Buying in Bulk: An Investment Anyone Can Afford

by Daniel Wilmoth

Perhaps you don’t have a lot of money to invest. But there is one investment anyone can afford and it can provide a very high rate of return.

The billionaire Mark Cuban is known for speaking his mind. It is a habit that has sometimes cost him; since he bought the Dallas Mavericks basketball team in 2000, Cuban has been fined over a million dollars, mostly for criticizing the league and its referees. However, it is a habit that can benefit the rest of us.

Cuban is one of the investors featured on the television show Shark Tank. He knows a lot about investing, and his recommendations are worth hearing. In some interviews over the last few years, he has revealed an investment opportunity that he believes will outperform all others. It doesn’t involve flipping houses, timing the stock market, or selling things to your friends and family. According to Cuban, the best investment you can make is buying in bulk at a discount.

“The money you save by [buying] in bulk will provide a better return on investment than any investment vehicle on the planet,’ Cuban wrote to a representative of NPR. In an interview with Vanity Fair, he expounded, “It’s so hard to make a return on regular investments, that you’re better off,…buying two years’ worth of toothpaste when it’s on 50 percent discount.” It is, of course, a strategy that extends beyond toothpaste. “Any of your reusables, consumables that you have to have, when they’re on a huge sale…buy them,…that’s a real savings that you get to put in your pocket.”

Cuban is not alone in recognizing the value of buying in bulk. The warehouse industry has grown by about 2.2% per year every year for the past five years.

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Like any investment, buying in bulk at a discount involves both costs and returns. The larger the discount, the better the rate of return. Suppose that toothpaste for a year typically costs $50. Purchasing that amount of toothpaste in bulk at a 20% discount costs $40 now but saves $10 over the course of a year, for a rate of return of 25%.

However, buying in bulk can involve additional costs that decrease the rate of return. For example, shopping at a warehouse club may require the purchase of a membership. If the membership is rarely used, the cost may be so large relative to the savings that shopping at the warehouse club becomes unprofitable. (See Is a Warehouse Club Membership Worth the Cost for a Small Family?)

Another cost is created by the need for storage. For those renting their homes, every square foot comes at a cost. Even if the choice of home is unaffected, the need for storage creates a cost, since the space used for storage could instead have been used for something else. For someone like Cuban, who lives in a sprawling mansion in Dallas, the burden of storage may be negligible, but, for someone living in a studio apartment in New York City, it may be prohibitive.

Most investments involve some risk, and buying in bulk is no exception. The primary risk associated with buying in bulk is that changes in preferences or circumstances will cause goods to go unused. For perishable goods like food, this can lead to spoilage and food waste. For goods that are not perishable, the cost of storage could continue indefinitely.

Most people will never have access to the kinds of investment opportunities available to someone like Mark Cuban. However, according to Cuban, everyone has access to one of the best investment opportunities available to anyone. Buying in bulk at a discount doesn’t require a business degree, the ability to read financial statements, or even a bank account, and the rate of return it provides can exceed those achieved by professional investors.

About the Author

Daniel Wilmoth is a professional economist living in Maryland. He holds a doctorate in economics from Cornell University.

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Buying in Bulk: An Investment Anyone Can Afford

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