$FCX (Freeport-McMoRan Inc)$TECK (Teck Resources Ltd)$SLV$PAAS (Pan American Silver Corp)$GLEN.L (Glencore Plc)
NATURAL RESOURCE MARKETS AND A CONTRARIAN APPROACH TO INVESTING
Natural resource markets are extremely cyclical.
To capitalize on natural resource markets, investors need to focus on buying assets when they are depressed, during bear markets, when sentiment is low and the broader market is avoiding these assets. Once the cycle reverses, the contrarian investors stand to make significant gains. This approach requires patience, a deep understanding of the cyclicality of natural resource markets, and the ability to stay the course during market downturns when prices are low.
Natural resources like uranium, copper, oil, and agricultural products experience extreme price fluctuations. The supply-demand dynamics in these markets lead to cycles of booms and busts. A resource boom encourages producers to increase supply and consumers to seek alternatives, which eventually leads to lower prices. A resource bust discourages production and increases consumption, which ultimately leads to higher prices again.
When prices soar, producers increase output to capitalise on high prices.High prices also encourage consumers to find substitutes, reducing demand. This supply surge and demand reduction lead to a crash in prices, creating a bust.
Low prices during busts discourage production and increase demand which eventually creates the conditions for a price surge, or a boom, once again.
The boom creates opportunities for extraordinary profits in natural resource producers, as their stock prices tend to rise even more sharply than the commodity prices themselves (e.g., Freeport-McMoRan during the copper rally).
The key to making large profits in natural resource investing is to buy when prices are low, during a bear market when the assets are cheap and depressed.
This approach often means going against the crowd, which typically avoids the sector during these times.
The big profits come when the market turns, and others realise the boom has started, pushing prices higher. Investors who bought in early can then sell for significant gains.
W22P6
... Show More
