The Value of Investing
On July 26, 2000, two friends, Jim and John, each got a $1000 bonus at
work. (They both work for Nortel Networks, where in the summer of 2000,
there was LOTS of money around for bonuses).
Jim, being an intelligent, financially conscientious person, put the
whole $1000 into Nortel Networks stock. With=20 his $1000, and the
transaction cost of $35, he was able to purchase 7 shares at $123 each.
Having watched the Nortel stock climb and climb, he felt very good about
this investment, happy that he is preparing for the future.
John, being a more care-free sort, did something slightly different with
his $1000. John borrowed a friend's truck, and proceeded to the Beer
Store, where he purchased 33 cases of beer. John also felt very good
about his investment: 33 cases x 24 =3D is 792 bottles of beer! John,
also being an intelligent guy, although perhaps not as forward-thinking
as Jim, calculated that he could drink about 15 bottles per week, and he
wouldn't have to buy beer for a whole year.
Jim, of course, was appalled by John's purchase, and berated him
constantly about it.
As months went by, Jim excitedly watched the stock prices, and saw it
start to dwindle. "It'll go back up", he'd say to John. John, who has been
reaping the benefits of his investment on a daily basis, would reply,
"Ya, it will. Hang in there buddy <burp>". Months went by, and the
value of the stock continued to fall, and there was the beginnings of a
noticeable dent in the beer pile. Midwinter came, Jim's stock had fallen
to about half of it's original value, and John's beer was about half
gone. Jim, being sure that the stock had hit rock-bottom, still was
berating John for his frivolous purchase, telling him "Your beer will be
gone in six months! Who knows what my stock will be worth!!"
Well, summer has come, and hard times at Nortel continue. Bad news: Both
John and Jim have been affected by the layoffs. Last week, in order to
raise some cash to help through the rough time, Jim sold his 7 shares,
at that day's value of $12, and got $84, then after paying the $35
transaction fee, he only had $49. Jim stopped by John's house later that
day (everyone needs their friend's during rough times), and as luck
would have it, there were two bottles of John's beer left. John, being a
good, compassionate friend, offered to share his last two bottles of
beer with his friend. Jim appreciated the gesture, and enjoyed the cold
beer on the hot summer's day, but he felt a bit guilty.
"At least I got fifty bucks back out of it - you have nothing now.", he
said. "That's ok.", replied John. "Perhaps you can help me, I need to
return all these empties.", he added as his other friend with the truck
pulled in.
So, they loaded up the truck, and proceeded off to the beer store. Upon
arrival at the beer store, they unloaded the empties, feeling a little
grim. John went to the counter, and collected his refund for the
bottles. "33 cases x 24 bottles, at 10 cents per bottle, that comes to
$79.20", the friendly Beer Store clerk said to John as he handed him the
money. Jim was speechless. Poor guy. Can you imagine how you would feel
if you just discovered that over the course of the last year, your $1000
stock investment left you with $50, and taking same 1000, buying beer,
and drinking it, would leave you with $80.
happy investing
(got this in my email, cheers!) |
