Financial Knowledge All Adults Should Know?

[NTL2009]

While I recognize that you started this thread and therefore have some level of control over its direction, it appeared to me to be a legitimate thread offering real/serious advice, which I consider a valuable mission. I would appreciate it if you treated it more seriously even if you didn't intend it to be serious when you started it.

I just noticed, he put a smiley face after the opening sentence in the opening post. So is this whole thread a joke to @kyphysics ?

 

[kyphysics]

I just noticed, he put a smiley face after the opening sentence in the opening post. So is this whole thread a joke to @kyphysics ?

No, no! I a smiley doesn't mean I'm being humorous necessarily. In the context of what we'd been talking about, I thought it would be obvious to others the Mark Cuban post was semi-humorous...but, alas, I'm assuming too much. lol The thread itself was definitely serious.

***I say semi-humorous, because while it's obvious that credit cards are not inherently bad if one can use them smartly (which can be hard oftentimes, due to the psychology and business marketing involved that drive many people to spend more), Cuban's basic idea that they have a terrible cost to them if you're not paying off the balance is non-controversial and a no-brainer. On a random note, Cuban appeared on Ramsey's talk show once and the two seem to share a lot in common. It's on YouTube.

Btw, NTL2009, the reason I haven't responded to your responses for my more recent posts has been the same reason I gave for being hesitant to engage with you earlier on: While I appreciate your passion and interest in these topics, I can't help but feel you personalize things and/or are being overly "aggressive." For the moment, I don't know how to respond back when that is the case.

 

[johnjohn22]

The advice I've read here today on finance is very sound. In 2015 I wrote a book about the stock market called, "You, The Stock Market, and Your Money." I did not write it for publication. I wrote it to use as my own reference material. The book is registered with the Bureau of Copywrite in Washungton D.C. I liked to add a few bits of info from the book. My second book on probably be released to the public.

1. If you want to trade stocks it is imperative that you learn and understand that the financial charts are one of the most important investment tools in an investors tool box. If you learn and understand the importance of the Resistance and Support Level patterns you will enhance your ability to make money in the market.

2. Ignorance, arrogrance, and ego are three human traits that can interfere with and even destroy our intellectual development as we move through time. We all posses these traits. As an investors we must keep these traits under control, and not let them control us. Keep an open mind (impossible for some) and concentrate on making observations and not making judgements.

3. You must know and understand SREG and FUGA. SREG represents the Sales, Revenue, Earnings, and Growth of a corporation. SREG is why corporations exist. FUGA represents Fear, Uncertainty, Greed, and Assumptions. Do not ever under estimate the power of FUGA. Do not under estimate the power of investor or consuner sentiment. SREG AND FUGA are powerful market movers.

4. Someone once asked me, in two words, to describe the stock market. Here is what I said, "the stock market is Uncertainty and Risk. Once you learn how to make Uncertainty and Risk work in your favor, you will be able to make sound, savvy and educated investment decisions.

 

[NTL2009]

The advice I've read here today on finance is very sound. In 2015 I wrote a book about the stock market called, "You, The Stock Market, and Your Money." I did not write it for publication. I wrote it to use as my own reference material. The book is registered with the Bureau of Copywrite in Washungton D.C. I liked to add a few bits of info from the book. My second book on probably be released to the public.

1. If you want to trade stocks it is imperative that you learn and understand that the financial charts are one of the most important investment tools in an investors tool box. If you learn and understand the importance of the Resistance and Support Level patterns you will enhance your ability to make money in the market.

2. Ignorance, arrogrance, and ego are three human traits that can interfere with and even destroy our intellectual development as we move through time. We all posses these traits. As an investors we must keep these traits under control, and not let them control us. Keep an open mind (impossible for some) and concentrate on making observations and not making judgements.

3. You must know and understand SREG and FUGA. SREG represents the Sales, Revenue, Earnings, and Growth of a corporation. SREG is why corporations exist. FUGA represents Fear, Uncertainty, Greed, and Assumptions. Do not ever under estimate the power of FUGA. Do not under estimate the power of investor or consuner sentiment. SREG AND FUGA are powerful market movers.

4. Someone once asked me, in two words, to describe the stock market. Here is what I said, "the stock market is Uncertainty and Risk. Once you learn how to make Uncertainty and Risk work in your favor, you will be able to make sound, savvy and educated investment decisions.

JMO, but your rules # 1, 3, and 4 are in conflict with your rule #2. I like rule #2. I often say that the most powerful three words that have contributed to whatever success I may have had are the words "I don't know".

Never (and I 'never' say never!), be afraid to admit you don't know something. That's how you open your mind to learning. And avoid making some stupid mistakes. And that reminds me... "A smart person learns from their mistakes, a wise person learns from other people's mistakes".

Hey, I'm on a roll (and on my second IPA)! "If you are the smartest person in the room, you aren't learning anything!". That's one reason I hang out here - lots of posters far smarter than me. But I may have some momentary niche where I can contribute, hopefully. I try.

 

[johnjohn22]

JMO, but your rules # 1, 3, and 4 are in conflict with your rule #2. I like rule #2. I often say that the most powerful three words that have contributed to whatever success I may have had are the words "I don't know".

Never (and I 'never' say never!), be afraid to admit you don't know something. That's how you open your mind to learning. And avoid making some stupid mistakes. And that reminds me... "A smart person learns from their mistakes, a wise person learns from other people's mistakes".

Hey, I'm on a roll (and on my second IPA)! "If you are the smartest person in the room, you aren't learning anything!". That's one reason I hang out here - lots of posters far smarter than me. But I may have some momentary niche where I can contribute, hopefully. I try.

JMO, but your rules # 1, 3, and 4 are in conflict with your rule #2. I like rule #2. I often say that the most powerful three words that have contributed to whatever success I may have had are the words "I don't know".

Never (and I 'never' say never!), be afraid to admit you don't know something. That's how you open your mind to learning. And avoid making some stupid mistakes. And that reminds me... "A smart person learns from their mistakes, a wise person learns from other people's mistakes".

Hey, I'm on a roll (and on my second IPA)! "If you are the smartest person in the room, you aren't learning anything!". That's one reason I hang out here - lots of posters far smarter than me. But I may have some momentary niche where I can contribute, hopefully. I try.

Hi: How are rules 1, 3, and 4 in conflictcwith rule #2?

 

[NTL2009]

Hi: How are rules 1, 3, and 4 in conflict with rule #2?

Fair question. For your rule #2 ("Ignorance, arrogance, and ego are three human traits that can interfere with and even destroy our intellectual development as we move through time."), I was mainly focused on the "arrogance, and ego" aspect, though ignorance is important as well.

