Why commodities are still the best major investment class

One of this year's best selling investment books picks up on Jim Rogers' theme. Mark Shipman's 'The Next Big Investment Boom: learn the secrets of investing from a master and how to profit from commodities' is much lighter on analysis but the conclusions are pretty unchanged.

The basic case for commodities is simple. China and India are rising inexorably as consumers of commodities on a scale not seen before in the history of man. Hence demand is rising.

Meantime, the supply of commodities from oil to metals and foodstuffs is limited by the amount of time taken to create new production. Hence, tighter supply. Rising demand plus tighter supply equals rising prices.

Having established that commodity prices are on an upward track - and are incidentally both causes and protection against inflation - then all an investor needs to do it to choose the appropriate investment vehicle and sit back.

For commodities the choice is pretty straightforward: futures contracts for the delivery of physical products; spread betting on prices, a proxy for futures; commodity indexes; and companies that produce commodities.

Here Mr. Shipman favors spread betting - primarily as a way for UK investors to avoid taxation on capital gains - though he also has a lot of time for commodity indexes as does Jim Rogers, having established his own very successful index. Both authors were a little wary of shares in commodity producers because of the exposure to the vagaries of management and locality.

If you accept that global equities are in a bear market, and have been since 2000; and that real estate looks close, or just past its bull market peak, then commodities look a logical place to invest. Moreover, previous commodities cycles have lasted 14-22 years on average and the current up-cycle can be no more than five to six years old.

Mr. Shipman argues that too many investors worry about investing at the absolute bottom of the cycle, and suggests that the best gains are usually to come in any case in the third phase or boom part of the up-cycle. Indeed, he thinks one reason to believe that the cycle has much further to go is that doubts remain - which is not evident in the later euphoric stage.

He is also unconcerned about trying to guess how high the price of oil, gold, iron or soya will go. His maxim is to wait until prices begin to fall back by a significant amount and then sell, and not to spend too much time sweating on prices on the way up, just watch them very carefully for when they trend down.