Why do genius investors prefer buying gravel pits and garbage dumps over investing in computer companies or tech stocks? And why to market legends like Jim Rogers or Warren Buffett preach the importance of buying simple businesses? Today’s article answers these questions and more as we look at the differences between innovation vs commodities.
The Case Against Innovation
The book Snowball begins with a real presentation delivered by Warren Buffett in 1999. At the time, tech stocks were soaring and America had entered “a new economy.” One where investors simply could not lose money.
Or so they thought…
Buffett started his presentation by showing the long-term returns from investing in innovation vs commodities.
Here are a few key highlights:
- Airplane stocks were “the Internet” of their time. Yet an investor who bought every major airline or manufacturer would merely break even. The field was so competitive that there were as many losers as winners.
- The United States once housed more than 2,000 automotive companies to invest in. Only three survived.
- “The next big thing” is almost always great for society and consumers. But it’s historically terrible for investors. This is true for everything from railroads to tech companies.
Despite his evidence (and investing track record), Buffett’s advice wasn’t welcomed.
Why?
Because “this time it’s different.”
Why Investors Love Commodities
Many Wall Street titans (Jim Rogers, Warren Buffett, Peter Lynch) love buying simple businesses or common commodities.
As Jim Rogers says:
If the world economy gets better, commodities are very good place to be in… even if the world economy does not improve, commodities are still a fabulous place to be.
While you might not know which crypto currency will succeed long-term, you can safely bet that people will still be eating corn and rice 100 years from now.
Likewise, businesses like fertilizer factories or meat processors are low-competition. Nobody thinks about these things because they’re boring. And instead you’ve got all the money and brainpower flowing into tech companies or big idea innovation.
From an investment perspective, commodities and bland industrial businesses are a safer and more lucrative bet.
Innovation Vs Commodities: The Final Showdown
I don’t fully agree with the idea that you should always avoid cutting edge investments.
Follow this rule and you’d easily end up parking your cash in Sears or JC Penney while dismissing Amazon. Likewise, you’d completely miss a million great investments like BitCoin or Shopify. If you’re a younger person, “invest in what you know” often means buying tech stocks or digital assets.
That said, these can be a wild ride.
Many of my crypto holdings are down, and BitCoin itself is a rollercoaster. Because of this, I think conservative investors can certainly do well with established blue chip commodity businesses.
Here are three opportunities I own, and would suggest looking into (disclaimer: I’m not an expert so do your own research before blindly buying something).
- Archer Daniels Midland (ADM) – This is a grain processing and agricultural stock. Archer Daniels Midland is an old company with 80+ years of consistent dividend raises and payouts. It’s a boring, safe business built around processing corn and soybeans (two food staples). Well worth a look if you want something established and dependable.
- Weyerhaeuser (WY) – A massive lumber company that’s well over 100 years old. Weyerhaeuser owns forests which they harvest for wood. Timber is currently in a bear market, so the stock is cheap, but you’ll still net a 5% annual dividend. This looks like a terrific buy right now.
- Waste Management (WM) – There’s no business like the garbage business. Waste Management collects and processes trash, it’s like a utility / commodity hybrid and is one of my biggest gaining stocks (up over 45%). Trash isn’t going anywhere and this is a fantastic portfolio addition.
Lastly, if you want to scoop up some great blue chip commodity stocks, check out the Robinhood App. It lets you invest in any publicly traded company commission free. Plus, you’ll get a free bonus stock just for signing up through this referral link.
That’s an opportunity you simply can’t beat.
