TAKING STOCK: No best way to invest in copper

Dear Mr. Berko:

My IRA has performed poorly this year and last year. I own some of the supposedly better mutual funds, and for the past two years, my $88,000 account has only increased in value to $101,000. This is not a good performance, and I need to do better. A friend suggested I invest in copper. He feels, as I do, that this metal could double in price within the next year. I would like to invest $25,000 of my IRA in copper. My question to you is: What is the best way to do it?

RL in Troy, Mich.

Dear RL:

You may not realize this, but your IRA, in the past two years, has performed better than most of the IRAs on the planet. So, you may not be aware, but the four mutual funds you own have done better than 85 percent of all domestic mutual funds during the past two years. Now, except for commercial users, copper is not a medium for investing. Rather, it's a medium for gambling and certainly is not suitable for an IRA.

However, you may be on the right track, because the consensus is that copper could run significantly higher in price. But you have the common sense of a fool and are likely to be run over. Copper is certainly a more useful metal than gold, by orders of magnitude (the Statue of Liberty contains more than 80 tons of that stuff). But in my opinion, I believe bat guano, at $2.50 a pound, is a safer speculation than copper at $3.50 to $3.75 a pound. As far as I'm concerned, there isn't a "best way" to invest in copper. However, here are seven ways to roll the dice and prove yourself the fool.

1: Consider purchasing pennies. Pennies minted in 1981 and earlier contain 3.1 grams of copper, and it takes 147 of them (there are 454 grams per pound) to equal one pound. The Mint changed the composition of the penny in mid-1982 (to copper-plated zinc), so pennies minted after July of 1982 contain only 2.5 grams of copper. Therefore, it takes 182 pennies minted after July of 1982 to equal one pound of copper.

Your $25,000 will purchase 2.5 million pennies, and if the price of copper collapses, you won't lose a nickel, because you still will have all those pennies to spend. If the price rises? Well, you should make a nice profit less smelting costs. However, you may need a huge cigar box to hold all those pennies, plus a permit to smelt (it may be illegal to smelt U.S. coins) them.

2. Consider shares of iPath Dow Jones-UBS Copper Subindex Total Return ETN (JJC-$48.88), which has to be the most stupid bloody name ever given to any investment -- sort of like naming a boy Sue. JJC buys futures contracts on the COMEX to track the world price of copper.

3. Copper Miners ETF (CPOX-$13.46) looks like one of the most useless ETFs to ever be traded publicly. It invests 80 percent of its assets in the securities of the underlying index, all of which are in the U.S., Canada and the UK. Not very smart, considering the majority of the world's production derives from Chile and Peru.

4. iShares MSCI Chile Index Fund (ECH-$67.38) invests securities that replicate the performance of the MSCI Chile Investable Market Index. Ho-hum and yawn.

5. Freeport-McMoRan Copper and Gold (FPX-$38.52) owns 120 billion tons of recoverable copper, 34 million ounces of gold, 3.5 billion pounds of molybdenum, 331 million ounces of silver and 1 billion pounds of cobalt, and it is the world's largest publicly traded copper miner.

6. Southern Copper (SCCO-$30.38) is kind of a favorite because it usually pays a high dividend, and last year the dividend exceeded 8.5 percent. More than 80 percent of SCCO shares are held by insiders, which may indicate an unusual amount of confidence.

7. You may also consider Copper Contracts that trade on the CME of the COMEX. The most popular contracts derive from the December 2012 maturity date, but the futures can extend to 2016. They are quoted in cents per pound, and each contract represents 25,000 pounds per contract. However, the speculative nature of these contracts would singe the hairs off a warthog. Frankly, I believe your friend is giving you unsound advice - and you should be satisfied with annual returns of 7.5 percent.


Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775 or e-mail him at mjberko@yahoo.com. Visit Creators Syndicate website at www.creators.com.

© 2012 Creators Syndicate Inc.

Published: Fri, Apr 20, 2012