There are people in this country that make 401(k) investments by bringing up a comparative chart of the last year, three-year, five-year, and ten-year performance, and then making automatic paycheck contributions based on what had been the hottest performers over that period of time. If you don’t enjoy spending a lot of time thinking about investing, it has a certain intuitive appeal: Why not go with the five letters that can report 10% annual returns from 2004-2014 rather than the five letters attached to a 3% annual return?

The problem is this: you could performance-chasing. A fair amount of time, the reason why a particular mutual fund has done well is because the P/E ratio of the type of companies in the fund have increased, and/or the profits have grown significantly during that part of the business cycle. Other times, the past performance does act as a resume of sorts in a way that can indicate strong future performance: just look to Berkshire’s 9% annual returns the past ten years which have corresponded to 12% annual increases in the company’s book value.

That brings me to gold, silver, and other commodity-based investing. For instance, someone who speculated in gold (GLD) from 2004-2012 would have seen average annual gains of 17% annually, turning $10,000 into $37,000 during that time frame. From November 2012 through 2014, gold has not performed nearly as well. If you hopped on the gold bandwagon in 2012, seeing its excellent eight-year past performance, you would have been sorely disappointed with your results. Gold purchased in November 2012 would have returned -35% cumulatively in the past two years, whipping every $10,000 investment  towards $6,500 today.

Nowadays, speculation in gold makes more sense—the same value investing principles that call for buying low with common stocks extends to commodities as well. Right now, gold is around $1,190 per ounce. The American stock market has been performing well. There is no current threat of a government default. Global conditions are about as good as you can realistically ask for. Inflation is relatively tame. Gold is an unpopular investment. If I were inclined to speculate in gold, now would be the type of time I would choose to do so.

Would I actually use my own money to buy something like GLD, or a similarly situated commodity like SLV for silver? No, I would not. I would have a much stronger preference to own commodities businesses that are extremely large and profitable, like BHP Billiton and ExxonMobil. Businesses that deal in commodities can give you advantages that buying the commodities directly cannot get you. With Exxon, you get strong share repurchases that increase your share of ownership over the commodities being produced. If you own a barrel of oil outright as an investment, it remains a barrel of oil. If you own BHP Billiton, you benefit from increases in production over time, so that more iron ore, natural gas, nickel, diamonds, oil, coal, and steel get produced over that period of time. If you buy 10 barrels of oil, the amount stays static unless you actually take some of your money and buy more barrels of oil.

And, of course, these gains get capitalized at a rate of 10-15x profits. If the price of gold, oil, silver, or whatever goes up, someone that owns the commodity outright only benefits from that individual price change. Someone who owns a commodity stock like Exxon or BHP Billiton also benefits from the production gains and stock repurchases which combine with the rise in the price of commodities to grow profits. These grown profits then get capitalized at a rate of 10-15x profits, increasing your gains furthermore. These accumulation of benefits for owning commodity stocks can explain why Exxon has been compounding at over 14% annually for 44 years, turning $5,000 in 1970 into $2,000,000 today. Commodity-producing businesses come with additional advantages that owning the commodities outright do not give you.

And, of course, you already know my favorite—commodity businesses come with dividend payments that will boost your total return when the price recovers. In November 2012, you could have bought gold for over $1,700. Now, it’s less than $1,200. You receive no benefit from that price decline. Sure, you can go online and transfer money to buy more shares of GLD or whatever, but if you remain passive, no benefit comes your way. You just have to wait for the price to go back up $1,700.

Owning commodities is a wild ride—anyone who has been a commodities investor for 5+ years knows that, because they would have experienced significant fluctuations in the value of their holdings. Someone who owned shares of BHP Billiton (BBL) throughout the past year would have seen the price of each share hit a high of $71 this summer, and then would be sitting on $5,200 right now as the price has declined to $52 a piece. But you receive a clear benefit from that decline in price—each share pays out $2.36 in cash dividends. You collect $236 which will add about 4.5 fresh new shares to your holdings if the price remains low throughout the year.

It’s a nice little treat for when the price returns—if BHP Billiton made it back to $71 per share at the beginning of 2016, it’s not a breakeven point for you—you would have 104.5 shares worth $7,419 in comparison to that $7,100 you initially invested. And, of course, those 4.5 will be perpetually paying out dividends of their own which will also be capitalized at a rate of 10-15x profits. This phenomenon, playing out year after year, partially explains why you get this situation alluded to above when Exxon turns a $5,000 initial investment into $2,000,000 forty-four years later (because of mergers and demergers, BHP Billiton does not have as easily trace-able of a history to mention).

The only real risk that comes with owning a commodity-producing business that does not exist with the commodities themselves is managerial incompetence. To me, the best defense against that is to deal in commodity-producing firms that have storied history, conservatively managed balance sheets with no more than moderate debt, strong histories and future plans for production growth, and extensive current operations. The dividend payouts when the price is low, the stock repurchases that increase your share of the ownership, and the production gains that occur over time create substantial long-term advantages for those that choose to invest in the commodity-producing businesses over the commodities themselves.