Misunderstanding the concept of depreciation

Hello again my dear reader,

I’m a little annoyed with people today. Specifically, I’m talking about people who don’t understand that things (i.e. material possessions) progressively lose their value with use and age.

The classic example of this is buying a new car. Say, you buy a brand new car straight out of the dealership. As soon as you drive it out of the shop, you lose probably 15-20% of its value. It’s now used, even if you’ve only used it for seconds. This is the main reason (the other being that I never had the cash) why I buy second-hand cars, at least back in the European days.

Compare this with the situation in Bermuda. A brand new Sharp Aquos 32-inch LCD TV is $599 from P-Tech. Similarly, a brand new Panasonic 42-inch Plasma 720p TV is $799 from the same retailer. And these are boxed, with manufacturer and retailer warranty. This is the final off-the-shelf price. Then, to amuse yourself, go to emoo and do a search for the same sort of size of television. You’ll be shocked with the prices that come back.

But, TVs are luxury goods. People buy them expensively and maybe they are unhappy to give up too much of that luxury premium they paid in the first place. So, fair enough. But, let’s take coffee machines, kettles, used glassware or crockery and so on and so forth. I can find a used kettle on emoo for $25 but I can buy it new for $35, is the $10 difference enough to make me buy something that is used, will probably have some limescale issues (this is Bermuda, don’t forget) and, quite frankly, comes with the inconvenience of having to meet someone at their place to buy it. Also, I can but a brand new coffee machine for $30 or buy it second hand for $20 or thereabout. Again, does the difference make sense to buy something used? I don’t think so.

I personally used to find it very difficult to sell things. This is not just a personal character feature, it runs in my family. My brother and father are both “hoarders” i.e. people who almost never get rid of anything because it “may” come in handy one day. Usually, this doesn’t happen and the things sit in a basement or cupboard until they are too old to even be of any use. Also, they get quite attached to material possessions to the point of giving them names etc. This is all harmless fun, naturally, but it still personifies an object to the point of being to grow emotional attachment to it. But, having had to move so many times (especially recently), I have finally devised a system that makes selling things almost as much fun as buying them in the first place. I genuinely depreciate things in my mind. I attach a 10% (on average) depreciation charge on every item. Say, you buy a TV for $1000 and depreciate it by 10% (of the original purchase price) every year for 5 years. At that time, you’re happy to sell the TV for $500 because that is its true value. Obviously, this assumes that the TV still works and there hasn’t been a technology shift that makes your TV obsolete. If, for example, you’re trying to sell an HD-DVD player (which lost the war HD war to Blu-Ray), then your depreciation formula will need to be different to mine.

So, a kettle depreciates more rapidly than a table since it collects limescale. A coffee machine also because all electrical devices, especially in place as humid as Bermuda, rust. You see my point?

The short story is that I’m probably going to buy a new kettle and coffee machine from Masters, a really good and very affordable shop here in Hamilton. Please check back for more exciting stories!

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