Download to read offline
Uploaded byBrian Gongol
When $1 today is worth $2.50 tomorrow
The document discusses how inflation impacts costs over long periods of time. It notes that a 5 cent Coke in 1900 would cost over $1 today when adjusted for inflation. It also discusses how small differences in annual returns, like Warren Buffett achieving 11.1% annual returns compared to the S&P 500's 9.7%, can lead to huge differences over 50 years. The document advocates considering total life cycle costs, like purchase price, ongoing costs, maintenance, when making investment decisions rather than just initial sticker price.
More Related Content
Similar to When $1 today is worth $2.50 tomorrow
When $1 today is worth $2.50 tomorrow
- 1. When $1 Todayis Worth $2.50 Tomorrow Brian Gongol DJ Gongol & Associates, Inc. June 7, 2017 Iowa WEA Annual Conference Ottumwa, Iowa
- 2.
- 3.
- 4. 2017: 50¢ ina pack
- 5. 2017: $1.00 froma vending machine
- 6. But...the 5¢ Coca-ColaWasn't Really 5¢
- 7. Inflation makes anenormous difference
- 8. 5¢ in 1917= $1.04 today
- 9.
- 10. Even a littleamounts to a lot...over time
- 11.
- 12. How to getrich on 2%
- 13.
- 14. How Buffett didit S&P 500 grew 9.7% per year (1965 to today) Berkshire grew 20.8% per year Difference: 11.1% per year
- 15. How Buffett didit S&P 500 grew 9.7% per year (1965 to today) Berkshire grew 20.8% per year Difference: 11.1% per year, but 1,959,878% over 50 years
- 16. How it appliesto equipment
- 17. Some purchases arequick and dirty
- 18. Nobody buys a$10,000 pencil
- 19. Some up-charges areno-brainers Extending a magazine subscription for $1 a year
- 20. But most bigpurchases require some thought
- 21.
- 22.
- 23. Operational costs Power/fuel Consumables Wearing parts
- 24.
- 25. Maintenance costs Products Operator time
- 26. Extra benefits Is itgood for doing more than one thing?
- 27. Substitutions Can something else do the jobin a pinch?
- 28. Opportunity cost The truecost of anything is what you give up to get it
- 29. Accounting principle Ideally, youwant to match the cost of something to the time over which you'll use it
- 30. A note onfinancing
- 31. We live ina very, very strange era
- 32. Inflation: Around 2%a year
- 33.
- 34. The real costof borrowing is 1.25% +3.25% -2.00% ------- +1.25%
- 35. Easy to justifyborrowing at 1.25% It's not quite "free", but almost
- 36. Another note onfinancing
- 37. Great for borrowers,terrible for savers
- 38.
- 39. 12-month CD rates:0.25%
- 40. The real returnon saving is -1.75% +0.25% -2.00% ------- -1.75%
- 41. Your task Since householdsaren't getting any benefit from "safe" savings, anything you can do to invest wisely for long-term returns in your utility is good for them
- 42. Saving for thecommunity
- 43. Municipal rates areusually very low "Municipal bonds Ted, I'm talking double-A rating..."
- 44. They also rarelyinvest on their own behalf It's worth considering the rate of return for taxpayers if they kept their own money
- 45.
- 46. Rewarding long-term residents Long-termresidents benefit most from life-cycle cost management
- 47. Who benefits from"cheap"?
- 48. Who benefits from"cheap"? "Cheap" benefits transient residents and punishes long-term community members
- 49. Two excellent timesto borrow long
- 50. 1. Low "real"interest rates Interest rate on paper minus inflation rate equals "real" interest rate
- 51. 2. High returnson investment
- 52.
- 53. Replacement period How longwill it really last?
- 54. Parts Will some needto be replaced often or with great difficulty?
- 55. Consumables Giving away therazor and selling the blades
- 56.
- 57. Out-of-house maintenance Is aservice contract being sold by stealth?
- 58. Energy It takes alot of kilowatt-hours to pay for maintenance labor and downtime
- 59. Real labor costs Multiplyhourly wages by 1.5 to 2 for the true cost
- 60.
- 61. Example: ISU Towersdemolition
- 62. 39-year life cycle Constructed in 1966 Demolished in 2005
- 63. Demolition cost: $3million
- 64. Demolition cost: $3million "Both buildings have significant deferred maintenance"
- 65.
- 66.
- 67.
- 68.
- 69.
- 70.
- 71.
- 72. Extra benefits But wait!There's more!
- 73.
- 74.
- 75. Can it berebuilt to like-new condition? Is there an intermediate step between new and a complete replacement?
- 76. Free puppies aren'treally free "Free" when abandoned by a neighbor
- 77. Free puppies aren'treally free "Free" when abandoned by a neighbor Needed $600 in dental care immediately
- 78. Free puppies aren'treally free "Free" when abandoned by a neighbor Needed $600 in dental care immediately Hidden costs: Walks, housebreaking, new shoes
- 79. Example 1: Whencheap really isn't
- 80. Example 1: Whencheap really isn't
- 81. Example 2: Ongoingcosts will get you
- 82. Example 2: Ongoingcosts will get you
- 83. Example 2: Ongoingcosts will get you
- 84. How far aheadis too far ahead to buy quality?
- 85. Dangerous to assumeproper maintenance
- 86. Consider whether techmay become obsolete
- 87. To recap Inflationhappens Costs and investments alike can compound Sticker price is almost never the real life-cycle price How you structure your costs over time can reward or punish certain types of customers Financing conditions affect the "right" decision Even "free" isn't really free Sometimes $1 spent today is worth $2.50 later
- 88. Questions? Thank youfor your attention! Brian Gongol DJ Gongol & Associates 515-223-4144 brian@gongol.net www.gongol.net Twitter: @djgongol Facebook.com/djgongol
- 89. Credits Coca-Cola advertising image(public domain): http://www.loc.gov/pictures/item/2004671509/ CPI calculation: https://data.bls.gov/cgi-bin/cpicalc.pl?cost1=.05&year1=191701&year2=201701 CPI graph: https://data.bls.gov/pdq/SurveyOutputServlet CPI data: https://fred.stlouisfed.org/graph/?g=dZrT 15-year mortgage data: https://fred.stlouisfed.org/series/MORTGAGE15US 12-month CD data: https://fred.stlouisfed.org/series/CD12NRNJ Municipal bonds: https://fred.stlouisfed.org/series/WSLB20 Alcatraz closure: https://www.bop.gov/about/history/alcatraz.jsp All other pictures and images are original work by Brian Gongol. Copyright and all other rights reserved. Use by others is prohibited except by explicit written permission.