

06182004, 10:26 AM

#1


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Re: Calculating Rate of Return, when Buying.......
06182004, 11:24 AM

#2

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Re: Calculating Rate of Return, when Buying.......
I agree. With a little snooping I can frequently find items for half price or better.
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Be fearful when others are greedy, and greedy when others are fearful. Just another form of "buy low, sell high" for those who have trouble with things. This rule is not universal. Do not buy a 1973 Pinto because everyone else is afraid of it.



I think ER is founded on savings, not investing.
06182004, 11:44 AM

#3

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I think ER is founded on savings, not investing.
I've always felt that spouse & I owed our ER more to our savings than to our brilliant investing.
Or maybe it was all those years of sea duty, where we never had an opportunity to spend the money?
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Re: Calculating Rate of Return, when Buying.......
06182004, 01:58 PM

#4


Re: Calculating Rate of Return, when Buying.......
I had some luck, but more than anything I owe my ER
to being relentless about the concept. Once I decided
to go, nothing on this earth could have held me back.
John Galt



Re: Calculating Rate of Return, when Buying.......
06182004, 02:01 PM

#5


Re: Calculating Rate of Return, when Buying.......
Hello CutThroat! I can guarantee that there is more
money to be made by shopping carefully than by
investing. I have a lifetime of experience to back this
up. It's not even close.
John Galt



Re: Calculating Rate of Return, when Buying.......
06182004, 03:47 PM

#6

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Re: Calculating Rate of Return, when Buying.......
Cutthroat:
If you bought 52 bottles a month, you would save $1248.00 a year! Your air fare to Alaska, with lots of change.



Re: Calculating Rate of Return, when Buying.......
06182004, 07:01 PM

#7

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Re: Calculating Rate of Return, when Buying.......
I definately agree that careful shopping is one of the best investments. I was moving from NYC to Hong Kong at one time and had to pack everything. The living space in HK is much smaller than in NYC so I had to throw out a lot of things. I found out I bought mulitple items and never used them. So now I only buy things after something wears out of I need it. Very little waste this way.
As for the mathamatical problem of the wine it could be made a bit more complicated than the difference between buying a bottle a week versus by the case. The missing factor is the time value of money.
Assuming the person had the $520 in the bank earning interest and took out $10 a week to buy the wine you can see that the difference isn't just the cost of buying by the week vs by the case. The other aspect to be factored into the equation is the interest earn on the money saved by buying by the case. (You could also add the gas savings but ...). All this is a good mental exercise if you want to take the time.
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Re: Calculating Rate of Return, when Buying.......
06192004, 02:24 PM

#8

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Re: Calculating Rate of Return, when Buying.......
Okay, I built the spreadsheet to look at the problem. Assuming one bottle per week at $10 or 52 bottles at the beginning of the year at 8$, what is the rate of return for buying in bulk?
Of course it depends on the rate of return you assume for the money you have "on the sidelines off the wine market" from week to week.
But the answer is between 20% and 23.5% for assumed savings returns of 0% to 7%. And you come out over $104 ahead for the year.



Re: Calculating Rate of Return, when Buying.......
06192004, 02:55 PM

#9

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Re: Calculating Rate of Return, when Buying.......
Buy 32 five liter bottles of wine. Lock yourself in the bathroom for 52 weeks.
Savings: nearly 100%.
Liver transplant: priceless.
__________________
Be fearful when others are greedy, and greedy when others are fearful. Just another form of "buy low, sell high" for those who have trouble with things. This rule is not universal. Do not buy a 1973 Pinto because everyone else is afraid of it.



Re: Calculating Rate of Return, when Buying.......
06192004, 03:12 PM

#10


Re: Calculating Rate of Return, when Buying.......
I am always shopping for cheap wines. Recently I
have been buying Foxhorn chardonnay, but now I've switched to Rabbit Ridge. I think it's better, but only by
a hare.
John Galt



Re: Calculating Rate of Return, when Buying.......
06192004, 03:19 PM

#11

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Re: Calculating Rate of Return, when Buying.......
I'll have to hop on down to the store quick like a bunny and try some out.
How does it go with carrots?
__________________
Be fearful when others are greedy, and greedy when others are fearful. Just another form of "buy low, sell high" for those who have trouble with things. This rule is not universal. Do not buy a 1973 Pinto because everyone else is afraid of it.



Re: Calculating Rate of Return, when Buying.......
06192004, 06:53 PM

#12


Re: Calculating Rate of Return, when Buying.......
Quote:
I'll have to hop on down to the store quick like a bunny and try some out.
How does it go with carrots?

I think you had 'Frogs Leap' in mind when you said this.



Re: Calculating Rate of Return, when Buying.......
06212004, 08:13 AM

#13

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Re: Calculating Rate of Return, when Buying.......
This example was in Tobias' book "the only investment guide you'll ever need." Tobias only gave you a 10% discount on the wine, which leads to a 177% rate of return.
A 20% discount leads gives you a 813% annualized rate of return. It's tough to get this without a financial calculator or using the IRR function in Excel. Once the answer is given it's pretty easy to see that the weekly return on investment is 4.344%, and taking the 52 power gives you 813%.
This does not depend on the rate you can return on your other investments. Obviously, as salaryguru assumes, you're not going to make 800% on most of your investments, so you'll really only end the year $100 ahead or so.



Re: Calculating Rate of Return, when Buying.......
06212004, 09:13 AM

#14

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Re: Calculating Rate of Return, when Buying.......
We routinely save in the area of 15% on our weekly grocery purchases thru use of Safeway's Club Card and coupons. I would estimate our return on buying the Sunday paper at over 100% since we primarily buy it just for that reason.



