Let me talk about my knowledge background first. My undergraduate major is world economy, and my graduate major is finance, which has nothing to do with commodities. Therefore, friends who are interested in doing commodity research need not have any ideological burden. The knowledge about goods can be learned, and the key is your feeling about the cycle.
Let me talk about why I started to study commodities, which is bound to be a sad story. As we all know, in the long bear market of the past seven years, steel was one of the most unpopular industries. From the time I entered the business to the time I left the seller's market, the industry index dropped by 80%. As a sad reminder at that time, sellside couldn't push out the bull stocks in the industry and couldn't get the pie, so he had to do more research silently. Then I found something called rebar futures related to ferrous metals (of course, the futures of ferrous metal industry chain is the largest futures product group in China at present, from iron ore and coking coal in the upstream to coke, rebar, hot coil and even ferroalloy, etc.), and the most important thing is that shorting can make money, so I started the research road of self-barbaric growth.
Off-topic, many new analysts always feel that the industry they cover is not good. What I want to say is that how much progress you have made in any industry, how deep your opinions are, muddling along or accelerating your growth have nothing to do with the industry itself. Few analysts who have just been in the business for five or six years should be more tragic than watching steel, but this does not prevent me from laying a solid foundation for my future research during my three years in sellside. Starting from the initial dirty work, building a database, looking for new research ideas, researching, communicating and expanding your circle and contacts have nothing to do with the industry you cover. So don't use the industry as an excuse, the key is how hard you work.
Having said so much nonsense, let's get to the point and talk about my understanding of commodity research. Of course, because what I am doing now is the buyer's investment management, so I will talk about some problems from the perspective of combining research and investment, not just research.
First of all, there is no doubt that supply and demand must determine the general trend of prices. Therefore, the most fundamental thing to study commodities is to do a good job in the "supply and demand balance table" of the varieties you study.
What is the balance between supply and demand? It is the demand, supply and inventory of the variety you study in a certain period of time, and then calculate the difference between supply and demand. If this difference is positive, it is what we usually call oversupply, which we call surplus; ; If this difference is negative, that is, we usually say that the supply is in short supply, we call it a gap. According to common sense, there is downward pressure on the price of surplus varieties, and there is upward momentum on the price of varieties with gaps.
The algorithm of supply usually needs careful investigation, such as the speed and quantity of mine production, or the numerical value of sowing area and output; There are two kinds of demand algorithms: topto down and bottomto up. You can predict the demand operation of this variety from macro numerical prediction, or divide the downstream demand of this variety into several sub-industries to estimate the growth rate of each sub-industry, and finally summarize the demand of this variety. Each method has its own advantages and disadvantages. Usually, I will evaluate each method.
However, supply and demand themselves are not important. What matters is the elasticity of the supply and demand variables you measure. I will also tell a fact that absolute quantity is of little significance. Elasticity analysis: We will conduct sensitivity analysis or scenario analysis to obtain the change of the influence of marginal change on overall supply and demand.
Second, the marginal change of supply and demand is more important than surplus and gap itself. In my understanding, the factors that affect the marginal change of surplus and gap are more important, that is, the marginal change of supply and demand in a certain period is more important. Therefore, we should not only pay attention to the absolute value of surplus or gap, but also carefully study the factors that affect the changes of surplus and gap.
For commodities, the judgment of interval depends largely on cost, so whether it is raw ore or output, we all have the so-called cost curve, which is the curve of cumulative output corresponding to different production costs. When you calculate supply and demand, you should be able to find the corresponding cost price on the cost curve, which is usually an important basis for our decision.
For example, at the beginning of 20 14, we estimated that there was a surplus of about 30-40 million tons of iron ore, and the price of iron ore was under great downward pressure, so it was more expensive to short iron ore in the market.
Curve to calculate the corresponding price; However, due to the release speed of the three major mines exceeding expectations, domestic mines did not immediately stop production at the loss line. In April of 20 14, we revised our balance sheet of supply and demand and thought that the surplus of mines was about 40-50 million tons. Don't underestimate the increase of100000 tons. This marginal change is not linear with the price, and the price has not dropped by 30%.
Third, the results of supply and demand balance need to be compared with market expectations, rather than just looking at the surplus or gap. This is my deepest understanding of fundamental research, benefiting from the "expected difference" theory I learned in my first job and deeply rooted in my heart. In other words, it doesn't matter whether we see a surplus or a gap in the balance sheet itself. What matters is whether this value is higher or lower than the market expectation. Of course, this one is similar to the last one.
For example, for example, we calculate that various surpluses account for 5% of the annual output. According to the analysis framework, such surplus has direct downward pressure on the price of this variety; But what if the market's remaining expectation for this variety is 10%? Then the actual 5% may be a support for the price. Why is it possible to raise prices when there is a surplus of varieties? I think a lot depends on whether this surplus is so "surplus" compared with market expectations. The recent mineral rebound in the ferrous metal industry chain illustrates this problem well.
