Smoking cigarettes for 40 years will cost you $1,861,544.99

 

THESIS: Cigarettes literally burn holes in your pockets.burningpocket

INTRODUCTION/BACKGROUND:

It is a frequent occurrence in the Emergency room that when handing a prescription to a patient at the time of discharge, I hear,  “Doc I don’t have the money to pay for this medicine” or “I can’t afford this, do you have any samples?” (I totally understand that some less fortunate folks do not have the money to pay for said medicine, nor do they have the money to pay for food for themselves or for their children). These important medications are going to help the patient feel better, be out of pain, or prevent them from being admitted to the hospital.  We do everything we can, working with the hospital and pharmacy, to get the unfortunate that do not have health insurance or those who have inadequate coverage and can’t afford the newly prescribed drugs, said drugs before going home.

cigarette pocket.jpg

I bring up this situation to illustrate a subset of the nicotine dependent patients,  who have a pack of cigarettes peaking out of their shirt pocket or sitting on top of their open purse, that also can’t afford the prescription I’ve written.  The steroids, or inhaler, or antibiotic for their acute COPD flare, pneumonia, or chronic medical condition related to smoking.   We help them as well to get the medicines they need.   But that rectangular little pack of cigs smirking up at my intentions as a physician eats at me.  I know that one of the reasons they cannot afford the medicine today is a direct result of their life long smoking habit.   If I could some how get rid of  that nicotine addiction for the patient I’d be improving their health far more than the presciption I’m writing can.  Even better would be to stop the patient’s smoking addiction from ever starting.

-I understand the strongly addictive nature of nicotine.

-I understand that most would love to give up smoking.

-I am not trying to single anyone out; I am simply trying to describe the reoccurring experience I’m confronted with at work that originally sparked the idea for the following mathematical exercise and ultimately the reason I created this website.

cigarette money.png

How much money does it cost to smoke cigarettes? (only considering money spent on the cigarettes themselves, and not on health care related costs).  I’ve seen rough figures/estimates before $5/pack x365 days x50 years is roughly $90,000.  I wanted to extrapolate those numbers further though.  I tried to imagine a savvy and resilient individual ready to quit smoking, let’s call him “Average Joe”.  His parent’s lovingly called him Avery, but when he was first caught smoking at age 16 by his mother, she used his full name, “Average Ciggy Joe! get that cancer stick out of your God Damn mouth!”  To avoid a “Who’s on First” scenario with Average and the mathematical terms to follow, I’m going to hence forth refer to him by his surname, “Joe.”

I wanted to contrast smoking the money away on cigarettes versus earning money alongside the tobacco companies profiting off Joe’s former bad habit.  Historically the tobacco companies and their shareholders are raking in huge profits and dividends.  What if Joe purchased the stock (become a shareholder) in the manufacturer of the cigarette instead of buying the cigarettes.  How much money would Joe have filling his shirt pocket today instead of that half empty pack currently occupying the space?

METHODS:

Disclaimer:  if you get bored with the method and details that follow, skip to the RESULTS section at the bottom.

The number of cigarettes a patient smokes is disclosed in their social history, which is part of the past medical history.  “40 pack years, 50 pack years, 60 pack years”; this is calculated by how many packs per day (PPD) a patient smokes and how many years they have been doing it.  (for example: 1/2 PPD x 40 years = 20 pack years)  40 pack years is a frequent number for older patients now with chronic tobacco associated diseases (heart attacks, strokes, emphysema, etc…) that frequent the emergency room.  Middling Joe would have smoked 1 ppd for 40 years had his mother not intervened at a young age.

I needed a company that had traded and continues to be traded on the stock exchange over the past 40 years.  I chose Altria (Stock symbol- MO), parent company to Philip Morris, and maker of one of the most recognizable brands ever- Marlboro.

marlboro man.jpg

How much does a pack of cigarettes cost?  Well that depends on what part of the country or world Joe lives in.  It also steadily increases over Joe’s lifetime.  I dug up the average historical prices going back the last 40 years.  (a pack of cigarettes was just 43 cents back in 1977,  $1.07 in 1987, $1.92 in 1997, $4.62 in 2007-full table below) I then multiplied each pack price by 365 and I get the annual cost for Joe’s 1 ppd smoking habit.  I’m not going to invest the entire sum into the market right now, I need to recreate the 40 long years of smoking every step/drag of the way.  I hypothetically invested the money into the stock market starting 40 years ago when Joe became a dedicated pack a day smoker.  Then each year thereafter we are going to buy as many shares of the stock on or around January 1st from the money we saved the previous year by not buying any cigarettes.  To do that I need to know the ACTUAL Altria share price on January 1st each of the last 40 years. One can get a rough idea by obtaining historical data through Yahoo Finance.

Obtaining the yearly cigarette pack prices, and calculating how many shares of stock I could buy each year on January 1st and at what cost was the easy part.  I could not find an online financial program or website where I could plug in a series of stock purchases dating back 40 years and get an accurate final number.  Take Google Finance for example;  it doesn’t factor in reinvesting dividends, or company spin offs, or historical stock price based on splits (a stock price of $3.69 in 1986 is actually worth $88.56 based on the subsequent stock splits).  I therefore utilized Microsoft Excel to crunch the numbers.

I had to calculate the dividend payouts and the reinvestments, this money was saved til the end of the year and added to the new investment money. The money saved over the course of the year by not smoking 1 ppd.

To make things more complicated I had to account for each of the 4 stock splits Altria has had during the past 40 years of cigarette money investing, ’79, ’86, ’89, ’97.  The stock split 2:1, 2:1, 4:1, and 3:1 in those years.

Here is where it get’s trickier still.  Altria has given several special dividends over the years, which were actually shares of new companies or spin-offs.  For example; On March 31st, 2008 a special dividend of 51.06 gave you 1 share of Phillip Morris (PM) stock for every 1 share of Altria you owned.  Mondelez International Inc(MDLZ) also spun-off from Altria.  and Kraft Foods Group Inc (KRFT) spun off of Mondelez.  So for every share of Altria (MO) you owned before 2007 you now have an additional share of PM, .69 of MDLZ, and .69 of KRFT.

RESULTS:

In the end the amount of money Joe would have saved by not smoking cigarettes would be $1,861,544.99 as of April 1st, 2017. All this was April fools day, this number is no joke. This number will fluctuate higher or lower depending on the current position of the stock market.  The total number of shares will continue to grow as well as long as the cigarette money continues to be invested instead of burning holes in Joe’s pockets.

The numbers broken down are as follows.Altria data table

# of shares is as of 1/1/2017, stock price is for 4/1/2017.

For those of you that haven’t smoked as long and/or prefer Camel’s, you could have invested in Reynolds American Inc (RAI) over the last 17 years (publicly traded time frame) and have $387,383.94; enough to buy a pretty cool caravan of dromedaries.

RAI data table

# of shares is as of 1/1/2017, stock price is for 4/1/2017.egypt-1929586_1920





 

And just for kicks, Altria has been publicly traded for 47 years total, had we started this experiment in 1970, only 7 additional years, the total money saved from not smoking would be $3,678,189.35.

47 years altria




REFERENCES:

Cigarette Pack cost Data compiled from:

The Tax Burden on Tobacco.  Arlington (VA): Orzechowski and Walker, 2014.page 365

U.S. producer price index for cigarettes, filter, 1973-95
http://usda.mannlib.cornell.edu/data-sets/specialty/94012/1/TAB043.WK1

Altria share price data compiled with Yahoo Finance historical data-further calculations made considering stock splits.

Cigarettecost 70-2017Altria share price 1970-2017

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