Over the past few months, I talked about several agricultural investments: agribusiness, sugar, cotton, cocoa, etc.
Investors hate the basic, fundamental stuff right now.
They want Uber and Google, not cotton and wheat. They want Apple, not apples. Food is boring.
Now that sentiment has hit an unusual extreme.
The mood is so ugly that a SentimenTrader.com indicator wants us to make an all-in bet right now.
A Rare Signal
You can see below how the Elements Agriculture Total Return ETN (NYSE: RJA) performed over the last five years:
This exchange-traded note shows the performance of the Rogers International Commodity Index (RICI), which holds a basket of agricultural commodities. The breakdown is below:
(Source: The RICI Handbook)
The SentimenTrader Ag Risk indicator doesn’t tell us that there will be a huge rally in agriculture. (Although that happens sometimes.)
What it tells us is that the risk in ag commodities is low. It’s so low that the indicator suggested that we commit 90% of our cash to this sector.
In other words, if you have $10,000 set aside, the indicator says you should put $9,000 in the market. That is an extremely high commitment.
That level of investment rarely happens. We only saw it happen one other time since 2011.
Earlier this year, in June, the indicator said the same thing. The value of RJA jumped 7% in a month after that.
However, it gave back those gains since. Now it is at its lowest point since March 2016.
How We Win at Investing
The indicator does not promise us huge gains. It points us to an area of low risk and high potential gain.
That’s the key to making money … not just in commodities, but anywhere.
The key is waiting until the risk is low and the reward is high. That’s what we have in ag today.
We know that this stuff is valuable. We all must eat to live. So we are willing to risk a small loss for a giant, triple-digit gain.
That’s how we win at investing.
Good investing,
Matt Badiali
Editor, Real Wealth Strategist