Applied to your Rule #1, " If you want to trade stocks it is imperative that you learn and understand that the financial charts..." , I see this as 'arrogance'.. the feeling that 'understanding' charts will provide an advantage. More later...

Applied to your Rule #3, "You must know and understand SREG and FUGA... " . Again, I see this as 'arrogance'.. the feeling that 'understanding' SREG and FUGA. will provide an advantage. More later...

Applied to your Rule # 4, "you learn how to make Uncertainty and Risk work in your favor, ...". I may cut you some slack here, those are important, but I still feel it is arrogant to believe that will provide a means to 'beat the market' (my words, but if it doesn't, what's the point? Just invest in 'the market' and take a nap.).

If that is all it took, there would be fund managers (well compensated for beating the market with other people's money), using those principals to consistently beat the market. But very few do, and almost none consistently. That makes me skeptical of all that.

 

[johnjohn22]

Hi NTL2009
As for question #1 - So you think that understanding the chart patterns is not an advantage to an investor? By the way, i never used the term BEAT THE MARKET. i said an advantage, which is a lot different than beating the market. By advantage i mean that you know positive information about the stock you want to buy before you buy it. Such as, The stock I want to buy just beat its earnings estimate for the third time this year. So your saying, that what I just said in that last sentence does not give you an advantage? Knowing the corporation that you want to buy stock is making money, according to you is arrogrance. According to all investors, it is a big advantage to know that the stock in the corporation you want to buy is beating its earnings estimates because beating earnings estimates, making money is what makes stocks and other equities go up.

As per question #2 - So you also do not think that knowing what the sales, revenue, earnings, and growth (SREG) of a stock (corporation) you want to buy gives you an advantage? You also don't believe that fear, uncertainty, greed, and assumptions (FUGA) play an is important part in the investment world. What your saying is that an investors and consumer sentiment is not important.

As per question #4 - You also don't think that understanding risk management, and making uncertainty work for you is a good thing. By the way, it's not about beating the market. Its about making sound and savvy investment decisions to minimize your risk and enhance your ability to make money in the financial.markets. Your favorite word seems to be Arrogrance.

I have taught 25 plus years in the technical trades, which included high school, tec school, community college, and industry, and over the years my students have taught me more about human behavior than ten years of college. From my teaching experience i have learned that studends do not always comprehend what is being taught. They misunderstand what is said which anyone can do, which is the case with you. Your whole conversation with me was about arrogrance and beating the market. As a seasoned investor, and long time academic and hands on teacher I understand where you are comming from, and I only hope that you're not investing other peoples money.

In essence, what your were saying is that knowing the fundamentals and technical analysis of a stock before you buy it is not an advantage. What your saying is that, if a stock chart shows you that a stock you were interested in buying is crashing is not an advantage to an investor. So does this mean you would, let's say, buy $50,000 worth of a stock without looking at its stock chart, without knowing the fundamentals of the stock (corporation)? If that is the case, keep your money under the matress.

 

[NTL2009]

Hi NTL2009
As for question #1 - So you think that understanding the chart patterns is not an advantage to an investor? By the way, i never used the term BEAT THE MARKET. i said an advantage, which is a lot different than beating the market. ...

Yes, I added "my words" to the "beating the market" phrase. But let's get this out of the way first. If applying all this information does not provide a reasonable assurance of beating the market, then why not do as I say, invest in a broad-based index fund and take a nap?

And related to what I thought the intent of this thread is about, I do think that is the best approach for personal investment.

... In essence, what your were saying is that knowing the fundamentals and technical analysis of a stock before you buy it is not an advantage. What your saying is that, if a stock chart shows you that a stock you were interested in buying is crashing is not an advantage to an investor. ...

It's not about what I am saying, it is about what the data tells us. About 85% of professional money managers do not beat the market over a 5 year period. Of the ones that do, few of those repeat it the next 5 years (there's actual negative correlation, IIRC).

So does this mean you would, let's say, buy $50,000 worth of a stock without looking at its stock chart, without knowing the fundamentals of the stock (corporation)? If that is the case, keep your money under the matress.

No, that's not what it means, and my personal money has done far better than mattress money, so your advice is very poor indeed.

What it means is that I simply do not buy an individual stock (and don't recommend that others do either). So I don't need to look at charts (and the data tells us it wouldn't help anyway). An investor can determine an asset allocation of stocks/bonds/fixed/cash, and put that money in broad based index funds and forget about it.

You might find this interesting and relevant - these high flying hedge fund managers, using all these sophisticated analysis techniques, are losing to the guy who is effectively taking a nap and just letting the market do its thing:

http://www.marketwatch.com/story/bu...ictory-lap-over-million-dollar-bet-2017-02-25

I'll add that all the analysis in the world doesn't provide the skill set that an investor would need - and that is the ability to predict the future. The information is available to all, and the current value and future expectations are reflected in the stock price. So the stock has to do better than expected to have better than expected returns. Hmmm, how do we predict that something will do better than predictions? Well, the data says it isn't done consistently, and that makes sense.

 

[johnjohn22]

Hi NTL2009

What we have here NTL is a problem with mind set, that means the way we look at things. It''s not about your right, I'm wrong, or I'm right, your wrong. It's about understanding the rhythm, cycle, and processes. Retail investors have a hard time understanding what i am going to say.
Many times soneone would tell me, don't tell me what to buy unless its a SURE THING, or I would not read your book unless its a SURE THING.
Well, that mind set is DISNEY LAND, LA, LA LAND. if anyone can tell you a SURE THING IN THE THE STOCK MARKET, WITH 100% ACCURACY ALL OF THE TIME, THAT PERSON OR PERSONS WOULD NOT BE BILLIONAIR, THEY WOULD BE TRILLIONAIRS, as in 1,000,000,000,000.00.

There is a very old saying...the truth will set you free...However, many do not accept the truth, they want to continue to believe what they want. Whether we like it or not, the stock market is not a sure thing, The stock market is about probabilities, uncertainty, fear, greed, and risk. Many investors want for sure answers. There is no FOR SURE in the stock market, that is not until it happens. Then, when it happens its FOR SURE because it has already happened. Until it has happened it's not for sure. If it was for sure we would all be billionairs. Only after the facts can we be 100% sure. Guess what, savvy investors make money, all of the time, after the facts, or to put it another way, after the sure a thing.happens.

