Disadvantages of Commodity Business
Article by Sherin Dev; Join me Twitter / Facebbok
Investing on commodity type business are a nightmare for value investors due to various reasons. It is very simple to identify a commodity type business if you try to identify some common factors that including or excluding a company to or from commodity type business. Why any value investor not interested or not to go for investing on commodity type business? Here are some important reasons to explore major disadvantages of commodity type business.
A commodity type business generally not have any business monopoly in the market with any of the product. It also leave lots of room for its competitors to come with various products or similar products. If such situations arises, generally competition will start and that result to reducing prices of products. As I have mentioned in my various articles, when there is competition happens, companies will not be able to sell its products to the right price.This will affect to the company profit and force to depends for debts.
Commodity type business are not able to beat inflation by raising or reducing price because of the existence of huge competitor base. This will be a major disadvantage for such business to fail or sunk to debt in the future. Investors thus lose there money to a great extend.
Identifying a commodity business is easy. Any business that have no consistency with per share earning for last 10 years, probably have a commodity type business. Such business generally have huge bad debts. Any company have a debt more than two times of its yearly net profit, should not be considered as a good value investments as per the strategy of legend investor Warren Buffett.
If you look into the cash flow of such companies, you can find the cash flow through financing activities will be high due to issuing new shares time to time for managing enough funds for business activities. This will further reduce the investors wealth to a great extend. Here is an article to know how stock buyback help investors to adding wealth to their investments.
Building an Intelligent investing strategy is the only possible solution to avoid such dilemma happening to investors. As I said in the previous article, reading to get right strategies and select the proper strategy as yours are the right methods.
Further read: Disadvantages of Monopoly Business !
Comment your thought here. Also, inform any queries that you may have on this article.
***Sorry. Comment to this article has been closed. Sorry for inconvenience..
Sherin Dev is the founder and editor of Investinternals.com Blog. Learn more about him here. Follow him on Twitter @Moneyhacker or be in touch with him at Facebook
If you like to add a guest article in this blog, contact him at investinternals@gmail.com
188 comments so far! Expect yours now!:
Its my pleasure to see your comment here. thanks!
It is a good idea not to invest in a commodity type business unless you can get in at a very good price. But they have to be way undervalued.
Hmmm..... difficult to answer the question specially the word undervalued came on it. But, if you are not going to take care of any commodity business, then why bother about whether it is undervalues or over valued? -Sherin
I used these tactics on my rental business
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I also agree that Building an Intelligent investing strategy is the only possible solution
Yup! You are right.. go ahead with a winning one.
It should not be a bad idea to accept commodity money at any moment when you are able to, that’s what I’ve been told, and I think that me and my company are in front of one business where we are going to get such compensation. Before I proceed, please tell me if you know of any possible disadvantages of commodity money? I think it should be silver.
There is no disadvantage. I have specifically mentioned the companies doing commodity business like steel companies where huge competitor base found and this force companies to reduce prices and move to lose gradually.
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hmmm insightful post on commodity businesses, thanks
hmmm insightful post on commodity businesses, thanks
Fantastic, Great job. Wow, I was just stunt during the read.
I think this will help alot of people become more informed to make decisions on where they are heading.
It’s exhausting to find educated individuals on this subject, however you sound like you understand what you’re talking about! Thanks
well written thanks to the author cheers!I am interested in reading more of your work.
commodity business always not a bad option. You are right there is huge competition but still you can earn huge profit investing in commodity business.
Worth knowing this business and I am really looking forward for more better updates that can be worth implemented.
@forex signal- I do feel the same about Commodity business and one can make good earnings from this business.
I don't think there are advantages every time doing a commodity business. It depends on market scenario whether yiu get advantages or not. There are many big players in commodity business these days.
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so far i think business where we are going to get such compensation. Before I proceed, please tell me if you know of any possible disadvantages of commodity money? I think it should be silver.
Yes. Silver of course....
It should not be considered as a good value investments as per the strategy of legend investor Warren Buffet because Any company have a debt more than two times of its yearly net profit
This is a great blog posting and very useful. I really appreciate the research you put into it.
