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A Museum Dedicated To Stocks

December 18th, 2011 2 comments

Museum of Finance

In recent years, I have visited many of the museums in Manhattan. I started with the largest and most popular ones, and quickly have determined that photos don’t do many of these fine works of art any justice; you need to see them up close. See works by Salvador Dali or Van Gogh at MOMA.

To get more ideas for museums, I went to the yearly CultureFest held in Battery Park City, NYC. There are many smaller museums which serve some niche interests which this festival highlights along with some performance art that is scheduled thoughout the day. It is worth a visit if you have the opportunity, Battery Park is beautiful and a great place to host a festival. It is at the CultureFest where I learned that there is a Museum of Finance (or as I like the call it, the Money Museum) located where else but on Wall Street. This is worth a visit, too, but make sure you plan other activities. It won’t fill up your day in the same way the CultureFest or MOMA would. I recently visited this museum.

Read more…

Categories: Weekend Investor Tags: , ,

Weekend Investor: Lessons From Ralph and Ed

November 26th, 2011 No comments

Every New Years day a local television station (CW11) broadcasts an all day marathon of the 1950’s series the Honeymooners. It’s still funny, and there’s a lot to be learned about American culture of that period because the show was a lot edger in its day than other programs about family life. This is a finance site, so I will keep my discussion to financial issues. After watching a few episodes, it becomes evident that Ralph Kramden (played by Jackie Gleason) and Ed Norton (played by Art Carney) lead very different consumer lives.

Ed’s apartment is furnished well, with window treatments, furniture and the modern devices of the era (TV, phone). In contrast, Ralph’s  apartment is quite spartan. Ralph often chastizes his wife about overspending and all the extras his wife gets, but that of course is really just a joke. One could conclude that Norton is more prosperous than Ed.

In one of the episodes, it is revealed where each of them stand in terms of their finances. Surprise, it was revealed that they both earn the same salary. What accounts for their differing lifestyles? That is also partially covered. Apparently Ed can afford his lifestyle because he has borrowed heavily to pay for it all. It isn’t made as clear in any of the episodes how Ralph “affords” his lifestyle, but his wife often complains about the previous schemes where he loses money.  So, his money is likely frittered away on get rich schemes that of course never payoff (it they did it wouldn’t be funny).

Norton is one payment away from bankruptcy, while Ralph is one scheme away from riches (which very likely will never occur).  Both have very little savings.

Here’s the lessons to be learned:

  • Moderation in your finances is preferable.
  • Have reasonable expectations about returns on your investments.
  • Spend money now to live your life.

A Good Gamble for Investors

August 12th, 2011 No comments

I occasionally go to Casinos and sometimes play the state lottery. The whole marketing effort tied to gambling, particularly for low end gambling, conflicts with my sense of logic. I understand that this is business and they go to great lengths to determine how to cater to different customers. Just go to any slot machine parlor, each one is branded differently to appeal to a small slice of customers. They are too noisy and complicated for my taste.

Most everyone knows that gambling is a losing game over the long term, the odds are in the house’s favor. If you look at it as entertainment, without any expectation of winning, it helps to justify the spending.

Some games are better than others. For example, some slot machines payout over 98% of the take, which is a very small house advantage. These higher payout machines, though, require bets of many dollars instead of dimes. Better odds require larger bets. But what if you could make a bet that pays better than odds? This would be like the slot machine paying out 102% of the take. You would think that no one would offer such a bet, but you can in fact buy a better than odds bet in the multi-state lotteries. You just need to know when to buy.

A better than odds bet occurs when the payout exceeds the odds of a payoff. The odds of the multi-state lotteries are as follows:

So, when the prize exceeds the payout (175 million or 195 million), you are getting this over odds bet, right? Well, not exactly. The lotteries are playing a marketing trick to inflate the size of the prize. The big prize quoted for these games is an annuity, not a cash prize you can collect now. The cash prize is significantly less. In order for the cash prize to pay at odds, the annuity prize needs to be much higher. I ran a calculation on recent cash prizes to determine the discount applied to the payments. Here are the results:

Big Prize Odds Annuity Interest Rate Payout Years ‘At-Odds’ Cash Prize
Mega Millions 1 in 175M 4% 26 years $300M
Powerball 1 in 195M 6% 29 years $400M

So, there you go. If you want to get a better than odds bet, buy a Mega-Millions ticket when the prize exceeds $175M. Or, $300M if you want to see this payout in cash today. Good luck, the $300M prize has occurred only about 4 times for Mega-Millions, and a $400M prize has never occurred (yet) for the Powerball!

