Apr 29Liked by Pimlico Journal

Index funds and budget airlines have some parallels

Before the advent of index funds, investors used active mutual funds for two reason: 1) diversified market access 2) potential of market beating returns

But the two were bundled together and investors had to pay 1-2% in fees. Essentially paying for the PM and other staff to try to provide those market beating returns

Then the index fund came along and allowed market access and potential outperformance to become unbundled.

Some investors didn’t actually care about a manager trying to outperform the market. They just wanted diversified market access. And the index fund provided it. Those who still wanted potential of outperformance could continue to use active mutual funds and pay the higher fees

Likewise what airlines were offering used to all be bundled together. As well as getting someone from A to B, the airline offered a level of service and experience onboard. And as a result, average price higher. Then budget airlines came in and said well if you only care about a to b travel, we can just unbundle all those features and you can pay bare minimum - no thrills etc

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Apr 27Liked by Pimlico Journal

I feel that you fundamentally misrepresent the way Costco makes money. It’s literally all in the membership. They do not care if they have a casual shopper buying one item or a family of 10 buying $1200 of goods 3x a month. It makes no difference to their bottom line, they sell goods at cost.

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I don’t disagree but the membership enables efficiencies when dealing with their customer base. You can’t just run Walmart at cost and charge a membership fee. They have very few foolish customers paying for a membership they don’t use much.

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That’s true, and they will refund your membership if you don’t want it. They find efficiencies in providing a very limited selection, limited hours, zero customer service, and hideous stores. But it turns out that most customers don’t need a vast selection of, say, lawnmowers. Furthermore, having a few large stores cuts down on spoilage.

To a certain extent they are freeloading in that my neighborhood hardware store or grocery will help me out for more obscure items, but that’s not my problem. I’m sure to frequent the pharmacy down the street to help ensure that it stays open.

The prices aren’t always great, but when they can’t compete on price for items such as appliances or rental cars, they provide a better warranty, free delivery or a free extra driver.

The incredibly generous return policy is also tremendous for loyalty and they keep the discretion to punish customers who abuse it. And if you are a regular shopper, they will be more generous with the returns. For example, I recently returned an old espresso machine. Of course I will put the money towards a higher end option, also at Costco.

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The push towards the automation of everything might bring about cost savings and greater efficiency (when they work), but there's more to life than time and money saving. If I need some advice when travelling by train, the ticket machine isn't one for conversation. Interacting with people is an integral part of how society functions and every 'pointless' customer facing job that disappears, only helps to increase the sterility of our environment.

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