The biggest problem with having a currency that is dependent on raw materials is the price volatility. When oil prices go up much, because the Canadian dollar. Sounds good right? But two weeks later, Russia might announce that they have found the largest oil reserves in the ground and lower oil prices, and with it the value of the dollar (or any other currency tightly linked to oil prices.) There is a instability in a currency depends on its ability to find and produce natural origin in particular, but of course the rare substance.
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I think this will help alot of people become more informed to make decisions on where they are heading.
Nice blog, wroth to read it again.
People were rushing mad to invest in silver, see now it is crashing like nobody's business, i hope it comes down to realistic level...to 24 k per kg
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Really something to think about.I truly agree to these disadvantages.
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well best part of the article is "common factors that including or excluding a company to or from commodity type business. Why any value investor not interested or not to go for investing on commodity type business"
I strongly feel that I have mentioned the reasons in the article itself to know why value investors don't prefer commodity type business. However the common factors are, due to excess competition, price leverage is no more with such business and thus not able to stood against inflation.. this will cause debt burden thus investors will not get any reward... There are many but I feel this is the main - Sherin
Its a good article! Really you have shared some useful information over the post. thank you so much.
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Thank you for sharing This knowledge.Excellently written article, if only all bloggers offered the same level of content as you, the internet would be a much better place.
I found it when I was looking for a different sort of information but I am very interested in the article, It is nice to read such kind of good posts i like your work keep it up!
Great information on commodity business.I really enjoy this post.
very good, look forward to view your other articles.
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adding wealth to their investments.
I agree,commodity type business generally not have any business monopoly in the market.
I have gained a lot of new things from this post. Thanks a bunch for this incredible article. Keep blogging.
Great information on commodity business.I really enjoy this post.
Good blog post. i want to thank you for interesting and helpful information and I like your point of view. Thank you!
I agree,commodity type business generally not have any business monopoly in the market.Great information on commodity business. Looking for your regular update.
Great post but I think everybody sould buy commodities in the next couple of years to hedge a global crisis.
Very impressive and informative post. I appreciate your thoughtful writes.
There are a lot of great points here,but I'm not sure I agree with real-time search being discarded. I agree that it's not very relevant,but isn't the point of it to show what people are currently saying about a topic.
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well best part of this article is "prices of products. As I have mentioned in my various articles, when there is competition happens, companies will not be able to sell its products to the right price.This will affect to the company profit and force to depends for debts."
well, now at least i know the disadvantages of it. What about the advantages? Is there any?
Yes. Take the value investing route through learning the advices from Philip Fisher, Benjamin Graham and Warren Buffett... you will get the right investing knowledge. Visit Birkshire Hathaway website and collect all the Buffett's letters to shareholders. Read it. It has all to become a great investor.
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I really enjoyed this article. It is always nice when you read some thing that is not only informative but entertaining. Excellent! that is not only informative but entertaining. Excellent!
It has all to become a great investor.
I invest in commodity business some times but always prefer to invest in equities. Although it gives big returns but involves lots of money. If invested properly with deep study, it is more beneficial.
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I agree with real-time search being discarded. I agree that it's not very relevant,but isn't the point of it to show what people are currently saying about a topic.
Superb! I love the details mentioned!
The details as me think.
I think commodity type business is not much profitable.You can,t get monopoly as well not you can,t beat you competitor.
Thanks for posting this. i really enjoyed reading this.
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This topic is really good, thanks.
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Every type of investments has got risk. Commodity business has advantages as well as disadvantages regarding the security of your money. Well its really good to see this important side of commodity business that you have beautifully mentioned here in your post.
i do not totally agree with you. not every company in commodity business is spam. there are many companies who are doing business in a way in which it should be.
If there was no risk everyone would be rich. Great post!
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@spying cell phones - I never said all the commodity businesses are spam. However most of them are not suitable to invest due to its competitive nature where investors going to get nothing as profit.
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Your disadvantages for commodity business is true......in another way some of them makes huge profits by acquiring knowledge in a efficient way first of all a business person should have patience and friendly related to the customers.........by these teh customers will attract more to buy . and sales will increase..........