20 Saving Tips for the Lazy Single Man

September 14th, 2010 No comments

I think I am like most men in that shopping isn’t one of my favorite activities. If you are living out on your own, eventually you will need to get out there and buy some stuff. When you consider what it takes to be a good shopper (it’s a skill really), men are generally outmatched. Even my 13 year old niece already has well developed shopping skills because she has the interest and also because she works at it.

The tips I have here will help you to shop better, save time, eat better, all the while saving money without actually having to make the investment in time that a Pro would make. You can use these tips immediately. That’s why I call them Saving Tips for the Lazy Single Man.

These tips are culled from my own experience as a lazy single man.  There are a mix of ideas here, some are typical recs that help you to lower costs. Others are not typical, because they help you to realize how you are wasting money on stuff after you buy it. For example, a lazy man is never going to return an item so these related tips fall into the category of ‘buy it right the first time’.

  1. Buy a George Forman Grill. The GFG (‘George’) is one of those inventions that makes you wonder how single men lived without it. It will save you from starving in your apartment. It can cook almost anything quickly and easily (burgers, chicken, fish), and it will make you look like a Pro. This will save you money so you don’t have to go out to eat everyday.
  2. Buy Generic/Sale Items. When you are at the supermarket, you can save money simply by choosing different products in the aisle (no coupons required). Consider the generic versions of products or competitor products that are on sale.
  3. Buy the Large Size. For many items, particularly groceries, you can get a price break simply by buying the larger size. The tag on the aisle will indicate the ‘price per quart’ or ‘price per pound’. Use the tag to decide.
  4. Buy Clothing Out of Season. To buy clothes frugally, buy them at the right time just when they are about to go out of season. For summer clothes, this is typically after July 4th. For winter clothing, this is usually after Christmas. If you go to the store at this time, the clothes will be on sale without requiring any planning or action on your part.
  5. Mine the Dollar Store.  When you decide to clean the bathroom, you will need some cleaners. Or if you need a gift bag for your mother’s gift, the dollar store is a good place to get it cheaply. No sale required.
  6. Get a Grocery Store Card. Sign up for one of those savings cards at the grocery store. It will save you money at checkout without any action on your part when you flash it. You don’t want to be bothered with marketing mail, so give them your college room address. They don’t care. Really.
  7. Shop During the Week. Skilled shoppers know not only where to buy and how to buy but when to buy. Your time is valuable, you don’t want to spend the day fighting crowds and traffic particularly when you want to buy gifts during the holiday season. Go to the mall near the time it opens (yes, even on Saturday) and after work during the week. You will be surprised how quiet it is.
  8. Understand Store Types. There are different types of stores, know the difference to help steer you in the right direction. High Quality/Full Price (1), High Quality/Sale Price (2), Low Quality/Low Price (3), and High Quality/Outlets (4).  So, if you are looking for a pair of Levi’s you are generally better off going to TJ Maxx or Burlington Coat Factory (2) versus Macy’s (1) or Walmart(3). You may also find them at a Levi’s Outlet (4), but be suspicious. My sources tell me that outlets don’t always have the best prices.
  9. Host a Football Party. Going to a bar to get food and drinks can get expensive.  Pool with your friends to buy drinks and food and watch the game at home.
  10. Go Vintage. Here’s where you have one up on the women. At vintage and thrift shops you can find men’s clothing easily because men’s clothing doesn’t change that much over time, so it can still work today. While you are there, pick up that cheap nightstand that you need, too.
  11. Use Your Freezer. If you bought the bigger package of hamburgers to make on your George,  freeze some of it. It will last longer instead of going bad in the refrigerator. Meat/Poultry lasts for only a few days in the refrigerator.
  12. Get a Doggy Bag. When eating out save your waste line and get a doggy bag for half of your meal. I know your mother told you to clear the plate, but the meals that you eat outside are too large. Put the leftovers in the frig and eat it for lunch the next day at work.
  13. Learn to Cook. To eat economically, your best option is to make food versus eating out or even buying ‘ready’ meals at the supermarket. It’s not as hard as it sounds, if you start out using your microwave. Start off by cooking sides to go along with your hamburger you cooked on the George. Buy canned beans, green beans, corn, etc and heat them up in the microwave. Instant mashed potatoes are not much harder, mix in water/butter, then microwave. Next, try chili, it’s easy: microwave tomato sauce, can of beans and a chili seasoning pack (optional: add meat cooked on George).
  14. Go All Black. I’ve at times almost missed my train to work because I couldn’t match a pair of dress socks. Make it easy on yourself, just buy all black plain socks, they work with anything and also with each other. No matter how many of them you lose, you’ll always be able to find a match.
  15. Iron It Out. Take a look at your closet. A good look. Why don’t you wear that one pair of slacks? With women, they know exactly why they haven’t worn those well laundered slacks sitting in the closet: they are waiting for that day someday in the future when they will get to the right size to wear them. Since your weight doesn’t change that much, your excuse is simpler: you are too lazy to iron the pants. Admit it. I have a pair of nice slacks I wore once new. And then a second time when I was forced to iron them because I had nothing else clean to wear. Save yourself some time and money, buy shirts and slacks that are ‘no-iron’! A pair of slacks you never wear is wasted money.
  16. Check Expiration Dates. Check the expiration dates on the food and medicine you buy. If you buy a good that is stale you will be too lazy to take it back, so it’s lost money. I once found a bag of pretzels that was expired for 6 months. It’s a good thing I checked the date.
  17. Get A Discount. Retailers understand that there are a segment of customers who will pay full price as well as a segment that is always seeking a discount. You may be surprised that most retailers, even the high end ones, will give you a discount simply by signing up for a discount program. (Read why I recommend that you don’t sign up for a store credit card just to get a discount). Ask if they have one, you can then save every time you buy at the store. For a time, I paid retail price for clothes at Brooks Brothers until I found out that they have a discount program that saved me 10%.
  18. Hang It Up. If you really want to impress your girlfriend, don’t buy an Infiniti G37, learn how to use a clothes line. If you don’t have a clothes line hang them up spaced in your closet. First, try those heavy bulky items like jeans, slacks, and shirts. If you took my advice and bought the ‘no-iron’ clothes, then you are done! This will save you some quarters with the dryer.
  19. Automate Your Bills. It’s entirely too much work to buy stamps, write a check and mail payments. Use a bill pay service to automate your bills. I discuss how to do this here.
  20. Finally, Contact Your Seer. Sometimes, you need to ask someone close to you where to shop. Yea, I know, this is like asking for directions on the road: you don’t want to do it. Try it. In my case I go to my sister who is an excellent shopper, a confirmed Pro with decades of experience. She was the one who told me about the Marburn shops where you can get all the linens (sheet, blankets, and those covers you put on the pillows that nobody uses) you will need for your apartment at great prices. I never would have found such a store on my own.
Categories: Lifestyle Tags: ,

