On July 26, 2000, two friends, Jim and John, each got a $1000 bonus at work. (They both work for Nortel Networks, where in the summer of 2000, there was LOTS of money around for bonuses). Jim, being an intelligent, financially conscientious person, put the whole $1000 into Nortel Networks stock. With his $1000, and the transaction cost of $35, he was able to purchase 7 shares at $123 each.
Having watched the Nortel stock climb and climb, he felt very good about this investment, happy that he is preparing for the future. John, being a more care-free sort, did something slightly different with his $1000. John borrowed a friend's truck, and proceeded to the Beer Store, where he purchased 33 cases of beer. John also felt very good about his investment: 33 cases x 24 = is 792 bottles of beer! John, also being an intelligent guy, although perhaps not as forward-thinking as Jim, calculated that he could drink about 15 bottles per week, and he wouldn't have to buy beer for a whole year. Jim, of course, was appalled by John's purchase, and berated him constantly about it.
As months went by, Jim excitedly watched the stock prices, and saw it start to dwindle. "It'll go back up", he'd say to John. John, who has been reaping the benefits of his investment on a daily basis, would reply, "Ya, it will. Hang in there buddy ". Months went by, and the value of the stock continued to fall, and there was the beginnings of a noticeable dent in the beer pile. Midwinter came, Jim's stock had fallen to about half of it's original value, and John's beer was about half gone. Jim, being sure that the stock had hit rock-bottom, still was berating John for his frivolous purchase, telling him "Your beer will be gone in six months! Who knows what my stock will be worth!!"
Well, summer has come, and hard times at Nortel continue. Bad news: Both John and Jim have been affected by the layoffs. Last week, in order to raise some cash to help through the rough time, Jim sold his 7 shares, at that day's value of $12*, and got $84, then after paying the $35 transaction fee, he only had $49.
Jim stopped by John's house later that day (everyone needs their friend's during rough times), and as luck would have it, there were two bottles of John's beer left. John, being a good, compassionate friend, offered to share his last two bottles of beer with his friend. Jim appreciated the gesture, and enjoyed the cold beer on the hot summer's day, but he felt a bit guilty. "At least I got fifty bucks back out of it - you have nothing now.", he said. "That's ok.", replied John. "Perhaps you can help me, I need to return all these empties.", he added as his other friend with the truck pulled in. So, they loaded up the truck, and proceeded off to the beer store. Upon arrival at the beer store, they unloaded the empties, feeling a little grim. John went to the counter, and collected his refund for the bottles. "33 cases x 24 bottles, at 10 cents per bottle, that comes to $79.20", the
friendly Beer Store clerk said to John as he handed him the money. Jim was speechless. Poor guy.
Can you imagine how you would feel if you just discovered that over the course of the last year, your $1000 stock investment left you with $50, and taking same 1000, buying beer, and drinking it, would leave you with $80. I'll leave it up to the reader to come up with they're own "moral to the story".
Have a nice day, and happy investing.