I'll give you an example of probabilities. I have been watching a stock that I wanted to buy to hold for 1 to 3 years. I wanted to buy 2,000 shares of this stock at $25 a share. $25 x 2000 shares = $50,000. Before buying this stock my first though was, what are the probabilies of this stock going up instead of down after I buy it. Since there is no sure thing I look at the probabilities. My knowledge and understsnding of how this company makes money, and what they were doing to raise new revenue over the next three years gave me the buy signal to buy the 2,000 shares. Did you notice that I did not say it's a sure thing, but the probabilities were backed up by the numbers the company was producing. What numbers? current and estimated future earnings were very good and steady, they had new products to sell to increase revenue, this company bought other companies to increase revenue. They have a major break through in one of their products. This company has global sales with global money coming into this company. NTL, are you catching on yet. My friend, its about money not nonsense as in it's a sure thing. Another plus for this stock is the company has been around for decades, it is well known all over the world.

NTL2009, I hope this information can help you in some way. By all means, believe whatever you want to believe, but I hope whatever you believe is making you a ton of money this year in the stock market. I'll leave you with a very, very important message...Buy the company, and not the stock. If you can answer that question you may wind up in the money side of the rainbow. What does that really mean NTL? IF YOU DON'T KNOW, I'LL HELP YOU, but I'd like to hear your version.of "buy the comosny and not the stock."

 

[russ_watters]

1. If you want to trade stocks it is imperative that you learn and understand that the financial charts are one of the most important investment tools in an investors tool box. If you learn and understand the importance of the Resistance and Support Level patterns you will enhance your ability to make money in the market.

2. Ignorance, arrogrance, and ego are three human traits that can interfere with and even destroy our intellectual development as we move through time. We all posses these traits. As an investors we must keep these traits under control, and not let them control us. Keep an open mind (impossible for some) and concentrate on making observations and not making judgements.

3. You must know and understand SREG and FUGA. SREG represents the Sales, Revenue, Earnings, and Growth of a corporation. SREG is why corporations exist. FUGA represents Fear, Uncertainty, Greed, and Assumptions. Do not ever under estimate the power of FUGA. Do not under estimate the power of investor or consuner sentiment. SREG AND FUGA are powerful market movers.

4. Someone once asked me, in two words, to describe the stock market. Here is what I said, "the stock market is Uncertainty and Risk. Once you learn how to make Uncertainty and Risk work in your favor, you will be able to make sound, savvy and educated investment decisions.

Ya know, I was thinking that at first read that this all sounded like good stuff, but then I realized that @NTL2009 is right and the later advice circles back and undermines the Rule #2...and then that makes the rules out of order: Rule #2 should be Rule #1, and there should be a yes/no decision tree after that. It's generic, and should be more pointed: the thing that people are most ignorant/arrogant about is their ability to beat the market. So the rule should include that great, big, important piece of information: you can't beat the market (except by luck, over the short term). So the decision is: do you still want to try? If yes, move on to the other rules, if not, skip all the rest, invest in an index fund and take a nap.

Once one recognizes that no one, not even professionals, can reliably beat the market, all the BS that goes along with investing just melts away. It's a powerfully liberating realization. It means that:

1. For the most part you can manage your own money without the need of a professional advisor.
2. You can do so with confidence (not arrogance) that you are doing it well.

I will admit though (and this probably applies to most of us) that even though I accept the correct answer is "no", I still answer "yes" somewhat. I do some of my own stock picking, but it is with eyes open to the idea that it will likely be a losing proposition vs what I could have done with the simpler strategy (well...you may have to ask me twice). I do try to keep that component of my investing limited though and use the S&P/nap strategy for the vast majority of my investments.

 

[russ_watters]

Hi NTL2009

What we have here NTL is a problem with mind set, that means the way we look at things...

NTL2009, I hope this information can help you in some way. By all means, believe whatever you want to believe, but I hope whatever you believe is making you a ton of money this year in the stock market. I'll leave you with a very, very important message...Buy the company, and not the stock. If you can answer that question you may wind up in the money side of the rainbow. What does that really mean NTL? IF YOU DON'T KNOW, I'LL HELP YOU, but I'd like to hear your version.of "buy the comosny and not the stock."

That really was non-responsive to his point, and I really am curious about your answers to his question(s):
1. Do you think people can use your advice to reliably "beat the market"?
2. If not, why advise people to try?

One of the the rules we have in the technical forums is that we don't provide advice on potentially dangerous projects to people who can't handle the projects (most common: how to do my own electrical wiring). Because offering them help instead of warning them to stop and close the thread makes us culpable if they get hurt because they tried something we told them and did it wrong. I would think the same principle applies here. There is a different school of thought that says it is better to provide help to do the dangerous thing safely than to not provide help and let them flounder because they'll try anyway, but that still has to start with the warning that they shouldn't be attempting it. I have a great photo of me at the top of a ski slope next to a sign and fence warning of the dangerous slope ahead, ending with: "...rescue, if available, will be difficult and expensive."

 

[NTL2009]

Hi NTL2009

What we have here NTL is a problem with mind set, that means the way we look at things. ... Whether we like it or not, the stock market is not a sure thing, The stock market is about probabilities, uncertainty, fear, greed, and risk. Many investors want for sure answers. There is no FOR SURE in the stock market, that is not until it happens. ...

NTL2009, I hope this information can help you in some way. By all means, believe whatever you want to believe, but I hope whatever you believe is making you a ton of money this year in the stock market. I'll leave you with a very, very important message...Buy the company, and not the stock. If you can answer that question you may wind up in the money side of the rainbow. What does that really mean NTL? IF YOU DON'T KNOW, I'LL HELP YOU, but I'd like to hear your version.of "buy the comosny and not the stock."

I have no idea why you went into the "sure thing" discussion. What does that have to do with anything I said?

I sure do not expect someone who invests in individual stocks to be right 100% of the time. Heck, if they have lots of 'wrongs', but are consistently even slightly more right than what the market is doing, they're doing well.

No problem, but no, your information does not help me in the least, as it is not relevant to my successful investing (or what the studies show a personal investor should be doing). I thought I made it clear, I do not "buy the company" nor do I "buy the stock". I buy 500 to 2000 companies, in a broad based index fund. How was that not clear?

So I already mentioned that it's easy to find the studies that show 85% of professional money managers fail to outperform the market. I'd be interested to see a study of individual investors, and their success rates.

And since this is a science-based forum, let's get scientific. One of the basic tenets of science, is to have individuals repeat an experiment, following the original documented, defined process. If the results are not reproducible and repeatable, the claims are brought into question.

So if technical and/or fundamental stock analysis is a true defined process, it should be able to be learned and repeated. I'd like to see the results of a statistically significant number of personal investors following these procedures, and see if they would beat the market over a 5 year period. Not anecdotes, but controlled studies. And since this is personal investing we are talking about, there is an added burden - averages aren't very important.