Timeshares: Do They Make Financial Sense?

March 5th, 2010 No comments

Are timeshares a good financial move? In this post I offer some advice.

I went to a timeshare seminar in Puerto Rico while on vacation. This was not the first time I went to one, about 5 years ago while in Vegas I endured the same sales pitch. Then as now, my instinctual reaction is to question why anyone would want to buy a vacation 3,5 or more years ahead of time. With all the options that exist today to plan and buy vacations this does not seem like a good idea to me. My opinion can be summed up as follows. It’s an allusion to that famous line in the movie, The Godfather II (“keep your friends close, but your enemies closer’):

“Be cautious about paying for a future expense today. Be extra cautious if you also borrow money to do it”.

Borrowing money for expenses is bad practice, and you should have a good reason whenever you do it. While timeshares have some characteristics as “assets”, they are best viewed as a form of prepayment for vacations. Why would anyone want to prepay an expense that is discretionary? Basic common sense says you wouldn’t unless there is value in there somewhere. Let’s do the math.

When timeshares first appeared, they were little more than a prepayment plan for future vacations. The industry has evolved, the timeshare that was offered at the seminar was a deeded property with title. They also provide the ability to use your account (with a point system) to pay for other vacation expenses such as rental cars and airfare. This is not unlike a condominium or townhome, the only difference is ownership is split up into multiple pieces instead of having a single owner for all 52 weeks of the year.

