Wine by the Case – Amazing Math March 7, 1996February 6, 2017 Welcome to my “daily comment.” The ground rules Ceres and I have agreed to are simple. I can write whatever I want, ranging from a sentence to an epic, and nothing is off limits. I can even say things like, “Don’t trade stocks yourself — for most people, it’s smarter to invest through no-load mutual funds.” Which it is. This example has sort of evolved. The first time I used it was in 1978, on The Tonight Show. Say you bought a $10 bottle of wine for dinner every Saturday night, but could instead get a 10% discount buying by the case. You’d “make” 10% on the extra money you tied up. And you’d “make” it in just 12 weeks — a bottle a week for 12 weeks equals one case of wine — which works out, I explained, to “better than a 40% annual return.” I didn’t explain how much better. I figured 40% was dramatic enough. Where else can you earn 40% tax-free? (Uncle Sam doesn’t tax you for smart shopping.) As the years passed, I found people were having trouble understanding this little shtick of mine. Why is it 40% if I just got a 10% discount? So I tried explaining it in a little more detail. What actually happens, I explained, is that instead of going to the store and laying out $10 for one bottle, you are laying out $108 for 12 bottles — $120 less the 10% discount. Which means you are laying out $98 more than you otherwise would have. That extra $98 is your “investment.” By keeping at most that much extra tied up all year, you save $1 a week on wine — $52 a year. And “earning” $52 a year by tying up $98 is earning 53%. So now I was up to 53%, an even better tax-free return. This confused people even more. That first $98 is gone, they would tell me, and now you have to come up with a new $98 to buy your next case of wine. But think about it. If you were someone who planned to spend $10 every week on wine — $520 a year — and who would have LOVED to save 10% buying by the case but just couldn’t scrape up enough money all at once to do it, how much financing would you need? Would you have to go to a bank and ask for a $400 line of credit in order to be able to change your buying habits? No, you would need only a $98 credit line — and you would only fully draw it down that very first week. After that, you would replenish it by $10 a week (the $10 you used to spend on wine by the bottle), which means that after 12 weeks, when you needed to buy the next case, you would not only have replenished the full $98, you’d actually have an extra $12 to work with (the money you saved buying by the case). So now you’d have to draw down only $86 of your $98 credit line. In other words, to finance this change in habits you’d need a maximum credit line of $98. But you’d only actually draw down that much the very first week. Within 10 weeks you’d have paid the balance down to zero; then run it back up to $86 in the 13th week to buy your next case of wine; then paid that off in 9 weeks; then run it back up to $74 to buy your next case — and so on. On average, over the course of the year, you’re using far less than the full $98 to finance this change in buying habits. So the return on your decision to tie up that $98 at first, and then gradually less, is actually much greater than 40% or 53%. If my friend Less Antman has keyed all this into his Hewlett Packard financial calculator right — and I’ve never known him to err — it works out to an annualized 177% rate of return (though try explaining THAT in 40 seconds on The Tonight Show). It’s still only $52 you’re earning — $1 a week by getting the 10% discount. But you’re earning it NOT on that first $98, which is the MOST you ever have to set aside to change your buying habits, but on an average “investment” throughout the year that’s much lower. Next step: find a vintage you like equally well that’s $8 a bottle. Tomorrow: Potpourri