Fourthly, the limitations of fundamental research make the investment cycle suitable for the research cycle correspondingly longer. Unless you have enough ability to run extremely detailed research, you should be prepared for a protracted war. In the past, I talked with my peers who invested in commodities and found that a big problem was that some people used fundamental research to explain very short-term markets, such as one day or one week. This seems incredible to me, because the development of the market determined by fundamentals must be the theme line of a trend, and the development of the theme line must be slow, and it is impossible to fully confirm it in a short time. In my opinion, the commodity investment cycle corresponding to fundamental research is at least a quarter, because the results corresponding to supply and demand need to be fully developed, and there will definitely be some disturbances in the process of supply and demand development, but the final price will inevitably return to supply and demand.
At the same time, the reason why the investment period is divided into a quarter is largely because most of us can't make a very detailed balance sheet. I know some predecessors who can achieve the Zhou Du Balance Sheet by doing fundamental research. The depth and accuracy of such data have extremely high requirements for a person's logic, information and industry understanding, which is difficult to achieve. At the same time, the more detailed the data, the greater the probability of error. When I first started investing, a senior told me a sentence: "It is better to be coarse and fine, not fine and fine." However, the deeper the study, the easier it is to make the mistake of seeing the forest for the trees. At this time, we need to jump out of the detailed logical framework of goods and focus on the big picture.
Fifth, there is a very close relationship between different categories of goods, which needs to be understood from the big picture. There are many kinds of goods. According to my own research framework, commodities can be divided into three categories: the first category of precious metals, including gold, silver, platinum and palladium; The second category, industrial products, we often say hard goods (hard
Commodities), including energy products, all basic metals, ferrous metals, rubber, etc. The third category, agricultural products, we often talk about soft commodities, including oil, corn, wheat and cash crops.
All of the above comes down to "commodities". The research and trading of precious metals have traditionally been placed under macro-trade, that is, we must have a deep understanding of macro-economy in order to discover the real trend of precious metals. The research of industrial products is mainly about supply and demand, and it is necessary to analyze the changes of supply and demand. The research on agricultural products mainly focuses on the supply side, because except cash crops, the demand for agricultural products changes relatively slowly, not quickly, so the research on agricultural products mainly focuses on several aspects that have a great impact on supply, such as weather, such as unit yield, such as planting area. The macro trend is closely related to precious metals and industrial metals, and less related to agricultural products, but this is not absolute. Because there is a deep connection between commodities.
For example, I always think that crude oil is the "anchor" of all commodity pricing. What "anchor" means that the price of crude oil will affect the balance sheet of all commodities. The price of 20 14 crude oil has fallen sharply, which first affects the price of all energy sources, then affects the price of all transportation, and finally affects the price of alternative energy sources such as fuel ethanol, which is closely related to sugar. Because the price of crude oil is too low, the demand for white sugar as fuel ethanol drops sharply, which leads to the change of the balance table of supply and demand of white sugar.
Therefore, to understand the price changes of commodities from a deeper level, sometimes it is not a good thing to understand a variety too deeply. This is also the reason why many spot merchants will lose money when investing in goods.
Sixth, the macro trend determines the real trend pattern of commodities, especially industrial products, and we must think clearly about the reasons why the fundamentals of varieties deviate from the macro trend. The most magnificent commodity market has appeared twice in the past 30 years. One is the bull market of commodity prices caused by rising demand in emerging economies such as China since 2000, and the other is the sharp fluctuation of global asset prices in 2008-2009 caused by the subprime mortgage crisis. The real big market must be in harmony with the macro trend, otherwise it is a local market and can't stand the big waves. There will be a problem here. What should you do when the varieties you see deviate from the macro trend? In fact, deviation does not happen often, but once it happens, we need to be vigilant, because it will lead to investment problems.
For example, now, the trend of commodities in the past six months is actually not obvious, and most varieties are in a volatile pattern. Many varieties, such as copper, have poor fundamentals, because the sharp decline in investment growth in China has led to a corresponding decline in copper demand growth. However, at the macro level, China is now in a loose monetary policy environment, and it is expected that it will continue to be loose. Under such circumstances, it will be even more uncomfortable to simply short copper from the fundamentals. Usually, the deviation between micro or meso fundamentals and macro fundamentals will lead to the deadlock of varieties. From a fundamental point of view, we should wait until the expectations are clear.
In my opinion, there have been many such deviations recently, not just commodities, including foreign exchange, bonds, stock market and so on. Deviation is actually a precursor to big investment opportunities, because the disorderly relationship of many indicators tells us that once a certain order prevails in the future, there will be a strong trend. But only if you think clearly and live to the trend.
Finally, I want to say that fundamental research is only the first step in commodity investment. Correct analysis is only a necessary condition for making money, not a sufficient condition. It has gone through various stages from superstition to suspicion of fundamentals, and now I understand the important position of fundamentals in investment. Of course, maybe I will feel different after staying in this industry for another five years. I am very sure of the importance of research now, but it must be admitted that this is not the most critical factor for you to make money by investing. I ended this article with a quote from a partner of a large hedge fund:
"Their judgments are still based on the two basic dimensions of facts and data, but the games they participate in are carried out in the third dimension of emotions and the fourth dimension of dreams."