wake up to yourselves, page-47

The longer term investors need to consider where commodity prices are at the point where they invest.

For example, it is common knowledge that the worst time to invest in any oil stock is when oil prices are at or near 52-week highs. Oil is very cyclical. It's OK to hold a longer term oil investment because you can be sure prices will once again rise back to their highs.

With respect to rare earths, the 2010/early 2011 REO basket prices were 5 to 10 times above their cyclical lows. Since PPS is proportional to P/E and P/E is proportional to net revenue, and since net revenue changes in relation to REO prices, investing at the top of a REO cycle is far more dangerous to your money than investing at the top of a cyclical oil price high.

So the moral is you have to look at the long term cycle of thet commodity you are invested in when you pick an entry point and make a decision as to whether it is a short term or long term position.

Right now REOs have fallen very far from their highs and so an entry point now has much less downside risk and better upside risk in the next 2 or 3 years, purely based on the history of basket prices. The most dangerous point to invest for a longer term position was last December when prices had just finished peaking and predictions were out that REO basket prices were going to fall for some time.