Why

Start with why. So says Simon Sinek, author of the book of the same name.

Why then should you read Materials Risk?

Well lets take a step back.

According to the investor Marc Faber investment manias are an essential part of the capitalist system. Without them we miss out on the potential upsides that can also have long lasting benefits for society and our economies. In the nineteenth century, for example, the canal and railroad booms in North America and Europe led to far lower transportation costs, from which our economies have greatly benefited ever since.

“My view is that capital spending booms like these, which inevitably lead to minor or major investment manias, are a necessary and integral part of the capitalistic system. They drive progress and development, lower production costs, and increase productivity, even if there is inevitably some pain in the bust that follows every boom.”

According to Faber the risk for investors, industries, economies and individual communities and families is, however, that the boom turns from a “real world” bubble that is relatively contained within a certain industry or region into a financial bubble. And here the impact can be much greater.

“…whereas every bubble will create some “white elephant” investments – investments that don’t make any economic sense under any circumstances – in financial economies’ bubbles, the quantity and aggregate size of “white elephant” investments is of such a colossal magnitude that the economic benefits arising from every investment boom can be more than offset by the money and wealth destruction that arise during the bust.”

The term “white elephants” is defined as “a burdensome possession; creating more trouble than it’s worth.” In the commodity world, they could equally be defined as holes in the ground, packed full of investors’ money, never to be seen again; grand projects built on a tower of sand that may have looked like the perfect thing to do at the time, but alas are now a burden.

Although I have some sympathy for Marc Faber’s argument that investment manias are an integral part of capitalism, I would prefer my money is not on the line when an investment turns sour. In writing my thoughts on this blog and publishing my books, I hope it is not your money either.

As an investor, you may not be totally dependent on the outlook for commodity prices. However, for many individuals, communities, and even whole countries their futures may turn decidedly bleak if commodity markets turn against them. And here misguided, short-sighted decisions by governments can make things much worse.

Empowering people to challenge consensus opinion and make better investment and business decisions. That’s why.

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