How not to be a commodity even if you work in a commodity business. Plus, an update on commodities and master limited partnerships.
In this episode you’ll learn:
- How to not be a commodity.
- How long is the average bear market for commodities and the average loss.
- An investment mistake I made.
- Why it is important to scale investments by assuming the worst case scenario.
Don’t Be A Commodity
I recently returned a rental car at the Salt Lake City airport and stopped at a nearby gas station to refuel.
The station was mobbed. It was the most crowded gas station I had seen in years. When it was my turn to pump gas I saw why. The price of regular gasoline was $1.87 a gallon.
It turns out that station has the lowest gasoline prices in Salt Lake City.
That price is 50% lower than what I paid for gas just 18 months ago.
On an inflation-adjusted basis it is the cheapest gasoline has been in the U.S. since 1998, which in turn were the lowest inflation-adjusted gasoline prices ever.
The price I paid is 20 cents less a gallon than gasoline prices where I buy gas in my town.
I had to look that up because I rarely pay attention to what I pay for gas.
Gasoline is commodity. Often when businesses sell commodities they compete on price.
If that Salt Lake City gas station raises their prices a nickel the number of customers lining up to buy gas would plummet.
I pay more for gasoline in my town because I’m not buying a commodity. I buy Steve’s gas.
Steve owns the gas station where I buy gasoline. That’s where I get my car oil changed and my vehicles washed and detailed.
I buy from Steve because his employees are considerate. They offer to wash the windows of my car. They pump my wife’s gas and check her car’s oil. Even Steve has come out at times to put gas in her car.
When my car was particularly dirty and still had some bugs on its bumper after going through the automated wash, one of Steve’s employees had me drive to the detailing center so he could scrub the rest of the bugs off for free.
I buy Steve’s gas because I don’t have to pay 25 cents to put air in my car tires. And I don’t have to remind Steve’s employees to turn on the air compressor in the morning.
I buy Steve’s gas because I appreciate Steve’s design sense, his business acumen and his sense of community.
I don’t always agree with Steve’s opinions, but I respect his willingness to share them with the community in the local newspaper.
I buy Steve’s gas because I appreciate his and his employees’ willingness to make fun of themselves as they dance to the disco song Car Wash in my town’s 4th of July parade.
Competing On Price
Most products and services have a commodity like element to them. Even my former profession, the investment advisory business has commodity aspects where certain fund sponsors and automated investment services compete on price.
When you are commodity all you have to differentiate yourself is price.
For my current business, I sometimes need design help for a logo or graphic. I can get this work done for $5 on a website such as Fiverr, but I don’t.
Instead, I use Reese who charges way more than $5.
Why Reese? Because her designs are remarkable and she understands branding.
She tells me (kindly) when my design idea is stupid and how to improve it. I respect her opinion.
Reese is not a commodity even though the design business can be a commodity. Steve is not a commodity, even though gasoline business can be a commodity.
I often tell my kids, “Don’t be a commodity.”
When you have a business, you want your customers to hire you because of who you are, because of your unique personality, because of the individual value you bring to the table.
Otherwise, all you have to compete on is price and there is always someone willing to do things cheaper.