Everything BUT Tuna March 6, 1996February 6, 2017 Welcome to my “daily comment.” The ground rules Ceres and I have agreed to are simple. I can write whatever I want, ranging from a sentence to an epic, and nothing is off limits. I can even say things like, “Don’t trade stocks yourself — for most people, it’s smarter to invest through no-load mutual funds.” Which it is. Yesterday, I recounted what Kramer and I know about saving money at warehouse stores. The land-of-the-giants tuna fish episode of Seinfeld. Today, I take you comparison shopping, just to give you a sense of what’s out there. The idea is to shop smart and save money, because the IRS doesn’t tax you for that. A penny saved at the supermarket is a penny that falls straight to your bottom line. My motto: NOTHING IS EVER ON SALE AT THE 7-ELEVEN. The following shows prices for January 24, 1996 in the Miami/Ft. Lauderdale area. The comparison is in no way meant to be scientific, just to give you a sense of how prices — especially prices per unit — can vary. If you always tend to get the best price, or nearly the best price, you will save a lot of money compared with those who get the normal mix of good and bad prices. Not shown here are the really bad prices — the travel size toothpaste you can buy in the hotel shop for $2.39. Instead, I just compared a Sam’s Club warehouse store with two large Southeast supermarket chains, Publix and Winn-Dixie. Not shown either are the “store brands” that are often another excellent way to save money. Not on ketchup, of course — there is only one Heinz ketchup. But on garbage bags? Paper towels? In many cases, these come off the same production line as the “brand name” products. And a final disclaimer: I’m not saying you should actually eat stuff like this. Fresh vegetables, baked potatoes, lots of fruit — that’s what you should eat. (Costco sells a mean jumbo frozen fruit salad, incidentally.) The point of this is just to show how prices can vary. Item Sam’s Publix Winn-Dixie Kraft Velveeta Price per lb. 1.798 1.995 3.28 Kraft Parmesan Cheese Price per oz. .31 .37 .41 Stouffer Frozen Lasagna Price per oz. .09 .125 .125 Tostitos Tortilla Chips Price per oz. .125 .206 .186 Pepperidge Farm Goldfish Crackers Price per oz. .128 .215 .193 Nabisco Wheat Thins Price per oz. .125 .179 .179 Hunt’s Catsup Price per oz. .037 .052 .047 Hellman’s Mayo Price per oz. .074 .112 .105 French’s Mustard Price per oz. .057 .050 .061 Campbell’s Tomato Soup Price per can .49 .40 .445 Chef Boy-ar-dee Ravioli Price per oz. .055 .066 .67 Mott’s Apple Sauce Price per oz. .033 .039 .041 Juicy Juice Boxes Price per oz. .038 .043 .058 Minute Maid Juice Boxes Price per oz. .038 .035 .039 Ocean Spray Cranberry Gallon 5.22 5.99 5.98 Milk (gallon) 2% 2.05 2.87 2.87 Skim 2.05 2.77 2.77 Whole 2.15 2.87 2.87 Kraft American Singles Price/slice .083 .112 .115 Eggs 18 carton (large) 1.48 n/a 1.85 Pop Tarts Price per tart .215 .249 .248 Post GrapeNuts Cereal Price per oz. .125 .162 .103 Wheaties Price per oz. .158 .166 .165 Kellogg’s Corn Flakes Price per oz. .117 .137 .137 Maxwell House Price per oz. .174 .177 .174 Peter Pan Peanut Butter Price per oz. .081 .107 .106 Bumble Bee Chunk Light Tuna Price per oz. .103 .095 .095 Del Monte Peas Price per oz. .027 .036 .032 Del Monte Green Beans Price per oz. .025 .033 .034 Del Monte Corn Price per oz. .025 .036 .032 Del Monte Peaches Price per oz. .038 .051 .051 My other motto: SHOP AROUND. Tomorrow: Wine by the Case: Amazing Math
Tuna Prices March 5, 1996February 6, 2017 Welcome to my “daily comment.” The ground rules Ceres and I have agreed to are simple. I can write whatever I want, ranging from a sentence to an epic, and nothing is off limits. I can even say things like, “Don’t trade stocks yourself — for most people, it’s smarter to invest through no-load mutual funds.” Which it is. Today: tuna fish. Did you see the Seinfeld where Kramer shows up holding a giant can of Starkist solid white albacore he had bought at a warehouse store? My jaw dropped, because I had, a week or two before, been photographed with the exact same 4-pound 2.5-ounce can (well, not literally the same can, but you know what I mean) at a warehouse store for PARADE. It was to illustrate the idea of buying in bulk to save money. And here was Kramer — Kramer! — making exactly the same point, with exactly the same prop. (He would then move on to Beefaroni as the plot thickened, but I won’t even begin to try to clip-clop through the whole thing.) Now, what’s interesting about tuna is that it’s something of a special case. It’s such a staple, supermarkets sometimes use it as a loss leader. The six-ounce can at the supermarket, on sale occasionally at 98 cents a can — 16.33 cents an ounce — can actually be cheaper than the large size at that same supermarket, or perhaps even beat the