Pop quiz for savvy investors.
If you could go back six months and make a single trade what would you invest in?
Chip company Nvidia (NVDA) which specializes in advanced artificial intelligence? It’s Wall Street’s latest craze and the AI world looks sure to grow and change the global economy.
Or Bitcoin
BTC
, the crypto currency that’s still a teenager but continues to get increasing attention from Wall Street? There are now a number of exchange-traded funds that investors can utilize to make gains including Grayscale Bitcoin Trust (GBTC), iShares Bitcoin Trust Registered (IBIT) and Fidelity Wise Origin Bitcoin Fund (FBTC.) There are others also.
Or would you head to the futures exchange and purchase gobs of cocoa contracts? Cocoa is the key ingredient in chocolate.
Surprise. It was Cocoa that did the best over that period. Its price jumped by more than 180% in the half year through Wednesday, according to the TradingEconomics website. Recently one metric ton of cocoa beans would fetch $9,830, a record high.
The reason for the rally was simple, according to Trading.Biz analyst Tobi Opeyemi Amure, who explains the issue as follows:
- “The supply shortages driving the rally stem from severe weather and crop disease in Ghana and the Ivory Coast, which together account for 70% of global cocoa production. Farmers in Ghana are also incentivized to smuggle their beans to take advantage of higher prices, as they are locked into fixed contracts with the government.” My emphasis.
Bitcoin rallied 157% over the same period according to Yahoo data. That compares to Nvidia which rallied 112.5%, again according to Yahoo.
Clearly Cocoa was the better bet over the most recent six months. But of course, none of us can go back in time and make the right trade.
The real question now is what to inviting in going forward?
And for that it seems clear that avoiding Cocoa would be a good idea. Shawn Hackett, of Hackett Financial Advisors, warns investors to avoid betting on a price drop for the time being. The recent rally is something that could go on for a while, then reach a peak and drop dramatically. But all of that is hard to predict.
What he does say is the following:
- “Every cocoa producer in world will do everything they can to maximize yield on those trees that were not harmed by diseases. If weather is more favorable with maximum tree care and husbandry then dramatic increases in yields can be seen to help offset somewhat the lost production from trees needing to be replanted.”
As and when that increased production occurs and supply rises to levels higher than expected, then the Cocoa price will drop.
Of the other two bets, I’d avoid Bitcoin and favor Nvidia. Legendary investor Warren Buffett says Bitcoin doesn’t produce anything. And I think the’s correct.
NVDIA
DIA
will no doubt add to the world’s economy by helping produce chips that increase efficiency in the work place. The company will also likely increase its dividend payouts from what looks like a paltry 0.02% currently as the business grows.
Of course, there are risks. All big tech companies operate in a world of creative destruction. Innovation morphs into disruption and then failure. at least that is what Silicon Valley has taught us.
