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I remember a story from many, many years ago about the 100 Year Light Bulb Company.  Although I have not, as of yet, been able to verify the story, as I recall, it is a true story.

What a deal!

There was once a small company which sold light bulbs door-to-door that were guaranteed not to burn out for 100 years.  They called themselves, appropriately enough, the 100 Year Light Bulb Company.  The bulbs were quite expensive, today's equivalent of $10 apiece; but, since each bulb was guaranteed to last for 100 years, you would NEVER have to buy another light bulb for the rest of your life!  Over time, paying $10 for a light bulb works out to be very, very cheap since a modern bulb, costing say $1,  burns for only about 30 days.  The cost of the modern bulb, excluding its energy use, therefore works out to one dollar per month.  The 100 year light bulb, on the other hand, works out to only about eight one thousands of a penny per month!  A very, very, very small fraction of a penny per month of bulb life!  You just couldn't go wrong.

So, over the next several years, thousands of people bought 100 year light bulbs.  When any of those bulbs burned out, the company did immediately replace them as promised.  The 100 Year Light Bulb Company was honoring its 100 year guarantee and everything was legal and legitimate.  Word got around and thousands more people bought 100 year light bulbs so that they as well would never have to buy another light bulb for the rest of their lives.

Tens of thousands of 100 year light bulbs had been sold and thousands of customers were happy...until...

Many months later, when customers tried to have their 100 year light bulbs replaced, they found that the 100 Year Light Bulb Company had gone out of business and closed its doors.  Since the company was out of business, there was now no one to honor the 100 year guarantee.

Some people decided to take the original company owners to court and sue them for dishonest business practices and consumer fraud.  It turns out that the 100 Year Light Bulb Company, just a handful of guys working out of a garage at one of their homes, was merely purchasing regular, ordinary bulbs from a department store and reselling the bulbs as 100 year bulbs at the considerably inflated price of $10 each.  The few bulbs that did burn out during the several years the company was in business were very inexpensively replaced by the company.  The 100 Year Light Bulb Company made so much money selling light bulbs at such ridiculously inflated prices, that even after subtracting the cost of replacing the few that burned out, the company made hundreds of thousands of dollars in profit.    

The courts found, and rightfully so, that the 100 Year Light Bulb Company fully honored its 100 year guarantee for the entire time that the company was in business.  Once the company had gone out of business and was no longer in existence, there was no further legal obligation to honor the guarantee on the 100 year light bulbs.  The company had done nothing illegal.

Why am I telling you this story?

This story is a reminder to not fall for hype, and to remember that a guarantee, warranty or investment  is only as good as the person or company offering it.  You should also consider this story to be a lesson in looking at people's motives.  For-profit companies are there to make a profit for themselves--period.  When you see, or receive an offer for a product or service, always take a very hard look at the possible motives of the seller.  I'm not saying that everyone is trying to scam you, I'm just saying that if you carefully consider motives, it will be much harder for someone to scam you.

If someone is offering a product, service or investment that seems too good to be true, or offers you something worth considerably more than you are paying for it, look out!  Be on your guard.  Think it through and try to figure out what their motives might be.  If people had just bothered to think it through, they might have realized that if there really was a breakthrough which could produce a light bulb that would last 100 years, such a product would not very likely have to be sold door-to-door as was the case with the 100 Year Light Bulb Company.

For those of you who take umbrage with the fact that I cannot verify the story about the 100 Year Light Bulb Company, here is a similar story I have verified:

At the time of this writing, there is a company selling what they call the "Infinity Razor," a shaver which is guaranteed to never dull or need blades replaced.  If the razor ever does dull, the company guarantees to replace it free of charge--you pay only shipping and handling.

When I first heard about the Infinity Razor, the story of the 100 Year Light Bulb Company immediately came to mind.  So, I took a closer look at the fine print and into what their motives might be.  The razor costs about $20.  For that price, they throw in a second one for free, so I guess the razor is only costing you $10.  Shipping and handling is another $10.  So, for $30 you get two Infinity Razors.  If they ever dull, you send the company $10 shipping and handling, and they send you a replacement razor.

Something didn't seem right to me, so I did the math:

For the sake of argument, let's say that the company is buying these razors for $2 apiece.  That's figuring high since you can buy a razor at the store for less, but let's use the $2 figure anyway.  Let's also allow another $3 to ship the razor.  Ignoring the other cheap crap they throw in as a free gift, you have paid a total of $15 per razor considering that you get two and we split the $10 shipping between them.  The company runs out and buys two razors for a total of $4 in our example, and ships them to you at the cost of another $3 in postage.  They just cleared a profit of $8 after subtracting their costs from the $15 you paid.

But wait...that's not all...

Why not, you say, since you'll never have to buy another razor again.  Well, three months later, your razor starts to get a little dull.  You send the $10 shipping and handling to the company and they ship you out a replacement razor at a cost to them of $2 for the razor and $3 shipping.  They just cleared another profit of $5 after subtracting their costs from the $10 you sent them for shipping and handling.  At that rate, not only can they afford to replace razors--they want to replace razors!  They make additional profit every time someone pays to have their razor replaced.  And don't forget that, for the same $10 you paid them for shipping, you could have run to the store and bought five razors for yourself.  Do you see their angle?  Do you see their motive?  Sort of sounds to me like the 100 Year Light Bulb Company all over again.

The lesson.

Learn to be savvy.  Learn to question deals that seem too good to be true.  You are much better off losing a few good, legitimate deals, then to get caught in just one really bad one.  This not only applies to products and services, but even more so to investing.  There is always someone ready to smooth talk you into handing over your money for something you only think you understand.  And sadly, many people hand over that money having only listened to the information provided by the person trying to get the money.  Never let the only information you get be from the person trying to sell something to you--especially in this age of the Internet where you can do research with a few clicks of the mouse.  Don't be lazy or gullible.  Do your own research before making any financial decisions.  And if the salesman tries to pressure you by telling you that you have to make a decision right now, then use the tactic my father taught me when I was just a teenager:  If a salesman has to have an answer right away, then the answer is automatically 'NO.'

Please know that all of the thoughts, information, suggestions and techniques given on this site are nothing more than the author's opinion on the matter being addressed.  Do further research before making any decisions.

This article copyright 2008 by Keith C. Rawlinson (Eclecticsite.com).  All rights reserved.

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