warehouse store. Kramer’s tuna cost him $10.79 (if he got the same deal I did), which comes out to 16.23 cents an ounce. Then again, at a non-sale price of $1.29, let alone the $1.44 I saw recently, buying the six-ounce size costs 31%, or even 47%, more per ounce. Boy. If you spend $2,000 a year on the kinds of things you could buy in bulk when they’re on sale (or at warehouse stores, where items are more or less always on sale) . . . and if you could save 31% by shopping smarter . . . that’s $620 a year, tax-free, risk-free. And of course it’s more convenient, not less, because you rarely run out of anything, and you need take fewer trips to the store. That saves time and gasoline. Environmentally speaking, it probably uses less energy and resources to make one big tuna can than 11 little ones. Certainly it’s more convenient not to have to open 11 little cans, if you’re making tuna salad for an army. Then again, if you’re just making yourself a sandwich, the land-of-the-giants size may use up half your Tupperware. But isn’t that what’s great about America? Choices. Under communism, tuna all came in one size, and they were out of it. Tomorrow: Everything BUT Tuna
Publishers Clearinghouse March 4, 1996February 6, 2017 Welcome to my “daily comment.” The ground rules Ceres and I have agreed to are simple. I can write whatever I want, ranging from a sentence to an epic, and nothing is off limits. I can even say things like, “Don’t trade stocks yourself — for most people, it’s smarter to invest through no-load mutual funds.” Which it is. By the time you read this the excitement will be over, and the helicopters will be back in their hangars, but picture the scene: My mother — the kind of energetic optimist who can get cars with frozen batteries to start when no one else can (“the triumph of black magic over science,” said my father once, years ago, after he had given it up as impossible and called Triple-A), and who sees almost any glass as more than half full — is leaving for a long cruise. Where you or I would be worried about passports and visa requirements (the cruise stops in Vietnam; do you need a visa?) and how much to bring and a million other things, she is worried that she will be gone the day they pick the Publishers Clearinghouse Sweepstakes winner. Because you know, she tells me, you have to be home to win. I don’t know if this is true, but she believes that if you’re not there to jump up and down for the camera, they’ll pass you by. She is kidding, I assume, and even she must realize on some level she is kidding. But after the third or fourth time she mentions this, I suggest she simply end her phone machine message with, “. . . and if this is the Publisher’s Clearinghouse Sweepstakes, call 011-873-110-4507 and we will return immediately.” And so she does exactly that. It’s very expensive calling “ship to shore” (or, in this case, shore to ship). But the assumption is that with $10 million at stake — or $11 million, which was the other prize she had signed up for — someone can spring for the $10-a-minute call. At which point Mom would say, “Stop the ship! Get me a helicopter! I’ve got to get home for Ed McMahon!” Just what they will make of this in Ho Chi Minh City I have no idea. For three weeks, anyone who called got that message, even after the Super Bowl (and the prize winner announcement) were long over. And no, she didn’t win. This year. But she came awfully close. (Like everyone else, she made “the final round.”) And she was ready. I don’t participate in the Sweepstakes myself because the cost — a 32-cent stamp — exceeds the expected return. (Ten million dollars spread out over 20 years is worth about $5 million today before taxes, maybe $3 million after. If 20 million people send in the sweepstakes form, then the chance of winning is worth one twenty-millionth of $3 million, or 15 cents — a net loss of 17 cents. I don’t actually know that 20 million people DO send in the form, but in the interests of time, I have decided not to research this more thoroughly.) I also suspect that the computer that chooses the winner is programmed to nix certain zip codes, like 90210 (Beverly Hills) and 10021 (Manhattan’s Upper East Side), because the image of Leona Helmsley or Zsa Zsa Gabor jumping up and down when the cameras arrive to inform her she’s won may not be the sort of shot they’re after. I don’t happen to live in one of those zip codes, but I still don’t picture them coming to my door. Tomorrow: Tuna Prices
