RElaunch REviews

Gotta give the people what they want. My favorite commenter asked for a review of our MBA mom lessons thus far and I will comply! July is crazy and my mind is spinning with all the summery vacationy events so a review is probably the best I can do anyways:)

I will post 3 reviews, based on terms, tips and lessons. There are some other great concepts on this blog (yoohoo, book publishers and colleges at which I applied to teach) so review those at your leisure, too!

Stock Tip of the day: Penny Stocks

Penny stocks are just that: stocks that cost mere pennies.

Penny stocks have the benefit of becoming mega-profitable if you have a few bucks to burn right now and can be patient.

Pier 1Imports is an excellent example. In 2007 the company was on the verge of bankruptcy, about to close. Stocks were $0.07 apiece. Yes, kids that's 7 cents a share. Now, at that price and with the company's history, they very well could have sank and closed forever. They were hiring a new CEO and that action can take a company in either direction. From my end, its before having children. I know for a fact I could have purchased $7 worth of stock in Pier 1. Had the company tanked, I would have lost the price of a lunch out or a few coffee drinks. No big.

So, say I purchased 100 shares in Pier 1. Today, 2011, Pier 1's stock is worth almost $11/share. Doesn't sound like much of a stock price.

BUT WAIT! Today's shares are now worth 149 TIMES what they were in 2007. That means that the $7 I invested is now worth... $1043. That would keep me fueled up on coffee drinks all year, er, I mean, take care of a mortgage payment!

Investing in pennies depends on how much you can purchase and how much you can afford to lose, because there is a very real possibility of losing it all.

I do know I could have dropped $70 with a heated discussion from hubby... or I would have spent that on an outfit. But I'm sure Goodwill has that outfit now and hubby would be enjoying that extra vacation with me this year or at least the mortgage payments $10,430 would cover.

If you get really economicky, like some of the TV pundits adivse, you would do things like turn down your sister's bridesmaid request for something like this. I happen to have TWO sisters getting married this summer. Am easily spending $700 combined. I could really anger them by saying no to being a part of their nuptials. BUT, I could invest what I would be spending in penny stocks and split the $104,300 with them in a few years... yeah, maybe penny stocks aren't secure enough to risk a rift in familial relations on a $104,300 emotional bandaid (and truthfully if it panned out, I'm not sure that I would want to part with that) but you catch my drift.

It all depends on what you can afford to lose... there are people making millions off this, but they have the few hundred bucks to (probably) lose. Get a crisp $20 for your birthday? Think pennies...

Profit Maximization of opportunity cost

Third and final part to the opportunity cost series, this also ties in rummage sale econ.

Demand for oranges is 3 times greater than demand for apples. People will buy 3 oranges or an apple. This equation is:

x=1/3 y with y being oranges and x being apples

For you mathletes, this will plot on a graph as a line going southeast.

Profit equation tells us that one apple is worth two oranges. The equation is:

x=2y with the variables being the same as above

At this point, you get your business manager/accounting person to do the math and figure out where profits will be maximized, but not before you ask what the supply equation is. Where the supply and demand equations (or curves) intersect along the profit equation, profit is maximized. You know what you can absolutely earn given your constraints.

DON'T WORRY. Some of you have MBAs, some of you don't. If I had more complex mathematical tools I would post a graph to illustrate this - I know I need one to understand it myself. Just knowing the terms and the concepts is good for now.

If the supply and demand equations intersect on the profit line, you know that is what you can potentially earn. If they hit above the profit line, it tells you that market's demand and supply are both greater than what you can profit (like coffee filters.) Think cheap items that everyone buys. If they hit below the profit line, demand and supply are both lower than what you can profit, meaning nobody really wants your product enough for you to make a profit (like knittted potholders.) Think expensive items nobody buys, or specialty shops that go out of business quick.

Rummage Sale economics

Today I am making my husband go to work late so I can check out this AWESOME rummge sale I saw being prepped. Plus right now Deigo is on the telly so its a good time for a blog post.

Supply, demand and market.

Supply: goods available for purchase. At your rummage sale, these are determined by your used junk, er, treasure. Depending on what you have, that will attract the type of customer... which is your:

Market: who is available and who desires to purchase your stuff. For example, I am in the market for gently used kids outdoor toys. I frequent those sales with outdoor appeal. Someone like me has to tote the ankle biters along so the more things out on the curb the better so I don't have to spend time sifting. The outdoor toys are something I really want... that is:

Demand: what is wanted for purchase. In an economy like this, all the good rummage sales sell out early. I know the demand for said toys is high so hence, I force my husband to wake up early and shovel food into the kids mouths with me so we don't miss that bouncing horse. Other years past, rummage sales were fewer and less frequented. But this economy has many considering the gently used and cheapskate is replaced with the term recessionista.

Market is usually pretty constant, though it can vary with economic and political conditions. But supply and demand can set your price point and you can use this to your advantage.

If there is a glut of curbside outdoor toys either in driving around or on craigslist, and they vary from $20-$60, you can safely offer $25 and if they pass someone else will take it... there are that many that are not selling so someone will meet your price. Supply is in surplus, demand is low and sellers need cash. On the other hand, if people are buying these babies at $50 and they don't stay on the curb pretty long, you probably need to decide if you need it at that price because the supply is limited, demand is high and people pay more.

