Want to Invest in Commodities? Be a Proactive Economist

Three years later, oil has reached a record level. And it should still continue to climb over the next several years, unless the world falls into a severe global recession . Along the way, oil had, and will continue have ups and down (or volatility ), but the macro-economic uptrends are firmly in place.

However, to act on those trends three years ago, you had to take the economist's perspective plus not wait for the trends to fully materialize. That is, if you could do so. This is where the "behavioral" element comes into play.

We are notoriously slow to react to trends, and even slower to act on them. Our brains -- due to evolutionary reasons, I suspect -- seem to not be "wired" to react to emerging changes. We like stability. Only when the change is "constant" for a while, do we seem to act on it. Back to oil: if you would have taken an economist's wide and diverse perspective, and correctly read the underlying factors mentioned above, and you made yourself act on that analysis (the most difficult step), you would have bought (for example) an oil-focused investment product, such as an ETF like the SPDR S&P Oil & Gas Exploration & Production (XOP Quote) or an ETN like the iPath S&P GSCI Crude Oil Total Return Index ETN (OIL Quote).

Now is oil still a good long-term bet today, at close to $100 a barrel? Probably, but not as good a bet as it was even two years ago, when there wasn't much of a downside. However, unless radical global changes happen, the price of oil should continue to climb over the next several years.

Trendwatch: The Next Three Years

Today, you might consider investing in corn before prices (which have significantly increased already) rise so much that they reflect anticipated future increases.

Similarly, consider soy (although last year would have been an even better time to consider it). Here's why: when corn prices go up as corn is sold for ethanol, soy prices have to follow (as they are already doing), due to the shortage in basic, cheap, mass-produced, flexible food ingredients.

Plus, if you look into the new nonfood ways that soy is used, you'll discover its growing demand in the production of pharmacy staples. So unless new medical research finds that soy is quite harmful to your health (and this is unlikely to happen), then soy prices should continue to go up -- probably more so than corn, which has had much stronger price increases in the last two years.

A potential way to "play" these commodities: iPath Dow Jones AIG-Grains Total Return Sub-Index ETN (JJG Quote).