Economists call it “opportunity cost,” which refers to a benefit that a person could have received, but gave up, to take another course of action.
Stated differently, an opportunity cost represents an alternative given up when a decision is made, like if you have money and decide to invest it in a stock in hopes of generating a return. A second option may be to reinvest the money back into your business with the expectation that newer equipment will increase production efficiency, leading to lower operational expenses and a higher profit margin.
If you assume that the expected return on investment in the stock market is 12 percent, and the equipment update is expected to generate a 10-percent return, the opportunity cost of choosing the equipment over the stock market is 12 percent minus 10 percent, or two percent. And, there are other types of opportunity costs and opportunities that are unrelated to money and its return.
Stop for a moment and think of all you have feared would happen, or what the “experts” said would happen. Can you think of anything that was “sure to happen” that didn’t? For example, you’ve most likely heard about how deforestation is occurring on global scale and how it is wreaking havoc on our environment. But did you know that the Appalachian Forest in the United States is in the best condition it has been since the 18th century? The Appalachian Forest today covers the most acreage since Europeans first saw North America, despite the huge boom in population on the East Coast.
Jesse Ausubel, director of the Human Environment Program at Rockefeller University in New York City, said that by 2050, global forests could continue to expand by 10 percent. That’s about 750 million acres, an area as large as India returned to natural condition during the same period of time as during the largest population boom in world history. But, my point is not about the earth’s environment. It is about mental environment. Have you, like I, missed this great news?
Upon learning this news, I asked myself, what other great news have I been missing? Another self-examination question could be based on the philosopher, Frederic Bastiat’s statement, “Don’t think solely about what happened; think as well about what did not happen, and thereby is unseen.”
How much better could my mental environment be if I would start to pay attention to what didn’t happen, what is not seen. In other words, what are the problems I don’t have? How can you and I benefit if we think alternatively? What if we took a different course of action and began to notice all the bad things that have never happened. What if we focused on great news? What if we began to see the good we’ve been missing?
Lynn Butterfield lives in Erda and is a managing broker for a real estate company.