That means that even if the average of those stock pickers beat the market (and volatility should be taken into account as well), we need to look at the distribution. What if 30% did significantly worse? What if 10% did really badly? Should a personal investor take the risk that 10% of followers of that method end up in dire straights? I don't think so.

OK, back to "the sure thing". I think as close as you can come to a "sure thing" with investing is that if you buy into a well known, broad based, low expense-ratio index fund, that that fund will come very close to the returns of its index. And that's very likely the best approach for a personal investor (or just about any investor).

 

[johnjohn22]

NTL we are talking about two different things. i am ralking about buying individual stocks. I just learned from your post that you are talking about large funds, Ii suppose you don't believe that uncertainty and risk play an important role in the investment business. and I suppose the sales, revenue, earnings, snd growth numbers of a corporation don't mean a hill of beans to investors.

By the way, those rules i gave are not in any specific order of importance.

 

[NTL2009]

NTL we are talking about two different things. i am ralking about buying individual stocks. I just learned from your post that you are talking about large funds, Ii suppose you don't believe that uncertainty and risk play an important role in the investment business. and I suppose the sales, revenue, earnings, snd growth numbers of a corporation don't mean a hill of beans to investors.

By the way, those rules i gave are not in any specific order of importance.

So you are the second poster to this thread that just seems unwilling to engage in a dialog (the first was just preaching that 'credit cards are bad'). What is that about? I think russ_watters covered it, so I'll just quote him, and maybe you can address the questions this time, and maybe we can all learn something from each other:

That really was non-responsive to his point, and I really am curious about your answers to his question(s):
1. Do you think people can use your advice to reliably "beat the market"?
2. If not, why advise people to try? ..."

 

[NTL2009]

With apologies to NTL2009, I couldn't resist posting this Ramsey segment from 7.17.17 -



Really relates to a lot of our earlier conversation and is interesting in and of itself.

A little follow up:

@kyphysics - Can you point out the BIG logical fallacy from Dave Ramsey in that video? It jumped out at me, even as I 'skimmed' it. I'd be interested to see if you are approaching this with a touch of critical thinking.

And again, if a point is so strong, why use false logic to try to make it? Let it stand on it's own strong feet.

Oooh, ooh, pick me, pick me! [raises hand]

OK @russ_watters, I gave him some time - I'm calling on YOU! :)

 

[russ_watters]

I've deleted a couple of unhelpful posts/responses. Please, all, this might be the General Discussion forum, but this thread should be taken seriously. A couple of things to remember as part of the discussion:
1. Nobody here is an investment guru/expert, so:
2. Everything you read here is opinion, but:
3. You should be willing/able to back-up your opinion with expert opinion, facts (data) and logic.

 

[russ_watters]

OK @russ_watters, I gave him some time - I'm calling on YOU! :)

Only because it generated a bunch of posts, I didn't delete the line of discussion...

I had to go back and re-watch it because I forgot what it was about (I only got 1/3 of the way through...):

He's tripping over the definition of "cash". As used here, it is about "physical currency", but it also means "ready money", as opposed to credit, and I thought he was against credit [borrowing], not just against plastic (because who cares about plastic?). Visa is called a "credit card" company, but isn't a credit company, it is a card company; It doesn't provide credit, it just provides transaction services. So it can't, even in theory, eliminate "cash" - meaning "ready money" in its transactions.

Then also: it's voluntary (and Visa is paying people for it), so if it is a bad idea, people won't do it -- and he spends a lot of time talking about it being a bad idea. So what? Why even bother with it if it isn't going to work?

Now, the misunderstanding of "cash" is common, so when I use the term I usually define it, but him being an investment guru who reads it, defines it correctly, and then keeps using it wrong is ridiculous. Having not watched many of his videos I'm not sure what his crusade is, but it is either about credit, cards, both or meaningless blather. I'm leaning toward blather.

So: if you don't want to make a transaction with borrowed money, fine! Use a debit card. Mine still gives me incentives (though not as good as my Amazon credit card).

 

[NTL2009]

RE: this Dave Ramsey video, and my calling out the logical fallacy in this post: https://www.physicsforums.com/threa...adults-should-know.916758/page-5#post-5819703

... He's tripping over the definition of "cash".

I agree, but it isn't the logical fallacy I was thinking of.

Then also: it's voluntary (and Visa is paying people for it), so if it is a bad idea, people won't do it -- and he spends a lot of time talking about it being a bad idea. So what? Why even bother with it if it isn't going to work?

Here he was talking about Visa offering some business $10,000 to go cashless. That bugged me too, but it isn't the one I was thinking of. First he seems to say the small business owner will fall for it (but, at 4:00 - not the big guys like Costco, Sams, Home Depot, etc, who have data on their customers), and that is rather insulting to small business owners. But then he comes around to say they are too smart to fall for it? Eight minutes to tell us this?

But here is the one that jumped out at me. At 2:12 he says that “cash accounts for 32% of all consumer transactions” (I'll pick that number apart later), but the logical fallacy is then at 2:35, where he says that if a business went cashless (debit, credit, cell-phone only), they'd lose 1/3rd of their customers. “A third of your customers - forever!". And he does reference a "Mom & Pop" small restaurant.

Now wait a minute. Even if we accept for the moment that "32% of all consumer transactions" means 1/3rd of your customers use only cash at your business, it just doesn't make sense. There is no logic to say that some/most of those customers wouldn't just switch to debit, credit, or cell-phone if cash was not an option. Further, there's nothing saying those 32% are the same customers. I sometimes use cash at a restaurant, if I've managed to collect a $100 bill, it's a convenient place to use it, many other places won't take anything > $20 bill. But I pay by credit (and earn 3% rewards) when I can. I'd bet that the number who exclusively use cash is far lower than that 32% he uses.

Some data:
https://www.foodnewsfeed.com/fsr/vendor-bylines/cost-being-cash-only-restaurant
http://www.tsys.com/Assets/TSYS/downloads/rs_2016-us-consumer-payment-study.pdf

What I see here is that smaller transactions are more likely to be cash-based (coffee shop, fast food), but dining is more like 18% cash transactions (and it seems we could assume the trend holds and even that is weighted to the smaller restaurant transactions). So first, we aren't talking about giving up 32% of your business (in total $) since the cash transactions are smaller. And no basis for saying 'forever'. And no basis for saying these cash payers would not switch to other forms of payment. It's all a big nothing, and just shows his bias against credit cards (which I think is just a ploy, a straw-man 'enemy' to fight, so he can play the hero).

