Today’s quote of the day comes from Sean Corrigan at Diapason Commodities who counters Dylan Grice of SocGen who recently said:
“When you buy commodities, you’re selling human ingenuity.”
To that, Corrigan adds:
“to be long commodities is to be short human ingenuity but also to be long political stupidity and avarice.”
It’s a good quote and quite true, however, I do think it slightly misses the point of the Grice piece which was intended to show that investing in physical commodities is inferior to investing in the companies that use these commodities to be innovative. Grice said:
“Why bet against human ingenuity by buying physical commodities when you can bet on it by investing in the enterprises whose task is to remove the bottlenecks and lower commodity prices?”
It’s an important distinction and I couldn’t agree more with Grice. There is nothing inherently valuable about most commodities. If an alien landed on earth tomorrow and you handed him/her a barrel of oil he/she would likely think you’re crazy. An alien has never seen this “black gold”. An alien has no use for it. On the other hand, if you figured out a way to crack that oil and create a fuel source for their spaceship they might be willing to reconsider the value of this “black gold”. The point is, in their physical form, the value of a commodity is generally questionable and in many cases worthless. Physical commodities don’t obtain their real value until they are somehow altered by the innovative actions of man and put to good use. And the real value, in this case, is not in the physical commodity, but the people who have the tools, resources and ingenuity to alter that commodity from its original form into something truly valuable. Political stupidity can get in the way of this process, but it can’t stop innovative humans from leveraging the utility of commodities and generating even greater value from them.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.