The term commodity finance was coined by Bill Gross to describe the use of derivatives as a way around the complexity of credit markets. This is a very broad term and is actually used by many investors.
Because we have so little control over the price that we cannot make the money we make. And therefore we cannot risk our livelihoods and property. Instead we should consider the risk of losing money.
I have seen many investors make the mistake of not owning a property. They will live in an apartment with a mortgage and an overpriced credit card. After a year they will realize that their home is worth less than the house they paid for, and they will sell the house. Most of the people I know that are making this mistake are young and inexperienced. Unfortunately, they are not the ones who should be buying the property.
I’m not saying this is a bad thing. I am saying that property is a valuable asset in the first place. It’s not to lose it for the rest of us, but to take it out. The good news is the property is worth as much as the house they paid for.
The problem with most people who make this mistake is that they have no idea how to correctly value their home. I can’t tell you how many people I’ve talked to whose house is worth much more than its value to them. Unfortunately, I don’t have the answers to the real estate market. My own experience in life has been very limited, so I don’t really know what to tell you.
One of the reasons the property-value fallacy can be so hard to see is that most people assume the house (in this case, the house they bought) has a fixed value. This may or may not be true, but that doesnt mean the house isn’t worth a lot. If we assume the house to be worth $500,000 then we can calculate the value of the home as $500,000 * 1,000 = $500,000.
If you assume a price of 500,000, then you can calculate the value of the home as 1,000,000. Now you can see that we are really talking about an equivalent house, one that would have the same square footage and the same amount of house-value.
Of course, the real house you are talking about is not the same real house, it is a fictional house that could exist in either of the two real houses. It could be a fictional house that existed in a different real-life location like the Bahamas or the Bahamas, but it would most likely not be real. So even though the real house is fictional, the real house you are talking about is also fictitious, because it is just as fictional as the fictional house you are talking about.
In finance, we don’t often talk about the house we are currently living in. We are in the habit of defining ourselves based on our possessions, and what we own is what we want to define ourselves by. The house you are talking about is one that could exist in the real world, but it would most likely not, because it is just as fictional as the house you are talking about.
In finance we do, but we rarely take the time to define our possessions. And when we do define ourselves based on our possessions, we tend to say we are a commodity.