MORE REASON TO DIVERSIFY

Friday‘s column asked why you might want to put more than 20% of your 401(k) in your own company stock and offered four (very bad) reasons. Jonathan Levy read those four and added a fifth:

[ ] e) So that I can lose both my savings AND my salary at the same time if my company falls on bad times.

REASON ENOUGH TO DRINK MORE

Wenyu Pan: ‘I bought your book and the section called ‘A Penny Saved Is Two Pennies Earned’ was an eye-opener to me. The 177% you say is annualized return realized buying wine by the case at a 10% discount is even more intriguing. I tried to figure this 177% out myself, and found the return would be 211%! Here is my calculation:

week 1: Invest $98, earn $1, weekly return 1/98;
week 2: Invest $97, earn $1, weekly return 1/97; (you got $1 back in 1st week)
week 3: Invest $96, earn $1, weekly return 1/96;

week 52: Invest $47, earn $1, weekly return 1/47; (you’ve got $51 back already).
annual return = 1(1+1/98)(1+1/97)…(1+1/47) = 210%

My Basic program:
r = 1.0
for i = 47 to 98
r = r*(1 + 1/i)
next
print r
r= 2.106383 (211%)

☞ This may be basic to you but is, of course, way over my head. Will the smart kids in the class let us know where Wenyu has gone wrong, if he has? I was at first distressed I couldn’t figure this out myself until I read:

WHO NEEDS REASON?

Johnny Dicks, Jr. brought this profound ‘Salary Theorem’ to my attention:

The less you know, the more you make.
Proof:
Postulate 1: Knowledge is Power.
Postulate 2: Time is Money.
As every engineer knows: Power = Work / Time.
And since Knowledge = Power and Time = Money,
It is therefore true that Knowledge = Work / Money.
Solving for Money, we get:
Money = Work / Knowledge
Thus, as Knowledge approaches zero, Money approaches infinity, regardless of the amount of Work done.

☞ Works for me.

 

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