Re: Calculating Rate of Return, when Buying.......
06212004, 10:59 PM

#15

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Re: Calculating Rate of Return, when Buying.......
Quote:
This example was in Tobias' book "the only investment guide you'll ever need." *Tobias only gave you a 10% discount on the wine, which leads to a 177% rate of return.
A 20% discount leads gives you a 813% annualized rate of return. *It's tough to get this without a financial calculator or using the IRR function in Excel. *Once the answer is given it's pretty easy to see that the weekly return on investment is 4.344%, and taking the 52 power gives you 813%.
This does not depend on the rate you can return on your other investments. *Obviously, as salaryguru assumes, you're not going to make 800% on most of your investments, so you'll really only end the year $100 ahead or so.

Well . . . I'm confused about what you are really talking about now. I simply built two spread sheets and started with an identical nest egg for both. In one case I subracted $10 per week while increasing it by an annualized return value. In the other case I subtracted $8*52weeks = $416 in the first week while increasing it by the annualized return value each week.
The result does depend on the return on investment. To come up with an annual rate of return, I simply took the approximate $100 you end up ahead with the discount initial buy case and divide it by the starting $416 nest egg.



Re: Calculating Rate of Return, when Buying.......
06222004, 09:50 AM

#16

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Re: Calculating Rate of Return, when Buying.......
Quote:
The result does depend on the return on investment. *To come up with an annual rate of return, I simply took the approximate $100 you end up ahead with the discount initial buy case and divide it by the starting $416 nest egg. *

This is not an annual rate of return. This is called ROI, which is independent of the timeframe. The annual rate of return would be much higher because you get some of your "return" earlier than at the end of the year. I suggest reading up on XIRR in Excel if you're interested.
malakito.



Re: Calculating Rate of Return, when Buying.......
06222004, 10:20 AM

#17

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Re: Calculating Rate of Return, when Buying.......
Quote:
This is not an annual rate of return. *This is called ROI, which is independent of the timeframe. *The annual rate of return would be much higher because you get some of your "return" earlier than at the end of the year. *I suggest reading up on XIRR in Excel if you're interested.
malakito.

Okay, malakito,
Thanks for clarifying. I would simply say that in this case, rate of return is not a very meaningul number to look at. For a retired consumer, you can save ~$100 per year on a nominal $520 price tag item. That's a good deal if you can afford the initial investment and aren't taking on too much addional risk (breakage, etc.). When I look at a number like an 800% rate of return applied to this issue, I simply conclude that this is a poor way to look at the problem.



Re: Calculating Rate of Return, when Buying.......
06232004, 12:21 PM

#18

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Re: Calculating Rate of Return, when Buying.......
IRR has some limitations, and NPV (esentially what you described) is usually better. In your analysis, though, you need to stick to the dollar figure, and not the percentage. The way that the IRR would be useful in this example (and the percentage you got would be misleading) is if you are trying to make a decision like, "should I buy this case of wine instead of investing in a 5% CD," or "will I come out ahead if I buy the case of wine and carry the balance on my credit card at 20%." Unless your alternative returns over 800% you should "invest" in the wine.



Re: Calculating Rate of Return, when Buying.......
06232004, 01:06 PM

#19

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Re: Calculating Rate of Return, when Buying.......
Quote:
IRR has some limitations, and NPV (esentially what you described) is usually better. *In your analysis, though, you need to stick to the dollar figure, and not the percentage. *The way that the IRR would be useful in this example (and the percentage you got would be misleading) is if you are trying to make a *decision like, "should I buy this case of wine instead of investing in a 5% CD," or "will I come out ahead if I buy the case of wine and carry the balance on my credit card at 20%." *Unless your alternative returns over 800% you should "invest" in the wine.

Hi bongo2, I agree that this may not be the best kind of analysis to use to make a purchase vs investment decision. On the other hand, if you are retired and generating income from a portfolio, this analysis in not without merit.
But I only built the spreadsheet because the original post led me to believe that there might be significantly more value to this bulk purchase decision than the 20% discount that was obviously built in. Additional discount value beyond 20% would, of course, have to come from the returntime value of the unspent dollars. The spreadsheet simply allowed me to analyze that.
You think I could get a 20% discount on beer if I bought 1000 bottles at once? And does anybody know how many cubic feet 1000 beer bottles require?



Re: Calculating Rate of Return, when Buying.......
06232004, 01:53 PM

#20

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Re: Calculating Rate of Return, when Buying.......
Quote:
The bigger question is How long does beer last before it goes skunky?

I've never been able to find out
Nice rack
I thought about doing buy and store, particularly since I live halfway between the Napa/Sonoma area and El Dorado's wineries (who make arguably the worlds best Zinfandels). Never got into it though.
My old Mcmansion had a perfect spot for a low cost storage area though. Huge standup crawlspace, dry but not too dry, with an earth temp that stayed in the upper 50's to low 60's all year round. I could have done a little excavating, a little redwood or cedar set into the ground, and laid in some case lots for a few years.
I did find a way to do this REALLY on the cheap though. My wifes house is in a soso neighborhood. Up the corner is a small store with a wine aisle. Mostly boones farm type stuff but they did come up into the $57 bottle range, None of the locals have been in the mood to "celebrate" though because the shelves have plenty of those "expensive" bottles, covered with dust. A lot of them are 19911995 reds, and a couple of 96 whites which are likely to be scary when opened. I've bagged a few of those older reds and they were yummy, quite a good value, and free storage!
So go find a l'il corner store like this and see what they gots...
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Be fearful when others are greedy, and greedy when others are fearful. Just another form of "buy low, sell high" for those who have trouble with things. This rule is not universal. Do not buy a 1973 Pinto because everyone else is afraid of it.





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