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Fun with Math

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May 17, 2007 – Comments (6)

I notice some ads in our sidebars, and I must quibble with the assumptions. Forgive me, it's the only Foolish thing to do.

"10,000 in Wal-Mart in 1970..." Doesn't sound like much, right? But we're talking about today's dollars. $10 K in 1970 dollars = $53,000 in today's dollars. Back then, the inflation adjusted median income was about $35 K per year.

Considering that median income today is around $43,000 per household, you should ask yourself: are you likely to put an amount equivalent to 125% of household income into a single stock? In 1970, with median household income even lower, (you can see that a $10,000 investment in 1970 would have represented an even bigger -- you might say enormous -- sum of money for the median U.S. household.

Investing in winners can be great, but lets get real about the sums. I'll bet my finger-painting smock that most Fools couldn't afford to put 125% of their household income into a single stock, and it wouldn't be a smart move even if they could. Pick the wrong one, and byebye nestegg.

6 Comments – Post Your Own

#1) On May 17, 2007 at 2:18 PM, amteague777 (95.85) wrote:

Great blog .... I'll feel much better when I read that ad next time. :)

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#2) On May 17, 2007 at 2:24 PM, FoolishChemist (97.07) wrote:

Ironically the ad you mentioned appeared when I was reading this post!  They'll have to put a little disclaimer at the bottom now. :-)

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#3) On May 17, 2007 at 2:57 PM, tomnsung (83.66) wrote:

 Finger-painting smock?   No pictures, please!

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#4) On May 17, 2007 at 3:01 PM, wcwhiner (30.74) wrote:

..not to mention that WMT in 1970 was an itty, bitty, scary pre-NASDAQ OTC small-cap.  So, I guess the next Wal-Mart trades today on the OTCBB.  Wow.

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#5) On May 17, 2007 at 8:12 PM, TMFBent (99.82) wrote:

..not to mention that WMT in 1970 was an itty, bitty, scary pre-NASDAQ OTC small-cap.

Was it? I'm not aware where it traded. However, the point is the same. Betting the equivalent of more than a year's income on a single micro-cap isn't the kind of thing most of us are likely to do. However, betting, say, 1/10th of that would in some cases be reasonable, and that would still do a lot of good -- riding the right horse.

sj 

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#6) On May 18, 2007 at 10:19 AM, wcwhiner (30.74) wrote:

It first traded OTC, not listed.  NASDAQ wasn't founded until 1971.  Over-the-counter was less disreputable then, but the go-go sixties ended in a bear market.  Not many would see a -30% drop off late-'68 highs and sink 10% of net worth into any single OTC name.

It sure would have been a nice investment, though.  Do we know anyone who actually made it and held the whole time, aside from Walton and pals?

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