Resources is a huge industry in Australia. It has generated countless billions of wealth for Australian governments, businesses and individuals.
Therefore, it's worth considering whether resources should form part of your Australian shares investment strategy.
The first key point to remember with resources is that nearly all types of commodities are cyclical. The price of the commodity, the demand of the commodity, the profit and share price of the business will all experience peaks and troughs.
It is very possible to generate high returns by 'timing' the market, but you have to be brave to buy when market sentiment is weak and sell when the market is high.
Even just the past two years have shown how volatile the share prices of BHP Billiton Limited (ASX: BHP), Fortescue Metals Group Limited (ASX: FMG), Rio Tinto Limited (ASX: RIO) and Woodside Petroleum Limited (ASX: WPL) can be.
The purpose of a diversification strategy is to decrease risk whilst maintaining (or even improving) investment performance. I have previously highlighted how resource companies do not have any true competitive advantage, they can't be relied upon by investors to provide consistent dividends.
Resource companies would not fit many investors' definition of defensive or quality, however it is possible to generate market beating returns despite this.
Put simply, investing in resource companies doesn't fit my investment style.
Foolish takeaway
My favourite type of commodity companies are food companies and CSL Limited (ASX: CSL). Food companies such as Select Harvests Limited (ASX: SHV), Tassal Group Limited (ASX: TGR) and Costa Group Holdings Limited (ASX: CGC) should all experience growing demand over the years as the population increases and eats healthier.
