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Dont think of price, think of cost per use

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Re: Dont think of price, think of cost per use

#161

Post by BeetleB »

allgreed wrote: post #106
BeetleB wrote: post #66

Earlier quoted context omitted.

> With your phone, if all you care about is texting and making calls, yeah, you're not getting any added value paying more. If that's all you care about, paying $400 like I do is silly - you can get it much cheaper. The $400 phone I get takes fairly good photos (it's one of my main criteria in deciding on phones). Sure, if I want great photos, I'll have to pay more. I've decided that an extra $1100 over 3 years is no…

I’m not sure I follow your argument about ESPP. It’s almost always the case that maxing out your ESPP contribution is a good idea instead of getting the money earlier and investing it in something else. It might even be worth getting a loan and still maxing out the contribution should you require more cashflow (because 10% loan is still cheaper than missing out on ~90% return). But the t return is limited to your max…

> It’s almost always the case that maxing out your ESPP contribution is a good idea

I completely agree. I did say I'm pro-ESPP.

The key point you miss is that the amount you can make is somewhat capped - and for many companies, the cap is 5% of your salary. It's almost always nice, free money, but most of the times it's a relatively small amount of money. It should not rank high in your whole investment scheme.

To take things to an absurd level, I can offer you a deal: You give me $1 (and cannot give more), and 6 months later I'll give you $10. That's a 9000% rate of return. Fantastic deal, right? But is it a big part of your investment strategy? I hope not.

> How making more money in absolute terms in some other investment invalidate the above?

It doesn't invalidate it. The trouble is when people focus on the rate of return more than the absolute amount, and decide to pick ESPP instead of investments that will make more money. When you look at absolute amounts, it's clear that ESPP, even though is good, is inferior.

If you do both, then it's not a problem.

Re: Dont think of price, think of cost per use

#162

Post by BeetleB »

Folcon wrote: post #135
BeetleB wrote: post #24

This is completely backwards. Always think in absolute dollars and not in rates. $1000 is $1000 whether the cost per use is pennies or tens of dollars. Thinking in terms of rates is how people would fall for predatory installment purchases in the old days (you can have a new computer for just $2.5 a day!) The other obvious problem is looking at cost absent of a market. It's not just how much it is worth it to you, bu…

I've not heard of Engineering Economics before, can you recommend any great textbooks that are preferably standalone and have good examples?

Apparently I did not keep my textbook, and don't remember which one I had.

This one[1] is probably decent (looking at its table of contents):

https://www.amazon.com/Engineering-Economic-Analysis-Donald-...

It's not a sophisticated topic. If you're a non-CS engineer who knows calculus and algebra well, this is one of the easiest topics in the curriculum.

Even if your calculus is poor, simply using the concepts with a spreadsheet will get you almost all the way.

Re: Dont think of price, think of cost per use

#163

Post by BeetleB »

demopathos wrote: post #140
BeetleB wrote: post #24

This is completely backwards. Always think in absolute dollars and not in rates. $1000 is $1000 whether the cost per use is pennies or tens of dollars. Thinking in terms of rates is how people would fall for predatory installment purchases in the old days (you can have a new computer for just $2.5 a day!) The other obvious problem is looking at cost absent of a market. It's not just how much it is worth it to you, bu…

I'm not sure why absolute values are inherently easier to analyze than rates. My income is a rate so I find normalizing on time to be pretty useful. I think $/use is pretty similar to normalizing on time

> I'm not sure why absolute values are inherently easier to analyze than rates.

Simple: $10K is greater than $8K. Analysis is complete.

Is 10% better than 8%? Not always. It depends on how much you put in and what the duration for those investments are. This is trivially true, yet so many people ignore this aspect.[1] People also get confused between simple and compound rates.

In a lot of real world investment situations, the inputs and timelines aren't the same. In real estate there are plenty of investments that require a minimum investment and have a fixed timeline (cannot withdraw in that time period). Quickly: Is a $50K investment at 8% compound rate over 7 years better than a $40K investment at 10% simple rate over 5 years?

There are also investment strategies that require periods of holding cash. It's not trivial to compare those with, say, an S&P 500 investment using only rates.

The standard taught in the engineering economics classes:

1. Fix your time interval to whatever is relevant for your situation.

2. Compute the cash you will have at the end of that time interval (i.e. absolute amount)

3. Go with the higher one.

[1] Yes - even in the absolute analysis, you should have the same timeline, and technically it's equivalent to a rate comparison in that sense. But I've found that when people do the absolute analysis, they never seem to forget to account for the timelines being the same.

Re: Dont think of price, think of cost per use

#164

Post by r00fus »

Gigachad wrote: post #56
r00fus wrote: post #35

I just amortize the cost over the useful period. $2k bed / 10y = $200/y. If that’s worth it for me to upgrade then it’s simple to make the call. We spend a third of our life sleeping so having a good bed is a worthwhile investment.

That assumes the $2k bed is any better than the $1k bed. There is a lot of info proposing it’s not even better than the $500 bed but the marketing teams can easily sell it at a massive markup because people split the cost over years and use.

