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Monday, April 17, 2017

The Financial Lesson in a $1 Hot Dog

Chris Davis once asked his grandfather to buy him lunch. Grandpa said no and told him how he could turn the missed lunch into $1,000.

It’s no secret that a dollar today isn’t worth the same as a dollar 30 years from now. Year by year, inflation eats away at that dollar in your piggy bank. The good news is that smart investing more than makes up for inflation’s effects.

Chris Davis, chairman and portfolio manager of Davis Advisors, learned the lesson at a young age. In a recent interview with Barron’s, Davis recalled a time he skipped lunch to attend a meeting with his grandfather and afterwards asked for a dollar to buy a hot dog. The grandfather explained that Davis could spend a dollar on the hot dog now, or he could watch it grow to be worth $1,000 by the time he reached his golden years.

“I actually went back and did the calculation, and he was just about exactly right,” Davis says. (We did our own math and $1 invested at an admittedly aggressive 12% amounts to $1,005 after 61 years.)

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7 comments:

Anonymous said...

And this is a revelation to whom? living under which rock?
The lesson really becomes impressive once one understands and appreciates its application to the public sector. Please send this to every uninformed ( very close to all) politician you know.

Anonymous said...

On second thought, the bigger story is that there is a majority for whom this is a revelation. The politicians need only the bottom of the bell curve majority to perpetuate themselves, hence the ' hire and aspire' to the lowest common denominator mentality.
Check back in in 3-5 years with whether you're really better off or not.

Steve said...

Yeah, that s true i the early 60's, but with today's ZIRP, I can;'t make the maintenance fee on my retirement account. It goes down every year. If I take it and stuff it in my mattress, it wouldn't do that, but I'd have to pay taxes for the income, so it's being stolen either way.
So much for an example as to why out children should save for their retirement, right?

Anonymous said...

But by then you're dead from starvation because you didn't have a hot dog.

Anonymous said...

a politician in the making

Anonymous said...

Sounds like a story that a person that wants to charge you for "investing" your money would tell.

Anonymous said...

Tightwad. Let the kid have a hot dog grandpa.