been aroused, the next phase would be to identify appropriate global resource funds that grant them access to this precious “stuff of life” and to invest over one, two or three decades.
Rajen Devadason is a Securities Commission-licensed financial planner, professional speaker and author. Read his free articles at www.FreeCoolArticles.com. He may be
connected with on LinkedIn at https: //www.linkedin.com/in/rajendevadason, Twitter@RajenDevadason and rajen@RajenDevadason.com.