And in terms of personal finance, instead of teaching people to use credit wisely, he just turns into a one-size-fits-all monster to avoid at all costs, and I don't think that is helpful. It's kinda funny how he talks about Visa having a "war on cash" - what successful business doesn't try to get you to use their product, over their competitors? I guess Ford, Chevy, Apple and Samsung are all 'evil'?

Well, I think we've beaten that to death. Just one irony I'd like to point out before I move on. Funny how he rounded 32% up to 1/3rd. OK, I'll give him some 'artistic license' for shorthand in a video presentation, but... 33.333/32 = 1.04, or 4% more. And that's the rewards I get buying gas with my credit card!

 

[kyphysics]

related articles:
http://www.businessinsider.com/mark-cuban-the-value-of-cash-2012-11
https://www.forbes.com/2010/11/03/b...preneur-dallas-mavericks-secrets-self-made-10

I thought this was interesting from Mark Cuban and was wondering what people thought about it. Note that the above is a very short and edited clip (with lots of stuff "missing") from a 20+ minute interview (that can be found on YouTube as well) he did with the Wall Street Journal on investing.

He's big on keeping cash vs. investing in the market (in the traditional buy and hold school of thought). For investing, he's more into short term trading. But, putting aside this broad philosophy, he mentioned something I thought to be interesting for those with a "smaller" amount of discretionary savings (say, in the $50K to $100K range). He says you're better off using the transactional value of cash to generate wealth vs. plugging that money into the market.

What does he mean by the TVOC (this quote below is from the second article above - the Forbes piece)?:

9) You have $100,000--where do you put it?

First I pay off all my credit card debt and evaluate paying off any other debt I have. What I have left I put in the bank.

Then I try to create as much transactional value as possible from that cash. I look at my annual budgets for everything and anything, and I look to see where I can save the most money on those items. Saving 30% to 50% buying in bulk--replenishable items from toothpaste to soup, or whatever I use a lot of--is the best guaranteed return on investment you can get anywhere. Then whatever I have left I keep in the bank and let it earn nothing. Why? Because then its available for when I get a good opportunity.

Every five years or so there is a bubble bursting or amazing deals available because of a change in the economy. Anyone who just kept their cash in the bank rather than in stocks over the past five to 10 years could be buying the home of their dreams for half price in most of the country. They earned good money in half the past 10 years on the cash, and even though they aren't making much now, they have the transactional value available to them. Plus they have cash to invest if the market craters and, most importantly, they sleep great at night. Cash is king--and works far better than Ambien when you want a good night's sleep every night.

I think this is a very cool way of thinking. He's said elsewhere (IIRC) that you can beat losses from inflation from having cash sitting around (uninvested) by using it to find bargains and savings. If you wait around for big sales like during Black Friday and use coupons, rebate & cash back programs (like TopCashBack.com), and buy things in bulk (particularly, necessities and things you use a lot of), then the money you save during any given year is more than what you'd earn (or lose) in the stock market with that same cash. Non-perishables like toilet paper, which every human needs, can be bought in massive bulk and last "forever," for example.

Thoughts on this specific philosophy?

And thoughts maybe on his broader philosophy of investing? I think he makes compelling points about cyclical bubbles bursting and being able to find amazing deals you're able to snap up if you have cash vs. having all your money tied into investment accounts.

 

[russ_watters]

What does he mean by the TVOC (this quote below is from the second article above - the Forbes piece)?:

I think this is a very cool way of thinking. He's said elsewhere (IIRC) that you can beat losses from inflation from having cash sitting around (uninvested) by using it to find bargains and savings. If you wait around for big sales like during Black Friday and use coupons, rebate & cash back programs (like TopCashBack.com), and buy things in bulk (particularly, necessities and things you use a lot of), then the money you save during any given year is more than what you'd earn (or lose) in the stock market with that same cash. Non-perishables like toilet paper, which every human needs, can be bought in massive bulk and last "forever," for example.

Thoughts on this specific philosophy?

And thoughts maybe on his broader philosophy of investing? I think he makes compelling points about cyclical bubbles bursting and being able to find amazing deals you're able to snap up if you have cash vs. having all your money tied into investment accounts.

Your second link is dead and I can't watch the video right now, so for now I'll just respond to the quote and first article:

Basically, what good is in the advice is overshadowed by the very bad/wrong presentation.

1. Mark Cuban should recognize that he's not the average investor and if he intends to give advice to the average investor he should tailor that advice to them, not say what is good for him. I can't find a clear definition of "transactional value of cash" but it sounds like he's saying you should have $25-$100k just lying around because you might see a $25-$100k deal you want to invest in. Um, really? Mark Cuban might, but I certainly won't. I only own one thing in that value range: my car.

2. If you have $25K-100k in the bank and have credit card debt, you've already done something wrong. "First" is paying off the credit card debt before acquiring $25-100k in cash.

3. Keep money as cash and use cash to find discounts are separate pieces of advice. Meaning: if you always have at lest $25k in cash, that's at least $25k in cash that is losing value to inflation. And if you're constantly buying things, then that means there's new money flowing in that you are directing to those purchases. E.G., if the largest single purchase of that type you make is $5k, then you never need more than $5k available even if you are spending $100,000 a year on such purchases. You just put $2k per paycheck into that account that you are pulling $4k a month out of to make the volume discount purchases. These values start to look silly when you try to identify in practice how you use this strategy, righ?

4. If you have $25k worth of canned cream corn, that's fine, but most people don't eat enough canned cream corn to make use of a $25k reserve, much less spending a hundred grand a year on it. I think most people would struggle to store more than $5k worth of inflation-hedge perishible goods. Good investment, unreasonable commitment level. And I'd be shocked if Cuban himself really keeps that much in a stash somewhere, even though he may have room for it. Remember: filling your basement with creamed corn is a one time investment and after that you only can/have to buy it at the rate you are eating it.

I think when he says keep $25-$100k in cash, he isn't thinking about so he can buy creamed corn, he's thinking about someone popping in with a company he can invest in like on Shark Tank, where he regularly invests on that level. Again: great for him, but that has nothing to do with us.

5. Mark Cuban is more interested in short term trading. Again, fine for him, terrible for most people.

6. Even setting aside the self-contradiction, the math fails on holding cash until a crash instead of buying stock. You don't make money by buying during a crash, you make money by holding during a boom. If a stock rises from $10 to $40 a share over 10 years and then drops to $20 and you buy some, there are two ways to look at what just happened:
a. You neither gained nor lost anything because you just bought the stock.
b. You lost $10 versus what you would have had if you bought it 10 years ago. But if it makes you feel better, you lost $20 less than when the stock peaked.