Business Anecdotes March 1, 1996February 6, 2017 Today I inaugurate what’s likely to be a periodic feature of these “comments,” and that is an occasional “business anecdote” — usually from a time long gone by. I’m a sucker for anecdotes, and a sucker for business history. Here’s one not about some famous business pioneer, but simply about “Jim,” whose story came to my e-mailbox the last time I put out a call for anecdotes: At my former company, “Jim,” a lawyer, was the financial Vice President. We had an abacus as a piece of decorative art in our lobby. It was about two feet by four feet and operational. One day I was showing the receptionist how to use it, when Jim walked by on his way to the rest room. As I was still there upon his return, he spoke to me. “I’m expecting our bankers any minute now, and it really doesn’t look very good for our professional staff to be ‘playing’ in the office.” I agreed, went back to my office, and thought nothing further of it. Evidently it really upset the receptionist that he would speak to me like that. She was still fuming when the bankers arrived. Still upset, she escorted them directly to “Jim’s” office without announcing them over the intercom. They arrived to find “Jim” pasting “Blue Chip Stamps” into his stamp book. [Note to younger readers: Blue Chip stamps are — were — well, oh never mind. I guess they were the “frequent flier miles” of the Fifties.] Tomorrow: Publishers Clearinghouse
The Social Security Stock Market Boom? February 29, 1996February 6, 2017 There’s a movement to have the Social Security Trust Fund partially invested in stocks. Wow. This was the recommendation of a Clinton-appointed federal advisory commission, and we will all be hearing more about it in the months to come. The idea is not to have Uncle Sam picking stocks and trying to outsmart, say, well, you or me. The idea (at least so far) is to have perhaps three-eighths of these funds invested in a broad, broad index of the market as a whole. Granted, the Trust Fund is not as large as you might imagine. It’s largely a “pay as you go” kind of retirement system, where all our contributions used to go right back out to our grandparents, with nothing put away for our own retirements. In the past decade or so, however, we’ve begun collecting more than we need to pay out right now, hoping to build a cushion for when the baby boomers are retired, with too few workers to support them all. That cushion has been growing fatter and fatter (although not so much as to solve the long-term problem), and it’s all invested in U.S. government bonds. After inflation, the Treasury bonds can be expected to earn barely more than 2%, while stocks have historically earned more like 6%. So, the thinking goes, why not juice up the return on this money? Clearly, the injection of tens of billions of new capital in the market, if it happens, will have effects. One obvious one: raising stock prices higher than they otherwise would have been (more demand, same supply, equals higher prices). But nearly as obvious: higher borrowing costs to the Treasury (less demand for Treasury bonds, same supply, equals lower prices for bonds, which means higher interest rates). I’m not saying it’s a bad idea, just intriguing. I like to think if it’s done at all it will be done prudently. With a Treasury Secretary like Robert Rubin, that’s likely. You don’t want to get the government into the business of trying to manage the stock market. Still, the market might be even less prone to unreasoning panic than it is today if people knew that on steep sell-offs the Trust Fund might take the opportunity to scoop up an extra $50 billion or $100 billion of securities. And it might even help keep the market from reaching dangerous over-valuations if people knew that the Trust Fund would occasionally “take profits,” since it has, after all, no capital gains tax to worry about. One can see all sorts of potential for abuse and mismanagement. One can also see off to the distant future when a lot of the surplus might have to be sold off to support those Baby Boomers. What kind of long-term drag would that be on the U.S. stock market? (And Heaven help us if we start awarding contracts to