Unless you want to battle with price. You must offer something unique that consumers want. Create that competitive advantage by digging out a niche target market.
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Every type of investments has got risk. Commodity business has advantages as well as disadvantages regarding the security of your money
hmmm insightful post on commodity businesses, thanks
There are really a lot of fraud these days. People must know how to invest and control their money. nice post you got here.
I think Commodity investment is very risky, this not for a common man.
Really something to ponder over commodity business.
Such a beautiful Post Great work
what do you mean by commodity business?
A commodity business mean any business that struggle to sustain due to high competition and less profit with huge debt.
Is this sufficient for you to understand what is a real commodity business?
I just came across your site and wanted to say that I have really enjoyed reading your blog posts. Any way I'll be subscribing to your feed and I hope you post again soon.
Best part of this post is "competition will start and that result to reducing prices of products. As I have mentioned in my various articles, when there is competition happens, companies will not be able to sell its products to the right price.This will affect to the company profit and force to depends for debts."
Thanks for sharing the disadvantages of commodity business it was a great read!
The commodities type business is good when their is favorable circumstances in market other wise its hard to suffer in this category.
any commodity business, then why bother about whether it is undervalues or over valued? -Sherin
Highly informative article. Thanks!
#los angeles church, if it is overvalued, investors lose money. It is difficult to get undervalued commodity business because of high competition and debt.
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As far as I understood, the investors are afraid of investing money in commodity type of business because of high competition. But I do not know the industry branch where the competition would be minor… At the same time competition leads to the quality improvement of goods and service. And if you are the leader in the market you should not worry about the reduction of prices. What do you think about such a point of view?
A very interesting post..You've made interesting observations.Thank you for placing a lot of effort into your article.
#Hotel in Firenze - It is our duty to check and identify a or more product in our country that enjoys monopoly. If you went through each and every product that we uses frequently, there should be some that enjoys such monopoly. competition of course lead to the quality but the same time the cash flow to make such.. Investors thus lost their money because that would pump to research activities.. Being a market leader, a service or product should enjoy monopolistic position.
Sherin you are great.. thanks for this article
Good day!
It is very informative and has a very good quality in it.Thanks for sharing.
It’s not so easy to invest assets in startup as it may seem, especially if it concerns a commodity type business. An investor must to value his costs and benefit, weigh the pros and cons, learn legal details, foresee the future of this startup and only then he can make a decision!
I agree with you. Identifying a commodity is easy. You have shared many tips for us. Thanks for sharing.
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Ive bookmarked your site for future finance resources thanks for the post on commodity business it was very useful.
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To my mind, this article is not a new word in investing business. Use common sense when choosing which business are better to invest money in. Commodity business has always been very popular, but it hasn’t got huge profits. Just decide what level of risk is acceptable for you.
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I believe that these are the advantages for the commodity business.
I have read this article some where but i believe it is good enough to pass it to my subscribers.
Commodity investment is something which can be rewarding but one needs to have a lot of information before investing.
I am into commodity business and have already made more then $1000 in 6 months., I just love it.
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Thank You
Wow. What a nice post. It really is some valuable info you're sharing with us. Keep writing good stuff like this and i bet you will have more and more visitors to your site. I will surely be one of them.
I recomend this blog, I`m working since ten years in commodities market and i never found a blog so complete about physical and derivative market. I trully recomend!
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CNBC Explains – Futures, Commodity, Commodities. How do commodity futures differ from forward contracts and what are the Counter-party risk; The reasons for commodity futures trading
Don't you think Futures trading be banned? It has done more harm than benefits. Don't you think it should be stopped in stocks and well as commodities ? It’ll save many getting bankrupt. What are your views ?
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I understand the banter back and forth in relation to commodity businesses but what role does or should government play in all of this?
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It is not worthwhile to invest in the business of product type, unless you have a very good price can get. But they are so underrated.
I think I got you.; I agree with this disadvantages of commodity business because I've already done it.
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Improve. some disadvantages of commodity money are its not portable, durable, or divisible, it usually works in smal
some disadvantages of commodity money are its not portable, durable, or divisible, it usually works in small
Hey, Sherin Thanks for the articles, really enjoyed reading it.
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