No. of Recommendations: 11
Back in the 1970's there was so much inflation commodities made more sense than stocks as an investment. At the time I didn't have a whole lot of money but I managed to pull together $2500 and a friend threw in another $2500 and we formed a partnership and opened a commodity account.

So we made a little in the beans, then we lost a little in bellies, we were sort of chugging along when we started buying the Maine Potatoe contracts at around, 11 cents a pound or something.

Spuds started going up and up and we let it ride and pretty soon potatoes were at 18 cents a pound and our $5,000 had grown to $18,000. The USDA report was due out the next day and "experts" were predicting the smallest crop since 1950. At the same time, the chart was giving a "sell" signal.

So, next day the crop report comes out and when I saw it I thought it had one too many zeros! It wasn't the smallest crop since 1950; it was the smallest crop since last year.

For those of you who don't know, it is possible to lose far more than your original investment in futures contracts owing to the leverage involved. It is also possible that you can't buy or sell when the market is going against you. In futures, for every buyer there has to be a seller and they have daily trading limits, so if the market is "down the limit" and there are no buyers, you go into a pool until the market goes down enough that sellers come in. Given the daily limits, you can be "locked limit down" for days!

In the case of potatoes, it was 5 days. But around day 3, someone comes into my office and says "Hey Teddy! They made a mistake on the potatoe crop report. The USDA is gonna issue a correction. Here's the number, call 'em up".

I called the number. Turns out the number was "dial-a-prayer".

Funny ....very funny!

Anywhoo, five days later the spuds came outof the pool and we sold and when the dust had cleared me and my partner had $4,920 out of our original $5,000. I says to him "Heck, for $40, that's about the most fun you can have with your clothes on!"

Later, I learned that the potatoe market had been manipulated. Some potatoe barron named Simplot had leased all the rail cars and sent them out of Maine, causing the futures to soar, since the contract required that the spuds be delivered - on rail cars - in Maine. I think someone fined the guy and he had to sign a consent decree or something.

The moral of this story is "When the elephants fight, only the mice get trampled".

Print the post  


When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.