The 10 - 20 Strategy

I had a unique commodity futures client who had a system for trading that would buy only 10 year lows or even 20 year lows.  He no longer trades commodities. The thought was that 10 year lows were LOW. 

Aside from the obvious scarcity of 10 year lows (it was definately a long-term generational strategy) we have to consider the mechanics of this trade. Starting, for convenience, in 1991, the inception date of the Bloomberg Commodity Index, commods have had roughly 5 long-term bull runs. In the same period there were maybe four bear runs. Here's the long-term chart:

BBG CI=Bloomberg Commodity Excess Return Index since 1/2/1991 inception. 

If nothing else,  for the 30 year history of the index, there are very few chances to buy at 10 year lows. The 10 year low is not available to a buyer until 2015. And then, it was a loser until 2020! Likewise, selling 10 year highs, with one major exception (2008), have been losing trades. Today's market is at the lower end of the today's 10 year range.

The 20 year range offers even fewer opportunity, which may be expected from an index with a 30 year lifetime. Until 2020 there was maybe one opportunity to buy a 20 year low. 

BBG CI=Bloomberg Commodity Excess Return Index since 1/2/1991 inception. 

The Bloomberg Energy Index shows much the same.

Energy=Bloomberg Energy Excess Return Index since 1/2/1991 inception.

There are limited opportunities to sell the 10 year high, and many, since 2009, chances to buy the 10 year lows-albiet unprofitable.  

The ag markets appear more balanced, with very limited sell opportunities. Except for recent Covid trade history, 10 year buys were limited too.

Agriculture=Bloomberg Agriculture Excess Return Index since 1/2/1991 inception.

Precious Metals, despite the more rounded charts, have actually even fewer trading opportunities at 10 year extremes.

Agriculture=Bloomberg Agriculture Excess Return Index since 1/2/1991 inception.

The 10-20 year trade is a bust. It may be an occasional wealth builder but the entries and exits are so few and far between, they are hardly worth waiting for. In hindsight, Covid has presented a rare opportunity indeed. 

Disclaimer: Posts are for education only, may be subject to change without notice, and, while prepared with care, may be subject to omissions and errors. Send request to gdrahal@gmail.com to follow this blog and for additional information. 

© 2021 George Rahal.