For the stock market, sitting on the sidelines waiting for a good deal is terrible advice.

edit:
For reference, one "car" of a garage will hold about 560 cases of soda. At $0.25 / can, that's $3,360 worth of soda. That's a lot of volume to dedicate to an inflation hedge perishible good. If cans of creamed corn or soup cost 2-4x that, you're still only in the $13,000 range, and again once you have that stored, you're only contributing a few hundred dollars a month to maintaining it while getting awfully tired of eating canned food for every meal.

It's a good investment, but not practical to make big.

 

[NTL2009]

... I think this is a very cool way of thinking. He's said elsewhere (IIRC) that you can beat losses from inflation from having cash sitting around (uninvested) by using it to find bargains and savings. If you wait around for big sales like during Black Friday and use coupons, rebate & cash back programs (like TopCashBack.com), and buy things in bulk (particularly, necessities and things you use a lot of), then the money you save during any given year is more than what you'd earn (or lose) in the stock market with that same cash. Non-perishables like toilet paper, which every human needs, can be bought in massive bulk and last "forever," for example.

Thoughts on this specific philosophy?

And thoughts maybe on his broader philosophy of investing? I think he makes compelling points about cyclical bubbles bursting and being able to find amazing deals you're able to snap up if you have cash vs. having all your money tied into investment accounts.

[edit/add - I see I cross posted with Russ - looks like we covered much of the same ground...]
IMO, more mostly meaningless "guru-speak". First, there is nothing mutually exclusive about searching out bargains and investing your money. And most of what he talks about, you couldn't really do unless you can time the market, and studies show that can't be done reliably. It's silly to think you'd keep enough cash to buy a house without of the market, just to wait for a crash in something big? So if you owned a house, you don't need two, so you sell that one in a down market? Sure, if you are up-sizing it might make some sense, but not enough to miss out on 10 years of investment gains.

So it's a bunch of nothing.

Sure, it is good to keep enough liquidity to take advantage of bargains. So do that. But the bargains we are normally able to take advantage of are not large very large $ items. So it doesn't mean we can't also invest. At the end of 2017, some of us were able to pre-pay our 2018 property tax bills, and deduct them on our 2017 taxes (helps as the standard deduction goes up next year, so a smaller deduction may not exceed the larger standard amount, so push as much as you can into this year). I know some people who had an extra $5K to pre-pay that, and they will save ~ 25% on their taxes a few months later, ~ $1,250. Significant. And I know other people who could not come up with that cash (but it's because they spend it, not because it was invested).

People also make too much of the idea that their invested money is tied up and not liquid. I can sell at any time, and have cash in my bank in 3 days. People fear selling when the market is down, but guess what - on average the market is up! So the odds of getting caught in a downtrend are not worth the opportunity cost of staying out of the market.

I keep only enough cash to handle my month-to-month expenses, out of convenience. The rest is kept working for me. I'm doing well.

I'm not sure a really rich person is a good "guru" for the masses. He got wealthy through a business, not something everyone can do. But everyone can save and do simple buy & hold index investing, and do well.

 

[Vanadium 50]

More terrible, terrible advice from kyphysics. I guess he won't be satisfied until everyone on PF is dead broke.

My message #65 is still valid:

Kyphysics, I see we're back to the parade of gurus. I tried to be polite, and it's not working, so let me be direct. You are providing terrible, terrible advice.

The whole point of a guru is to avoid having to think for oneself. This is diametrically opposed to personal responsibility, in this case personal financial responsibility. Furthermore, having a guru who is primarily an entertainer...well, does that sound like a good idea to you? Is it not better to understand the fundamentals of finance yourself, rather than peddling a one-size-fits-all solution from a self-proclaimed guru who gets paid based on criteria other than the financial success of his clients?

Different guru, same problem.

 

[russ_watters]

IMO, more mostly meaningless "guru-speak". First, there is nothing mutually exclusive about searching out bargains and investing your money.

Heh; I used the term mutually exclusive too, but said it is. To clarify, we're in agreement but we said it opposite ways. It's kind of a double-negative the way it was presented.

 

[kyphysics]

4. If you have $25k worth of canned cream corn, that's fine, but most people don't eat enough canned cream corn to make use of a $25k reserve, much less spending a hundred grand a year on it. I think most people would struggle to store more than $5k worth of inflation-hedge perishible goods. Good investment, unreasonable commitment level. And I'd be shocked if Cuban himself really keeps that much in a stash somewhere, even though he may have room for it. Remember: filling your basement with creamed corn is a one time investment and after that you only can/have to buy it at the rate you are eating it.

I think when he says keep $25-$100k in cash, he isn't thinking about so he can buy creamed corn, he's thinking about someone popping in with a company he can invest in like on Shark Tank, where he regularly invests on that level. Again: great for him, but that has nothing to do with us.

I'll check the second link later, Russ. It worked for me earlier. Also, this is just a quickie reply. No time to go into all the points you listed atm.

I do worry that some of you guys may be reading too much into his comments and spending unnecessary time on a lot of straw man counter-arguments based on lack of comprehension of Mark's intended thoughts. Maybe his wording of things leaves open some possible misunderstanding. I don't know. I'd have to listen to the interview again myself! I'd definitely check it out, though, if you get the chance. It's pretty good stuff.

Mark never says to ONLY spend that cash on bulk necessities/replenishable bargains. He says in the quoted text I made in the earlier post to spend it on bargains AND THEN keep the rest laying around for "bigger" deals (e.g., maybe some car on auction via a broker, which my cousin did recently actually and paid it in $8,000 cash in full, instead of paying more from a local dealer or perhaps a house during a precipitous drop in value from a bubble burst, foreclosure crisis, or what have you). It's definitely worded that way in the quote. I agree that you probably won't be spending $5k on toilet paper unless you've gotten some serious issues! But, you can definitely spend a good chunk on technology (I bought an IPAD for Black Friday at a $100 discount, e.g. and had other items I could have gotten had I had more disposable cash) and home furnishings (including appliances). Over the course of a year, if you've got a family of four (I think Mark was specifically answering based on a family in that video clip IIRC, b/c the interview asked about what a couple should do if they've saved up a bunch of money), you can probably easily break $5k in spending on necessities and other bargains.

The actual amount you use for bulk bargain spending isn't important (it'll vary depending on size of household, needs, etc.), but just the idea of using the transactional value of cash was pretty interesting to me (over sticking it into an investment account).

Having quick access to that cash, as opposed to having to pull it out of investments, which may cost fees to sell off or when the investment itself may be down in the market in any given year, can be very convenient and of immediate use.

