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795 Woodlands Pkwy #104
Ridgeland, MS 39157
Beth spent four years in the investment world before joining Medley & Brown in 2004 as our operations coordinator. She and her husband Robbie are busy parents to identical triplet daughters, so not surprisingly, some of Beth’s favorite things to do are napping and relaxing on the beach when she actually finds the time. Beth also enjoys taking short walks to the pool, attending concerts, and going out of town for long weekends. Beth loves her Mississippi State bulldogs and currently has four dogs, three cats, and three grandcats because having three children simply isn’t enough. No wonder her operational skills are so exceptional.
Eddie’s extensive education includes a B.S.B.A. in accounting, with special distinction, from Mississippi College in 1994, along with a J.D. from Vanderbilt University and LL.M. (Master of Laws) in taxation from the University of Florida. But it’s what he’s learned outside of school and work that really stands out. He’s an Eagle Scout, which taught him a great deal about honesty and hard work from an early age. He learned even more earning black belts in Taekwondo, Hapkido, and Hanmudo. Oh, and he studies the Korean language in his spare time as well. Additionally, Eddie serves as an adult leader for Scout Troop 164 in Madison. He is a past board member of Hope Hollow Ministries, the Central Mississippi Down Syndrome Society, and the Mississippi Corporate Counsel Association. Eddie is currently a board member of the Woodward Hines Education Foundation. He enjoys spending time with his wife, Sarah, and their three children—Andrew, Caroline, and Emma.
Judging from his background, you’d think investments and other financial matters were all Julius cares about. After all, he has two decades of direct investment experience and spent the previous ten years involved in banking and real estate. Julius also received a masters degree from the London School of Economics in 1998, an MBA from Millsaps College in 1993, and a history degree from the University of Mississippi in 1990. But his true passions include driving sports cars on racetracks or twisty mountain roads, running ultramarathons, and taking road trips with his wife and son. He’s worked here since 2002 as a Chartered Financial Analyst (CFA) and member of the CFA Institute while also serving as an adjunct instructor at Millsaps College and board member of New Stage Theatre. It takes major dedication to tackle all these responsibilities—sort of like training for all those long distant runs—but Julius enjoys every minute of the grind. And when it’s time to slow down, Julius finds the best way to clear his head is taking long hikes in the mountains on all those road trips.
Spending Instead of Saving: The Opportunity Cost
In the early 1990’s, Warren Buffett gave a talk to a group of wealthy people at the New York Public Library and during the Q & A was asked this. “Mr. Buffett, you have been very successful in investing but I understand that you do not make significant charitable contributions. What is your thinking on this?” His answer was he thought that if he deferred his charitable giving, he would be able to make more money in the end and would be able to give a larger amount to charity.
He was right. Here is what happened.
In the 1990 Forbes Magazine list of America’s wealthiest 400 people, the magazine pegged Buffett’s net worth at $3.3 billion. Sixteen years later, Buffett agreed to gift $37 billion over time to the Gates Foundation, and Forbes put his net worth at $46 billion. Buffett had grown his net worth at an annualized rate of 18%.
It is unlikely that any of us will average 18% annually over the next twenty years, however we can have an expectation of a market return on our money. Both the Ibbottson studies and Credit Suisse research support the arithmetic that since the mid-1920’s, common stocks, in aggregate, of American companies have averaged around 10% annually. A composite of international stocks is around 9% annually, notwithstanding a very difficult last ten years.
In working with clients from around 1986 through 2019, I saw many instances where clients seemed to take a casual attitude toward some of their expenditures and I would think of the “opportunity cost” of this money. Buffett and his business partner, Charlie Munger, often talk about opportunity cost and at the 2003 Berkshire Hathaway annual meeting explained their thinking. My own thinking about it is the rate of return one can expect to earn in other investments over a long period of time. (Financial analysts have a more accurate description, but my shorthand definition seems ok.) For me, this would seem to be in the 7% to 10% range.
In practicing financial planning for thirty-plus years, oftentimes I saw clients buy a life insurance policy on their children and I would think about opportunity cost. (The insurance policy would grow at 2% annually!) Could one not invest these same monies in a basket of good common stocks or a stock mutual fund and perhaps have considerably more money in the end?
Take a look at the table below and think about a forty-year old couple that questions some of their expenditures—opportunity cost—and instead of saving $5,000 each year, finds a way to put away $10,000. And instead of earning 3% annually, earns 7% to 10% annually . . .I’ll use 8%. (For the record, the S&P 500 index gained an average of 9.5% annually for the twenty-five years ended July 31, 2020.) As you can see, the increased amount of saving, at the better rate of return, quadrupled the end result.
I completely understand Warren Buffett’s answer at the New York Public Library. We should all think about opportunity cost with both expenses and investing.
Tim Medley
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