high-priced money managers. You can see the potential for cronyism and boondoggle in that. No, the “transaction costs” on these investments should be just a hair above zero.) And then there’s the question of why we should even limit this to the U.S. stock market? Overseas markets, in countries growing faster than we are, may do even better than our own. To the extent the Trust Fund could profit by stepping in to soften some other market’s panic — buying when prices have plunged — it could be a potent force in global economic foreign policy at the same time as it aided the world economy and piled up more loot for retirees. So perhaps a small portion of the investible funds should have the flexibility to go abroad, odd as that may sound at first. In trying to scope out something so new and potentially impactful (is that a word? well, it should be), it’s good to keep perspective. Here’s mine: this money isn’t going to come from nowhere, it’s going to mean a shift from demand for Treasuries to a demand for stocks. Who will buy the Treasuries we no longer do? How high will interest rates have to climb to attract other purchasers? One potentially benign answer — conceivably — is “no one.” If we’re really lucky, budget deficits will shrink and the Treasury’s need to borrow will moderate. Indeed, the shift of some Social Security money from debt to equity could even encourage a bit more economic growth (which could shrink the deficit further). I think I’m getting a little carried away. But this thing is pregnant with possibilities. Stay tuned. Tomorrow: Business Anecdotes
Tobacco – Part 2 February 28, 1996January 29, 2017 Welcome to my “daily comment.” The ground rules Ceres and I have agreed to are simple. I can write whatever I want, ranging from a sentence to an epic, and nothing is off limits. I can even say things like, “Don’t trade stocks yourself — for most people, it’s smarter to invest through no-load mutual funds.” Which it is. Yesterday I described how your teenage son or daughter who developed a savings habit instead of a nicotine addiction could have, at age 65, $814,000 instead of cancer. Today, let me continue on this theme (I promise: no more than two tobacco comments a month, max). I’m prompted to do so by the arrival of A PRIMER ON TOBACCO: A Collection of Facts, Figures and Quotations about Tobacco compiled for the Navy by my college classmate Dr. David Moyer, Captain in the US Navy Medical Corps. Did you know, for example, that world cigarette consumption in 1994 hit 5.34 trillion — up 1% from the 1993 — which works out to 946 cigarettes for every man, woman, child and two-week-old infant on the planet? Or that “44% of all Americans have a family member or close friend who died from smoking-related disease” (Washington Post National Weekly — 11/20/95, p. 15)? Or that 52% of American doctors smoked in 1951? Here’s some good news: that number had by 1990 dropped to just 3%! Compare that with what’s going on in Russia, where I’ve been trying to annoy the tobacco companies with anti-smoking TV commercials. I went to Moscow’s giant and preeminent (for Russia) cancer institute — and was told that 70% of the doctors there smoke. Oncologists! Did you know that from 1992 to 1993, per capita cigarette consumption in the U.S. dropped 9%, from 506 billion to 461 billion? Or that smoking is much more prevalent among the less well educated? Only about 14% of college grads smoke, compared with 37% of those with neither a college or high school diploma. Or that among men 31 to 49 years old, smokers are 1.8 times as likely as nonsmokers to be impotent? (American Journal of Epidemiology, 140:1003, 1994.) Or that it takes 39 weeks for a smoker’s bone fracture to heal versus 21 weeks for a nonsmoker? (Health, 9/95, p. 16.) Or that “infants and children of parents who smoke inhale the same amount of nicotine as if they themselves smoked up to 150 cigarettes yearly?” (Journal of Pediatrics, 9/95, p. 435.) Or that “in a study from Greece, children exposed to [second-hand smoke] had a 3.5-fold increased risk of increased “respiratory morbidity” (three or more episodes of upper or lower respiratory infection in the preceding year) compared to children not exposed to [second-hand smoke]?” (Lancet, 7/29/95, p. 280.) Well, don’t get me started. (Now if we could only get Jesse Helms to smoke more.)