He goes on to say that if you've got over $100,000 (again, assuming a family and not a single person), then the rest you should invest in various ways. He doesn't ever say to not invest if that's what people are arguing about.

re: credit cards - Like Dave Ramsey and Warren Buffet (and many other wealthy and investing pundits), Mark tells people to stay away from them mostly.

 

[TeethWhitener]

Having quick access to that cash, as opposed to having to pull it out of investments, which may cost fees to sell off or when the investment itself may be down in the market in any given year, can be very convenient and of immediate use.

http://www.businessinsider.com/cost-of-missing-10-best-days-in-sp-500-2014-3
Very important article. If you sat out of the stock market on the 10 best days of the 20 years between 1993-2013, you cut your returns in half. If you miss the best 30 days (a month, give or take), you cut your returns by 90%. Any more than that and your returns are negative. Having dry tinder lying around is fine, but there's an opportunity cost to leaving cash on the table.

He's said elsewhere (IIRC) that you can beat losses from inflation from having cash sitting around (uninvested) by using it to find bargains and savings. If you wait around for big sales like during Black Friday and use coupons, rebate & cash back programs (like TopCashBack.com), and buy things in bulk (particularly, necessities and things you use a lot of), then the money you save during any given year is more than what you'd earn (or lose) in the stock market with that same cash.

Inflation affects everything. That includes discounted items. If you want to buy $100 worth of stuff at a 50% discount now, it'll be 100*(0.5) = $50. If you factor in 2% inflation, you're paying 100*(1.02)*(0.5) = $51. So you still get hit by inflation regardless.

 

[russ_watters]

I'll get to more later, but:

I do worry that some of you guys may be reading too much into his comments and spending unnecessary time on a lot of straw man counter-arguments based on lack of comprehension of Mark's intended thoughts. Maybe his wording of things leaves open some possible misunderstanding.

What choice do we have? Investment advice only has value if you can actually use it. So we need to know how to actually apply this advice in order to judge it - which means buidling a real scenario that applies his advice. And if he's being too vague to know for sure what he means, that's a strike against the advice too.

Otherwise, you're just holding $25k in a savings account without really understanding why and aren't actually doing anything with it!

As others have said, you aren't putting anywhere near as much thought/effort into this as you should be. May I ask; are you an investment-age adult? Is this real to you or just hypothetical?

 

[russ_watters]

Inflation affects everything. That includes discounted items. If you want to buy $100 worth of stuff at a 50% discount now, it'll be 100*(0.5) = $50. If you factor in 2% inflation, you're paying 100*(1.02)*(0.5) = $51. So you still get hit by inflation regardless.

You did that backwards. Assume no discount to focus only on the inflation:
If you store $100 worth of goods for a year, you have made $2 because buying it today would cost $102.

 

[russ_watters]

By way of example, @kyphisics this is not "advice", necessarily, but here's my entire investment for retirement strategy, in clear, concise, appliable form:

(Note1: it is structured in levels according to how the money flows through my posession. Note2: I have no credit card debt, but two short term home improvement debts at 0% interest, and a mortgage.)

1. I max-out my 401K contributions at the legal limit of $18,500 a year. I never see this money, so I don't miss it: I built-up to this level over several years by absorbing raises with it. There is a management company for this, but it is mostly in a pre-selected mix of moderately aggressive mutual funds.

2. My bank automatically deducts from my checking account monthly for my IRA up to the legal limit of $5,500 per year. This all goes into an S&P500 Index Fund.

3. After any remaining funds pile-up to about $10,000, depending on my near-term spending plan (if I'm going to buy a car soon or do some home improvement), I buy individual stocks or shares of an S&P500 Index Fund. This money is about half in each.

Spending/lifestyle control is largely a separate issue for me.

So, this is a real, actionable savings plan. It isn't flashy or complex, but it provides a good return and relatively low risk. We can call that "advice" if I say you should do the same thing. But the point is, when you get "advice" from anyone, in order to be worth anything, it needs to be written in a form that is clear enough you can actually act on it, otherwise it has no value.

Conversely, the purpose of things said by a "guru" is to promote the guru. That's why gurus rarely give meaningful/actionable advice. Mark Cuban didn't sit for that interview because he wants to help you save for retirement, he sat for that interview in hopes you might watch Shark Tank or buy Shark Tank products. So there's just no need for his "advice" to be meaningful.

 

[TeethWhitener]

You did that backwards. Assume no discount to focus only on the inflation:
If you store $100 worth of goods for a year, you have made $2 because buying it today would cost $102.

I was responding to kyphysics’s claim that you can beat inflation by buying discounted items. Inflation affects discounted items too.

 

[russ_watters]

I was responding to kyphysics’s claim that you can beat inflation by buying discounted items. Inflation affects discounted items too.

Yes it does. But you don't just buy these items discounted, you buy them EARLY. Buying discounted saves due to the discount. Buying EARLY turns a profit by beating inflation.

The two go together because in order to buy significant bulk discounted products you have to be willing to buy EARLY.

Unless I misunderstood, you are saying that there is a loss somewhere due to inflation. But there isn't. There is only a profit, or rather an avoided loss.

 

[TeethWhitener]

Yes it does. But you don't just buy these items discounted, you buy them EARLY. Buying discounted saves due to the discount. Buying EARLY turns a profit by beating inflation.

The two go together because in order to buy significant bulk discounted products you have to be willing to buy EARLY.

Unless I misunderstood, you are saying that there is a loss somewhere due to inflation. But there isn't. There is only a profit, or rather an avoided loss.

This is just saying that if you can avoid inflation, then you don’t have to worry about inflation. I agree.

I didn’t see anything in kyphysics’s post about buying early. (In fact, waiting around for big sales was specifically mentioned). The problem with buying early—as highlighted by kyphysics— is that you don’t have control over when sellers mark things down on discount, so you don’t necessarily have a choice in the matter (buying in bulk is generally available whenever). But yes, in general the earlier you buy, the less of a factor inflation plays.

 

[russ_watters]

This is just saying that if you can avoid inflation, then you don’t have to worry about inflation. I agree.

Right. This is important to understand because he is simultaneously telling you to lose money to inflation with his keep cash on hand idea.

I didn’t see anything in kyphysics’s post about buying early. (In fact, waiting around for big sales was specifically mentioned). The problem with buying early—as highlighted by kyphysics— is that you don’t have control over when sellers mark things down on discount, so you don’t necessarily have a choice in the matter (buying in bulk is generally available whenever).

It's here:

Saving 30% to 50% buying in bulk--replenishable items from toothpaste to soup, or whatever I use a lot of--is the best guaranteed return on investment you can get anywhere.