There are more complicated supply and demand curves/explanations but this sums it up in a nutshell. Also think of it the next time you shop in the produce section. A bell pepper is not native to Wisconsin and can go for as much as $4 a pop in the winter (aka 9 months of the year.) In summer they are down to 99 cents each... and they carry many more to meet that demand. Cinco de Mayo time, people pay the $2 for an avocado but the rest of winter they have to price them at $1.50 or less to even make it worth their while to carry them... to meet their MARKET.

Mommy brain - why I do this blog

Great example of why I need this blog - because my mind gets all dusty and mushy on some concepts... take our last concept, opportunity cost lesson 2. I had said that one apple made 3 times the profit of oranges and that the equation for that would be x = 3x.

WRONG!!!!

An apple is not an orange and if you matheletes are paying attention, you will realize that one of something cannot be equal to three of the same thing (unless its the Trinity:)) SO...

X is for Apple
Y is for Orange

and X = 3Y, which means that one apple profit is the same as 3 orange profits.

In business you often hear the term "apples to apples comparison" to describe SWOT. Comparing like items or enterprises is the best judge of your item or enterprise. You wouldn't compare your newborn and your 4 year old in terms of who talks back the least because then you'd be really down on the older one. Same concept.

Opportunity Cost Part 2

OK, so now that you know that opportunity cost is this for that, you need to know what is the best that you can get for your this.

In mommy words, here it is: you have 3 hours without the kids but no access to a car. How do you spend it? TV is relaxing... housework is work but whittles down that to-do list... a nice bath is relaxing but after 3 hours cold... surfing online can be fun but like TV, the after effects make one feel wasted. Eating that favorite dessert without paws reaching in is also nice. There are so many things... what is the best way for you to spend it? Well, thats going to depend on you and your situation. Its that work-play balance again. So much of a certain play is going to cost you so much work and the accompanying stress that comes from not doing it.

In business terms, you can sell apples or oranges. Apples make twice the profit of oranges (so oranges are X and apples are 2X.) So your profit equation is X+2X=Profit.

Doing all apples will cost you your orange labor and profits... which is fine if there is no market for oranges. But what if oranges sell more units than apples (they are eaten more at a certain blogger's household.) Lets say people buy 3 times as many oranges as apples. Now, X apples = 3X oranges. At that point, it is worth your trouble to also sell oranges, simply because your profits may end up exceeding apple profits as a total. So you want to make the most profit out of both oranges and apples.

These equations are called 'constraints.' One would phrase the question, what is the opportunity cost of selling one additional unit of apples?

OK, so its almost dinner, nothing's started, the baby is about to cry, I am hungry, Sesame Street is on and math is not my strong point... I am going to finish this when I can better focus on it... you can see why companies do not encourage bringing your 4 year old, 1 year old and your newborn to work. I promise you a good sequel to this post! Point is, you want to maximize your profit within the given constraints of your market and your product. Baby's crying. See you later!

Opportunity Cost

This boils down to the question, "What will this cost me in terms of not-money?"

Sounds confusing and it is at first.

In mommy terms, I can feed my tot candy and shut them up for 15 minutes after lunch so I can do the dishes. Candy for short term peace. But candy will also cost me, in terms of cavities and the child's expectations. And behavior issues from the high fructosity. No dessert will take away those expectation but also take away some of my time to do dishes and some of my 'nice mommy' points. Fruit is a good compromise...

Anyways, I digress. There's only so much of any one resource. Take labor. There are only so many laborers in the country. If the US shut down all industry but automaking, there would be no one in the country to make food and prices of that commodity would increase (even more so than they do.) If people only labored in food production, there would be no one to educate our children. A teacher cannot teach and produce food at the same time (or devote their full resources.) Or they can produce food well but only if they give up some of their teaching time. An acre of corn will cost a teacher 3 hours of class time. When discussing opportunity cost, do not get bogged down with details such as multitasking and monetary issues. Look at it as an exchange of goods.

Translated into pure cash perspective, though, its having $10 to spend on anything you want. You could get 3 Starbucks drinks or 4 McDonald's coffee drinks. You could get 2 gallons of gas. You could buy an hour of babysitting. But you cannot buy all of the above with just $10. That resource is limited.

Translated into time, you have an hour without children. You can do laundry and dusting, you can catch up on TV you've been recording, you can read that novel you haven't been able to finish, you can take a hot bath, you can nap... bu you cannot do it all... spring cleaning may cost you a nap. Or a nap will cost you dusting 3 rooms.



Agrarian countries are having trouble with this at present. At one time they mainly grew and sold food. But with populations and high paying jobs moving to cities (think China) there are fewer workers available to produce food. This creates a shortage of food in the country, overall. More educated workers are costing the nation in skilled farmers. This is directly affecting their need to import foodstuffs and export goods and services that other countries need.

I think stay at home moms have a better grasp of opportunity cost than most. Staying at home, you get time with your kids when they're little, something you can never recover. But you lose points, professionally, and you gain gaps in your resume. However, you also have less stress from having to 'do it all' because you discover thats just a myth anyways:) Even moms who work from home, like me, can point to their opportunity costs. I can make a pair of baby booties for $15 or I can take an hour and a half nap or clean my house or surf the 'net. But those activities will cost me the pair of booties and the profit from them. Anyone else have examples of this from their lives?