Question
As a novice investor I reacted to a very recent recommendation in Investor's Chronicle to invest in "7 Resources shares set to soar". Having put £500 in each (SNRP, NOP, IGAS, ZOX, GDP, KENZ, ANR) last week I am now not quite sure how to react to this week's decline in commodity equities.
My gut feeling is that I am in for the long term and things should recover, even if there is a big correction in commodities looming. OR at just 5% loss so far do I get out now?
Answer
Commodities investing is pretty high risk in the scheme of things so last week's setback, while painful, is not out of the norm.
Provided you're comfortable investing for 5-10 years or more I'd be inclined to stay put (in general, I haven't researched the companies you've bought shares in), as I think the long term outlook for both hard and soft commodities is good, largely thanks to growing emerging markets demand. Take a look at my articles here, here and here.
Shorter term price movements are very difficult to predict. There's little doubt that an influx of investors have driven up prices of hard commodities over the last year or two, so if some of those investors subsequently decide to sell and reinvest elsewhere (as happened last week) prices will fall. But then there's a fair chance other investors will dive in, pushing prices back up again. Plus, of course, there's the potential impact of unpredictable global events and politics.
Just bear in mind that by investing in individual companies you run operational risk (e.g. if something goes wrong with their mines or production - e.g. BP), although shares in commodity companies tend to rise by more than underlying commodity prices during the good times.
As a novice investor I reacted to a very recent recommendation in Investor's Chronicle to invest in "7 Resources shares set to soar". Having put £500 in each (SNRP, NOP, IGAS, ZOX, GDP, KENZ, ANR) last week I am now not quite sure how to react to this week's decline in commodity equities.
My gut feeling is that I am in for the long term and things should recover, even if there is a big correction in commodities looming. OR at just 5% loss so far do I get out now?
Answer
Commodities investing is pretty high risk in the scheme of things so last week's setback, while painful, is not out of the norm.
Provided you're comfortable investing for 5-10 years or more I'd be inclined to stay put (in general, I haven't researched the companies you've bought shares in), as I think the long term outlook for both hard and soft commodities is good, largely thanks to growing emerging markets demand. Take a look at my articles here, here and here.
Shorter term price movements are very difficult to predict. There's little doubt that an influx of investors have driven up prices of hard commodities over the last year or two, so if some of those investors subsequently decide to sell and reinvest elsewhere (as happened last week) prices will fall. But then there's a fair chance other investors will dive in, pushing prices back up again. Plus, of course, there's the potential impact of unpredictable global events and politics.
Just bear in mind that by investing in individual companies you run operational risk (e.g. if something goes wrong with their mines or production - e.g. BP), although shares in commodity companies tend to rise by more than underlying commodity prices during the good times.
Read this Q and A at http://www.candidmoney.com/questions/question467.aspx
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