I don't know about newer viscoelastic foam beds, but I've had the experience of buying several standard foam mattresses (due to life event lots of family was flying in) and there is a quality difference between the lower and mid grades.

One would typically try them out at the showroom - it'd be really nice if they could let you sleep a whole night on one.

Re: Dont think of price, think of cost per use

#166

Post by godelski »

lelanthran wrote: post #72
godelski wrote: post #54

Earlier quoted context omitted.

I don't think you're necessarily disagreeing. There's a factor that neither you nor the author are considering: value/$. Author is implicitly assuming that the higher cost equates to a higher value (clearly this is never a linear relationship). So my friends call me the cheapest person they know, but I also think like the author. If there is something I am going to use a lot and the added value helps me, then I'll sh…

> With your phone, if all you care about is texting and making calls, yeah, you're not getting any added value paying more. If all you care about is texting, making calls, playing the occasional game[1], browsing the web, doing mobile banking, listening to music, watching videos, using social media, responding to work emails, viewing the occasional PDF, word processed document or spreadsheet sent over email, screenca…

Did you skip the second half of my second paragraph? I discuss this and it seems you agree with me. Several users have responded this way now so I'm a bit confused. Should I have put in a break to clarify? Was it just too long to people skip?

Re: Dont think of price, think of cost per use

#167

Post by HeyLaughingBoy »

Folcon wrote: post #135
BeetleB wrote: post #24

This is completely backwards. Always think in absolute dollars and not in rates. $1000 is $1000 whether the cost per use is pennies or tens of dollars. Thinking in terms of rates is how people would fall for predatory installment purchases in the old days (you can have a new computer for just $2.5 a day!) The other obvious problem is looking at cost absent of a market. It's not just how much it is worth it to you, bu…

I've not heard of Engineering Economics before, can you recommend any great textbooks that are preferably standalone and have good examples?

Actually, most of them tend to have exactly that phrase in their title. Count me in the group who wishes far too late that he had held onto his copy instead of selling it at a discount to another student.

I think any introductory textbook on Managerial Economics would cover the same material. It's just that Engineering Economics books tend to use industrial plants and machinery for most of their examples.

Re: Dont think of price, think of cost per use

#168

Post by HeyLaughingBoy »

hitovst wrote: post #115
lelanthran wrote: post #75

Earlier quoted context omitted.

> Have you seen what has happened to the market for fuel inefficient vehicles lately? I have not. What has happened? Have SUVs stopped being the most popular class of passenger cars being sold?

The demand for the big diesel SUVs that get about 9 miles to a gallon has gone away, and people are trying to sell them for 20% of what they'd bring a year ago.

That sounds... odd. The big diesel SUVs and pickups that get around 9MPG are typically fairly old and used mainly as tow vehicles for businesses or people with large boats, horse trailers, etc. The acquisition cost of a more fuel efficient vehicle that has similar horsepower, torque and towing capacity is far higher than just paying more at the pump.

This isn't passing the smell test. Do you have examples of it happening?

Re: Dont think of price, think of cost per use

#169

Post by HeyLaughingBoy »

nextlevelwizard wrote: post #82
BeetleB wrote: post #24

This is completely backwards. Always think in absolute dollars and not in rates. $1000 is $1000 whether the cost per use is pennies or tens of dollars. Thinking in terms of rates is how people would fall for predatory installment purchases in the old days (you can have a new computer for just $2.5 a day!) The other obvious problem is looking at cost absent of a market. It's not just how much it is worth it to you, bu…

>I personally pay less than $400 a phone and keep it for over three years. Paying $1000 for a phone just two years is not an improvement. Either you aren't using your phone much or you are needlessly suffering with inferior product. Wearing cheap shoes for years when you could afford comfortable high quality shoes is not a virtue. Same goes with tools we use.

Have you considered that other people have different needs than you? My last phone (Nokia 640) cost about $200 and I kept it for 6 years. My current Samsung A12 is better in every respect and cost about $170 through AT&T. I'll probably keep it at least 5 years. I honestly can't imagine what usable benefit a $1,000 phone would provide.

Re: Dont think of price, think of cost per use

#170

Post by HeyLaughingBoy »

fer wrote: post #85
robocat wrote: post #55

Earlier quoted context omitted.

> not many people correctly calculate the cost-per-use of their car Cost-per-use by itself is fairly meaningless, costs needs to be compared against value-per-use. What is the worth of: a visit to my friends; taking a surfboard to the beach; taking a load of firewood to my parents; an emergency 2AM visit to a suicidal acquaintance; taking my nephew and his friends to the skatepark; helping a friend move; picking up a…

> What is the worth of: a visit to my friends; taking a surfboard to the beach; taking a load of firewood to my parents; an emergency 2AM visit to a suicidal acquaintance; taking my nephew and his friends to the skatepark; helping a friend move; picking up a Craigslist chair. In urban Europe (the one I'm familiar with, at least), I find public transit, then renting cars/vans and straight up calling cabs/Uber when nee…

> having a used car lying around "just in case" without any mileage is 304€/mo

I fully understand that we are comparing apples and grapefruit here, but in my case, living in rural USA, that would cost less than $50/month and most of that would be the cost of insurance.

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