Tobacco Bucks February 27, 1996February 6, 2017 Welcome to my “daily comment.” The ground rules Ceres and I have agreed to are simple. I can write whatever I want, ranging from a sentence to an epic, and nothing is off limits. I can even say things like, “Don’t trade stocks yourself — for most people, it’s smarter to invest through no-load mutual funds.” Which it is. Everybody knows nicotine is addictive, smoking causes cancer and heart disease (among other things), and that tobacco executives lied under oath to Congress. But when there’s so much money at stake, nothing’s easy. We spend something on the order of $5 billion a year in this country alone promoting the leading cause of preventable death in America. And so there’s actually been an uptick in teenage smoking. Kids think they’re immortal, and it’s certainly true that no teenager is going to die from smoking until he or she is at least in his or her thirties or forties, and more likely fifties or sixties, which seems preposterously old to a teenager anyway, so there’s little point lecturing your son or daughter about the health toll of tobacco. Forget health. Tell ‘em about the money. Because the fact is, once you’re hooked on a pack a day, that’s $700 a year, give or take (plus having to pay double for life insurance and more for cold remedies and the like), which could otherwise be invested in a mutual fund. With a bit of luck, that mutual fund might over a lifetime appreciate at 10% a year. So, tell your son or daughter, one way at 65 you have cancer, the other way you have — are you ready? — $814,000! Tomorrow: More tobacco facts
The Mayor of San Francisco February 26, 1996February 6, 2017 Welcome to my “daily comment.” The ground rules Ceres and I have agreed to are simple. I can write whatever I want, ranging from a sentence to an epic, and nothing is off limits. I can even say things like, “Don’t trade stocks yourself — for most people, it’s smarter to invest through no-load mutual funds.” Which it is. So there I was getting ready to address the Golden Gate Business Association in San Francisco, the gay business group, but awards had to be awarded first (to some truly outstanding business people, I might add), and the mayor had to read a proclamation. Another mayor might just have sent a messenger, or come up to accept some applause, read the thing proclaiming it Golden Gate Business Association Day, and bolt. Not Willie Brown. Willia Brown, who for many years had all but controlled the California legislature until term limits required him to find something new to do, accepted his standing ovation and proceeded to deliver a rollicking, side-splitting and eventually serious speech (the proclamation itself, he said, was — and this is a direct quote, though I can’t begin to do justice to the mastery of his delivery, “bullshit”). It was great in parts, and slick throughout. His main comic theme was how much of a pay cut he’d had to take with this new job. Being from Miami, I hadn’t any idea just how low that might be, but remembering that the governor of Arkansas used to earn just $35,000 a year, I formed the appropriate mental picture. The mayor described how, when it first came, he looked at his paycheck uncomprehendingly. “What could it be?” he asked a staffer. “Your paycheck.” So he took it home — holding it at arm’s length, as it were, it was such a dirty little amount (this is a mayor known for enjoying the finer things in life) — and just laid it on the kitchen counter and forgot about it. The next day, he told us, he came home from work to have the doorman tell him, “Your maid left you a message. She wanted you to know she saw what you were proposing to pay her and she quit.” And it went on from there. Very funny. But I will admit I was surprised to learn what the Mayor’s salary actually is in San Francisco: $139,000. Tomorrow: Tobacco Bucks
Berkshire Hathaway February 23, 1996February 6, 2017 Welcome to my “daily comment.” The ground rules Ceres and I have agreed to are simple. I can write whatever I want, ranging from a sentence to an epic, and nothing is off limits. I can even say things like, “Don’t trade stocks yourself — for most people, it’s smarter to invest through no-load mutual funds.” Which it is. You may have noticed that Warren Buffett announced for the first time ever he’d be selling Berkshire Hathaway stock. Not his own, $100 million of new stock — but since he controls half the existing stock, it’s at least half like selling shares of his own. He had a lot of good reasons — for example, at $32,000 a share, giving a child even one share exceeds the annual gift tax exemption — and so he wanted to issue a new class of shares in piddly little $1,000 chunks, 30 of which would equal a “real” share. Still, the smartest investor in the world was selling Berkshire Hathaway stock (another reason: “it’s not exactly selling at a bargain price,” he said, or words to that effect). So what did the market do? It immediately bid the price of BRK up another $2,000 a share. If Buffett was selling, the market figured, it must be yet another brilliant move for Berkshire Hathaway, and so yet another reason to buy. And, given my track record on BRK — consistently recommending it from $300 a share right on up to its current $34,000, except consistently advising people to “wait until it falls back a little, however,” and thus never once snagging even a single share my sorry old self — I will admit the irony I find in this is probably misplaced. The market is probably right. Whatever Buffett does, whatever press release is issued, is always reason to bid the stock up. Even if the news is that he’s selling a little. (And again, to be clear, he’s selling just a very little, and only indirectly.) I have no doubt that the extra $100 million BRK raises this way will be put to good use, and that I will again have missed a good opportunity to jump on board. But, as usual, I think the stock is a little ahead of itself. Tomorrow: The Mayor of San Francisco