On Target: Beer Vs Nortel
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 his $1000,
and a transaction cost of $35, he was able to purchase 7 shares
at $123 each.
Having watched Nortel stock climb and climb, he felt very good
about this investment, happy that he was 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 = 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 Jim. Jim, who had been reaping
the benefits of his investment on a daily basis, could reply,
"Ya, it will. Hang in there buddy."
Months went by, and the value of the stock continued to fall,
and there was the beginning 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 times, 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 friends 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 drove up.
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, 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 the same
$1000, buying beer and drinking it, would leave you with $80.
I'll leave it to the reader to come up with their own moral
to the story. As they say up North, beer will get you through
times of no money better than money will get you through
times of no beer.
Peter. |
