Charles Revson, the late cosmetics tycoon, bought his mouthwash by the case. By doing so, although it was the furthest thing from his mind, he did better investment-wise than he ever did in the stock market. In the stock market, with his Revlon-made fortune, Revson perennially blew tens of thousands of dollars on one or another speculation. But on Cepacol he was making 20% or 30% a year, tax-free.
He made it two ways: The discount he got for buying the supereconomy size, in bulk; and the discount he got, in effect, by beating inflation. He got a year’s worth, or two, at last year’s price. If he had kept the money he spent on Cepacol in a savings account at 5%-for him, 2% after tax-and taken it out bit by bit to buy Cepacol in the one-at-a-time $1.19 size, where would he have been? The lesson is clear, even if you are one of those people with naturally pleasant breath.
Say you’re a couple who drink one bottle of red wine every Saturday night. And say, to keep the math simple, you go for the fancy stuff-$10 a bottle. Say, finally, your wine shop is like mine: it offers a 10% discount if you buy by the case. What kind of “investment return” can you “earn” buying by the case? Ten percent? No, it’s better than that.
It works out to better than a 53% return-tax-free, no less, since the IRS doesn’t tax you for smart shopping.
The old way, you paid out $10 every week. Buying by the case, you lay out $108 ($120 for twelve bottles, minus the 10% discount). That means tying up an extra $98, but “earning” a $1 discount on every bottle for doing so. In the course of the year, that comes to $52. Gosh! That’s quite a reward for keeping, at most, an extra $98 tied up throughout the year. It works out to better than a 53% returntax- free, no less, since the IRS doesn’t tax you for smart shopping.
The point is not to save $12 on a case of wine, but to do as much of your buying this way as is practical. In the aggregate, it might tie up an extra $1,000. But between beating inflation by buying now and buying in bulk when items are on sale (or getting a by-the-case discount), you could easily stretch $1,000 to buy $1,400 of the very same stuff you’d have bought in the course of the year anyway. And that’s a 40% tax-free return on your money-$400 you’ve managed to save in the course of the year-with no sacrifice whatever. It’s not enough to make you rich, but neither is $1,000 in a savings bank.
This is the chickenhearted way to play commodities, guaranteed safe for all but compulsive eaters. Forget pork bellies on 10% margin and all those other nearsurefire ways to get fried. I am “long,” as of this writing, several cases of Honest Tea, a case of private-label tissue paper, a virtual lifetime supply of trash-can liners, several kegs of Heinz ketchup, and much more. I was “short” sugar years ago, when it ran up to the moon, which is to say I wouldn’t buy any. I just ate down my inventory. Wholesale sugar prices subsequently fell from 64 cents back down to 9 cents and I went “long” a few pounds.
Plan your portfolio, which doubles as a disaster hoard, and buy it on sale, in bulk.
Where to put this mountainous investment? Besides the obvious, like a pantry or basement, if you have such spacious digs, you might also consider stashing your hoard under a bed or table, with a bedspread or tablecloth over the top. I know this is absurd, but I’ll bet you can fit thirty cases of staples under just one table. Or make it a bench and put a board over it, with a cushion. Water jugs, bouillon cubes, a can opener (don’t forget that!) - plan your portfolio, which doubles as a disaster hoard, and buy it on sale, in bulk. (If you’re hoarding tuna, you’ve obviously got to hoard mayonnaise, too.)
This idea of a disaster hoard, by the way, is not such a foolish one. Nor is it “gloom and doom.” Disasters do occur...floods, earthquakes, poweroutages... even terrorist attacks...and it does make sense for every household to accumulate-now, when there’s no need to, at sale prices-enough nonperishables to last a while. Such a modest stockpiling not only protects individuals, it serves the social interest as well. Just as the nation is stronger if there are strategic stockpiles, so is the social fabric a little less susceptible to disruption or panic if everyone has an added layer of security.
Don’t tell me about botulism, either - out of 1.43 trillion cans of food sold between 1926 and 1994 (when I stopped counting), only eight produced fatal cases of botulism. Canned food lasts for years (though soda does tend to go flat). And if you rotate your cases of food and drink, the way you used to rotate the sheets on your bed in camp-top to bottom, bottom to laundry, fresh one on top-you’ll never let anything get too far out of date.
Excerpt from: The Only Investment Guide You’ll Ever Need, by Andrew Tobias
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