Recently, I’ve been buying a lot more non-durable goods when they are on sale. Whereas previously I might have purchased the normal amount plus one or two units, now I’m buying like 3x or 4x the normal amount.
What initially led me here was the nagging thought that a 50%-off sale is a superb investment – especially if I was going to purchase a bunch eventually anyway. I like to think that I’m relatively dispassionate about investing and finances. But I realized that I wasn’t thinking that way about my groceries. The implication is that I’ve been living sub-optimally. And I can’t have that!
If someone told me that I could pay 50% more on my mortgage this month and get a full credit on my mortgage payment next month, then I would jump at the opportunity. That would be a 100% monthly return. Why not with groceries? Obviously, some groceries go bad. Produce will wilt, dairy will spoil, and the fridge space is limited. But what about non-perishables? This includes pantry items, toiletries, cleaning supplies, etc.
Typically, there are two challenges for investing in inventory: 1) Will the discount now be adequate to compensate for the opportunity cost of resources over time? 2) Is there are opportunity cost to the storage space?
For the moment, I will ignore challenge 2). On the relevant margins, my shelf will be full or empty. I’ve got excess capacity in my house that I can’t easily adjust it nor lend out. That leaves challenge 1) only.
First, the Too Simple Version.Continue reading