lines can haunt you

2006-12-01

Rhinophobia

A strange term. But more and more, I suffer from this ultra-rational affliction. Not a fear of noses, or anything that transparent (at least as it was originally coined) - rhinophobia is the fear of spending a dollar today for what it could be worth tomorrow. (Its etymology comes from the late 17th century when 'rhino' was first used as slang for cash.) Basically, it is an abhorrence of ever having cash available - after all, even a decent savings account pays around 3% annually (but compounded monthly). In that scenario, a thousand dollars today is worth $1162 in five years. And if you invest wisely, you should be able to match the markets, which over a long period of time, average to greater than 10% per year. So, $1000 for 5 years there is worth $1610.

But it's getting ridiculous. I'm trying to financially undercut my present self so that my future self will have more dollars. I look at a dollar in my hand and it scares me because I think it should be in the bank as long as I'm not using it, or better yet, in a stock that pays dividends. I need to buy new clothes but I think that the money I could spend on that could be making money for me, and so I go without, trying to delay indefinitely the inevitable.

Eskimo tells me I have the most addictive personality she's ever known. I took it as a compliment, but she meant it in the 'self' sense - ie., that I am easily addicted to many, many things, both real and imagined. Future value is just the latest of my constant cravings.

I guess I write about it in a hope to free myself from this chain of backward inductive reasoning (because a dollar will be worth more in the future, I shouldn't spend it today). There are many anecdotes about Warren Buffett (the legendary investor who apparently coined the term rhinophobia) cringing at hearing how others lavishly spent their cash. One such example has him touring the mansion of a Hollywood mogul (or some other iteration of the super-rich) where a great to-do was made about how much the carpets cost, the lighting, the entertainment center, etc. In apparent great mental anguish at the figures being tossed around, Warren finally interrupted the tour guide haranguing, 'Stop telling us about how he spent it already! I want to know how he made it.'

In keeping with his rhinophobic ways, Warren offers us two other examples on the modest joys of compounding returns:

I have it from unreliable sources that the cost of the voyage Isabella originally underwrote for Columbus was approximately $30,000. This has been considered at least a moderately successful utilization of venture capital. Without attempting to evaluate the psychic income derived from finding a new hemisphere, it must be pointed out that even had squatter's rights prevailed, the whole deal was not exactly another IBM. Figured very roughly, the $30,000 invested at 4% compounded annually would have amounted to something like $2,000,000,000 (that's $2 trillion for those of you who are not government statisticians) by 1962.

[Another] story stands out. This, of course, is the saga of trading acumen etched into history by the Manhattan Indians when they unloaded their island to that notorious spendthrift, Peter Minuit in 1626. My understanding is that they received $24 net. For this, Minuit received 22.3 square miles which works out to about 621,688,320 square feet. While on the basis of comparable sales, it is difficult to arrive at a precise appraisal, a $20 per square foot estimate seems reasonable giving a current land value for the island of $12,433,766,400 ($12 1/2 billion). To the novice, perhaps this sounds like a decent deal. However, the Indians have only had to achieve a 6 1/2% return (the tribal mutual fund representative would have promised them this) to obtain the last laugh on Minuit. At 6 1/2%, $24 becomes $42,105,772,800 ($42 billion) in 338 years, and if they just managed to squeeze out an extra half point to get to 7%, the present value becomes $205 billion.
So much for that.

Clearly though, living in fear of spending a dollar today is no way to go on living. And I guess it's not so much that I go through the day looking to not spend money, but, well, I kind of do - it's more that I need to restate my priorities. Because beer and coffee probably belong below a new rain coat, and yet I find it much easier to extract my squirrel-nut fund by keeping the order thus.

So much for ultra-rationality.


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Basically, it is an abhorrence of ever having cash available - after all, even a decent savings account pays around 3% annually (but compounded monthly). In that scenario, a thousand dollars today is worth $1162 in five years. And if you invest wisely, you should be able to match the markets, which over a long period of time, average to greater than 10% per year. So, $1000 for 5 years there is worth $1610. But it's getting ridiculous. I'm trying to financially undercut my present self so that my future self will have more dollars. I look at a dollar in my hand and it scares me because I think it should be in the bank as long as I'm not using it, or better yet, in a stock that pays dividends. I need to buy new clothes but I think that the money I could spend on that could be making money for me, and so I go without, trying to delay indefinitely the inevitable. Eskimo tells me I have the most addictive personality she's ever known. I took it as a compliment, but she meant it in the 'self' sense - ie., that I am easily addicted to many, many things, both real and imagined. Future value is just the latest of my constant cravings. I guess I write about it in a hope to free myself from this chain of backward inductive reasoning (because a dollar will be worth more in the future, I shouldn't spend it today). There are many anecdotes about Warren Buffett (the legendary investor who apparently coined the term rhinophobia) cringing at hearing how others lavishly spent their cash. One such example has him touring the mansion of a Hollywood mogul (or some other iteration of the super-rich) where a great to-do was made about how much the carpets cost, the lighting, the entertainment center, etc. In apparent great mental anguish at the figures being tossed around, Warren finally interrupted the tour guide haranguing, 'Stop telling us about how he spent it already! I want to know how he made it.' In keeping with his rhinophobic ways, Warren offers us two other examples on the modest joys of compounding returns: I have it from unreliable sources that the cost of the voyage Isabella originally underwrote for Columbus was approximately $30,000. This has been considered at least a moderately successful utilization of venture capital. Without attempting to evaluate the psychic income derived from finding a new hemisphere, it must be pointed out that even had squatter's rights prevailed, the whole deal was not exactly another IBM. Figured very roughly, the $30,000 invested at 4% compounded annually would have amounted to something like $2,000,000,000 (that's $2 trillion for those of you who are not government statisticians) by 1962. [Another] story stands out. This, of course, is the saga of trading acumen etched into history by the Manhattan Indians when they unloaded their island to that notorious spendthrift, Peter Minuit in 1626. My understanding is that they received $24 net. For this, Minuit received 22.3 square miles which works out to about 621,688,320 square feet. While on the basis of comparable sales, it is difficult to arrive at a precise appraisal, a $20 per square foot estimate seems reasonable giving a current land value for the island of $12,433,766,400 ($12 1/2 billion). To the novice, perhaps this sounds like a decent deal. However, the Indians have only had to achieve a 6 1/2% return (the tribal mutual fund representative would have promised them this) to obtain the last laugh on Minuit. At 6 1/2%, $24 becomes $42,105,772,800 ($42 billion) in 338 years, and if they just managed to squeeze out an extra half point to get to 7%, the present value becomes $205 billion. So much for that. Clearly though, living in fear of spending a dollar today is no way to go on living. And I guess it's not so much that I go through the day looking to not spend money, but, well, I kind of do - it's more that I need to restate my priorities. Because beer and coffee probably belong below a new rain coat, and yet I find it much easier to extract my squirrel-nut fund by keeping the order thus. So much for ultra-rationality. Tell me when this blog is updated email: