Saturday, November 17, 2007

How Much Does a Rolex Cost? How about a Mac?

I've got a few friends who own actual, honest to goodness Rolex watches. Now, cost aside, I'm about as likely to wear a Rolex as I am to drive a Corvette. A Rolex may be a great watch, but I tend to believe people wear them more for what it says about them than as a great timepiece. If I wanted my watch to say something about me, it would probably be the opposite of what a Rolex says. To me, a Rolex says I've got six thousand dollars with which I've nothing better to do. It probably goes without saying that I never expected to learn anything valuable about personal finance from a Rolex wearer. But I did.

J is a sales dude, and ostentatious displays of wealth are part of his schtick. Tormenting J is a favorite past-time of mine, so I'm sure I made some snarky remark about how I'd rather retire a few months earlier than own a nice watch. J pointed out that he had bought the watch used and, because a Rolex retains its value, he'd likely sell it for close to what he paid for it in a couple of years. Assuming, for simplicity's sake, that the transaction costs are not a factor then J's cost of owning the watch is his cost of capital (k). On a $5,000 watch, that works out to about $30 per month or so. That's not nothing, but it's probably a no-brainer for a guy who's livelihood depends in part on the appearance of success.

I'm sure I sat slack-jawed as he explained this, because I'm a bad multitasker and I was too busy having an epiphany to close my mouth. It should have already been obvious to me that you should consider resale value in the cost of an item, but I sure as hell wasn't doing it in most situations.

Since then, I've seen numerous examples of this principle in action. I've got a film-maker friend who's an ebay power-seller, and he financed an entire movie paying little more than ebay shipping costs. First he bought the high-end cameras he needed (he actually made money on the cameras by modifying them in a way that made them equivalent to more expensive cameras), then returned them to get the money to buy post production equipment, editing software, etc.

And today, I saw an article that used the same concept to explain that a Mac is actually cheaper than a PC. Since I'm in the market for a Mac but really put-off by the price, this was another great reminder that the price of an item is only the starting point for calculating cost.

1 Comment:

Anonymous said...

I got the laptop I use at home from Dell 18 months ago for $550 shipped. This model is selling on ebay for between $300-$400 now. Hooray for me.

PC prices vary much more widely than Mac prices. That doesn't make Mac a better buy, it just means careless consumers are punished less. Unfortunately careful consumers derive less advantage.

It's like loving Scion's one-price-per-model policy. Sure, it means idiots don't get bilked for four-figure protective clear coats and heated seats in Southern California, but when I buy a car I'm not worried about that. I want the freedom to negotiate a good price and don't mind the dealership making a better margin on the average consumer so they might accept a worse one from me, so I don't consider the no-negotiation policy a personal advantage.