Smoking cigarettes for 40 years will cost you $1,861,544.99 (as of 4/1/17)

Cigarettes literally burn holes in your pockets.cigarettes-83571_1920

It is a frequent occurrence in the Emergency rooms that I have worked 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 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.

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.

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.

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.  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 Altria share price on January 1st each of the last 40 years.

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 $1 in 1986 is actually worth $12 based on the subsequent stock splits).  I therefore utilized Microsoft Excel to crunch the numbers.

I had to calculate the dividend payouts, this money was saved til the end of the year and added to the new investment money

 

But then this is where things get interesting/mind blowing. Google  finance breaks down your 6 million fortune into 2 parts: as a stock value of $2,582,410.40 and a cash value of $3,421,350.05 .  That cash value is the money you have earned on dividends, every quarter when you earned a dividend from Altria the money went into an account and sat there, without earning any interest.  Who in their right mind would let money sit there not  earning interest, better yet what savvy investor would not have set their investment account up to reinvest the dividends back into the company that is paying them in the first place.  Alright, google finance please calculate how much money I’d have if I had reinvested the dividends all along.  That feature is not available, I’d have to do this by hand.  Well I didn’t and still don’t have the time or patience to do this every quarter going forward starting in 1977.  Instead I reinvested my fake dividend money that was sitting in the side account every 5 years, starting in 1981.  I would calculate the total number of shares I could afford (rounding DOWN to the nearest whole number) on January 1st at the same time as the planned purchase with the money I had saved by not smoking the previous year.

To make things more complicated I had to account for each of the 4 stock splits Altria has had during those 40 years of cigarette money investing, ’79, ’86, ’89, ’97.  This was important because it allowed me to calculate the number of shares I would have owned and in turn the dividend pay out each year that was saved up and then used to repurchase more shares every 5 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.

Each of these stock splits and spin-offs had to be factored into our 40 year experiement.  I have not calculated the reinvestment of the dividends earned from PM, MDLZ, or KRFT.  KRFT stopped trading publicly and went private in 2015, resulting in a cash payout for shares owned.  If you have the time or program/tool to calculate the number with dividends being reinvested annually or better yet quarterly the number would actually be higher given that there would not be 5 year intervals of money sitting idle in an account.

In the end the number I calculated a person would have, had one invested money spent annually on cigarettes instead into Altria stock on January 1st each of the last 40 years, sitting inside their purse instead of a half empty lonely pack of cigarettes would be, drum roll…………..$19,408,843.68

For those of you that haven’t smoked as long and that prefer Camel’s, you could have invested in Reynolds American Inc (RAI) over the last 17 years (publicly traded time frame) and have $1,183,603.55; enough to buy the coolest damn caravan of dromedaries ever imaginable.