Reading a new book, “Millennial Money: How Young Investors Can Build a Fortune”, by Patrick O’Shaughnessy.
Wanted to share a simple investing principle cited in the book; and something for us to consider, consuming vs. investing…
“In October 2001, the cost of a shiny new, first generation iPod was $500. At the time, the same $500 would have bought you 64 shares of Apple stock. The 2001 iPod has been rendered obsolete ten times over, but the 64 shares are now worth $32,308. Investing is better than spending.”
Of course, Apple just announced their QUARTERLY profit of $18 billion; more than another business has ever earned in one quarter.
The question is, if I had this information in 2001, would I have still bought the iPod? I almost certainly would have borrowed money to buy as much Apple stock as possible. This would make me feel much more comfortable in giving up the $32,308 for spending $500 and getting the utility of iPod in 2001. I believe that is a completely rational assumption.
However, would you have bought the iPod with this information if you only had access to exactly $500? What is your opportunity cost of not having the iPod in 2001? There were other technologies available to listen to music back then remember. I actually think not having an iPod or other digital music device would be a much bigger obstacle.
There are also so many factors that are important here, i.e., when would you have additional cash, how long would you have to “go without”?
My guess is that I would have waited as long as possible and try to get by on my old Sony Discman!
I still have my 2001 first generation iPod, do you think it worth any part of either the original price or the $32,000?
We make trade-offs and long-term decisions every time we make any investment. The opportunity cost of our assets, cash, and liquidity is something to consider.