It's somewhat counter-intuitive, which has you twisted-around on it: Buying in bulk - even when waiting for sales to do it - *is* buying early because you have to maintain a stock of the thing you are buying (like toothpaste or soup) in order to avoid running out of it while waiting for the next sale.

And the reason it it is "the best guaranteed return on investment" is because it is an inflation hedge, and inflation is basically guaranteed.

Note: buying on sale is a one-time savings/profit whereas buying in bulk is an investment. And while it may seem like saving 50% on the sale is the better part of the deal than saving 2% a year on inflation, it's not. If you spend most of your adult life - say, 40 years - with a closet full of canned soup, you don't just save the 50% by waiting for a sale and buying in bulk, you profit 120% on the investment of storing it.

By the way, the book I've cited a couple of times here devotes a couple of pages to this topic:
https://www.amazon.com/dp/0547447256/?tag=pfamazon01-20

Charles Revson, the late cosmetics tycoon, bought his mouthwash by the case...
He made [money] two ways: the discount he got for buying the super-economy size, in bulk; and the discount he got, in effect, by beating inflation.

The ROI on this is actually spectacular when you include both. He did the math on buying a in bulk a $10 product that you would ordinarily buy weekly (a bottle of wine). You tie-up an extra $98 in storage of wine at most and earn 177%, not including either inflation or the opportunity opened-up by the savings (the money you save you invest in the stock market).

 

[russ_watters]

This irks me so much I have to attack it more:

And now I've watched the video too, and it's even worse. The idea of holding onto cash to wait for an opportunity only works for people who are already rich. And the explanation by the narrator is worse (holding cash and losing 2% is better than investing and losing 10%). Where does that 10% loss come from? It isn't the stock market: the stock market is a highly reliable 8% gainer. See, what makes this advice so bad is that he's advocating taking a loss in order to set up a future opportunity, but he's only telling you how to take the loss! Without knowing what the opportunity for gain is that you are setting up, there is no way to evaluate whether this is a good idea or not, much less execute it!

And even if you are holding an average of $25k and then occasionally taking some of it to make an investment and then replenishing it, I'm not sure you recognize how much you are actually losing by holding the $25k. It's a lot:

-You lose $4,877 over 10 years due to inflation.
-You lose an additional $29,071 by not having the money in the stock market.

So these other investments that you are waiting for, that he won't tell us what they are, better be capable of netting you at least $34,000 over 10 years, with little risk, otherwise they aren't better than storing the money in the stock market.

Also, the idea that you need cash for liquidity is false. But, Mark would say; what if there is an emergency or opportunity that causes you to need a bunch of cash right now? Well it depends on how much and how fast, but it takes at most a week to get money out of the stock market and I've never bought something that cost more than $25,000 on less than a months' notice. And while I've never had a $25,000 emergency, you can float that for a week (or a month) on credit. That's one of the great things about credit cards: if you aren't carrying a balance, the credit card company IS PAYING YOU for the privilege of financing your emergency! So pay for that emergency with a credit card, and then sell some stock to repay it, and bank the triple-profit you just made.

 

[TeethWhitener]

Right. This is important to understand because he is simultaneously telling you to lose money to inflation with his keep cash on hand idea.

It's here:

It's somewhat counter-intuitive, which has you twisted-around on it: Buying in bulk - even when waiting for sales to do it - *is* buying early because you have to maintain a stock of the thing you are buying (like toothpaste or soup) in order to avoid running out of it while waiting for the next sale.

And the reason it it is "the best guaranteed return on investment" is because it is an inflation hedge, and inflation is basically guaranteed.

Note: buying on sale is a one-time savings/profit whereas buying in bulk is an investment. And while it may seem like saving 50% on the sale is the better part of the deal than saving 2% a year on inflation, it's not. If you spend most of your adult life - say, 40 years - with a closet full of canned soup, you don't just save the 50% by waiting for a sale and buying in bulk, you profit 120% on the investment of storing it.

By the way, the book I've cited a couple of times here devotes a couple of pages to this topic:
https://www.amazon.com/dp/0547447256/?tag=pfamazon01-20

The ROI on this is actually spectacular when you include both. He did the math on buying a in bulk a $10 product that you would ordinarily buy weekly (a bottle of wine). You tie-up an extra $98 in storage of wine at most and earn 177%, not including either inflation or the opportunity opened-up by the savings (the money you save you invest in the stock market).

This is an interesting idea, but I’m skeptical how much money the inflation hedge will ultimately make you in the real world (unless you’re running a business). For instance, you only make 120% on the can of corn you hold for 40 years. You make 4% on the cans you eat at year 2. And most consumables aren’t particularly value-dense. So you need the capital investment and floor space to hold multiple years worth of toilet paper/canned corn/etc. Factor in breakage (which also compounds with time) and it eats further into gains.

This could probably work for value-dense regular purchases. Wine isn’t the best example—most wines sour after a year or two and the ones that don’t are riskier investments than an inflation hedge should be. Maybe perfume? I’ve got a basement full of consumables that I’ve bought in bulk and I’m trying to think of the most value-dense stuff down there. Razors? But I can’t imagine these supplies will last me more than a few years. I dunno. Maybe I’ll run the numbers when I get some time.

 

[russ_watters]

This is an interesting idea, but I’m skeptical how much money the inflation hedge will ultimately make you in the real world (unless you’re running a business). For instance, you only make 120% on the can of corn you hold for 40 years. You make 4% on the cans you eat at year 2.

No, the trick to this is that from an economic standpoint, you aren't eating the cans in the store, even as you are rotating them with the cans you buy. From an economic point of view, the cans left at the end are *all* 40 years old. The cans that you eat from one week to the next are separate from the investment in what you stored.

Now that you mention it though, the fact that they are separate means that the math I did only counts for the cans you store - the one-time savings of buying in bulk only applies to those cans. The cans you eat are multiple buys at additional savings.

And most consumables aren’t particularly value-dense. So you need the capital investment and floor space to hold multiple years worth of toilet paper/canned corn/etc. Factor in breakage (which also compounds with time) and it eats further into gains.

Right. It's a great investment only if you have extra space to fill and if you try to make it better by building new space, you lose a lot of the return. It's a bit silly to me, but the author mentioned he knew someone who's coffee table was a short stack of canned goods with a piece of wood on top. And the author does say (as I pointed out before) that most people can only reasonably store one or two thousand dollars worth.

This could probably work for value-dense regular purchases. Wine isn’t the best example—most wines sour after a year or two and the ones that don’t are riskier investments than an inflation hedge should be.

I didn't think that was true, but if it is then yes, it means you could never have a store of more than a couple of extra cases of wine. But as you say, there are denser and longer-lasting consumables.