The Sales Pitch

The salesman was no ordinary rep, he was an executive of the company. A good salesman always impresses me because it’s a skill that I have struggled to develop. He talked about all the traveling he did in his life, visiting and living in places all over the world.  I was drawn into his stories not only because of everywhere he has visited, but also his spirit of adventure and how he made his love of travel into a career. I was thinking:

“Forget the timeshare. How much will it cost to rent YOU as my travel guide for the next 20 years?”

Then reality set in. How can I be a free spirited traveler if I have to earn enough money to pay off this timeshare? I bet he didn’t own a timeshare when he did all of his traveling in his younger days. Nope, timeshares are for working people not unemployed folks who buy travel cheap.

The Offer

The first timeshare contract offered was for a one bedroom unit, one week a year. There is a lot of flexibility here, so if you decide to take your vacation during the ‘off season’ you may be able to get a 2 bedroom unit instead. (If you think that you can get Hawaii cheap by going during the ‘off season’ keep in mind that all the great places you would want to go –like Hawaii– don’t have an off season.) The total cost: about $20,000.

Timeshare Cost: $20,000

Loan Interest Rate: 8% (30 years).

Total Value: $50,000.

The sales pitch for the timeshare was about 3 parts dream/motivation and 1 part financial. The main financial argument that was made as to why a timeshare is a good value was a calculation that compared the cost of buying a hotel room for 30 years versus buying the timeshare now. The hotel room cost was as follows:

(7 nights * $100 hotel room * 10 % taxes) added up over 30 years with 5% inflation.

If you run this calculation in a spreadsheet, you will get a figure around $50,000. So, the argument goes, you can buy $50,000 worth of vacation for only $20,000. Sounds good, right?

But, It Is Really Worth It?

The way to evaluate this offer is to consider two key points: how you are going to pay for it as well as how to “adjust” the offer based upon your expectations of actual use. The way we will adjust the value of the timeshare based upon your expected use is by “discounting” the future. The thinking goes like this: the timeshare is more valuable to you if you really think you will use it than if you expect to use it less. From this calculation you can make an informed judgement as to whether or not it’s a good value.

If you borrow the money at the offered interest rate of 8%, you will not come out ahead. The total cost including interest at 8% is more than the total cost of simply buying the hotel room the next 30 years (about 51K versus 53k). It doesn’t make sense in situation to buy the timeshare. So, even if you use the timeshare every year for 30 years (unlikely), you still will pay more.

If you pay cash, the calculation requires some more effort. For this calculation I will borrow a financial concept from business. Take your initial “investment” in the timeshare and compare it to the “discounted” value of the hotel room after applying a “risk” factor that measures your confidence in how much you will use the room.

Understanding the Discount

Discounting is a commonly used business calculation that has application in personal finance. In fact you already use it but may not realize it. Here is a simple example. When you buy a magazine once at a news stand you pay full price. If you buy the same magazine 24 months in a row you are still paying full price. If you chose to buy the same 24 months worth of the magazine through the publisher (paying upfront) they won’t charge full price they will give you a discount, perhaps 50% or more off the retail price.

There is a practical as well as a financial benefit here. The magazine publisher wants you to pay up front because it guarantees revenue as well as strengthening their case with advertisers. As a consumer, you might not be sure that you will want the magazine all 24 months, so why pay full price now for 24 months? The discount helps to mollify your uncertainty. The Discount is based upon the simple idea that money paid today is more valuable than money paid in the future.

Applying the Discount

From a purely financial angle, money you hold onto now can earn interest (or in the case where you borrow the money, you save interest costs). Here’s the calculation to determine the value of the timeshare based upon a “risk” free rate of return plus a risk premium:

Timeshare Value = Discounted 30 year hotel room cost (risk rate + risk premium)

For the “risk” free rate of return I will use the 30 year U.S. Treasury, which is about 3% now.

Here is the total cost of the hotel room discounted back:

$50,000 at 3% discount ==> $30,000

$50,000 at 5% discount ==> $20,000

$50,000 at 8% discount ==> $14,000

In this example, a risk free return means that you will use the timeshare 100% over the next 30 years. So, at a 3% discount you could pay up to $30,000 at which the timeshare saves you money (so, in this case you are $10K ahead!) If there is any possibility that you will not use the room, you add a risk premium. If you add a risk premium of 5% (for a total of 8%), the price you should pay goes down to $14K. This implies that you will not use the timeshare about 50% of the time (16K/30K).

At the offering price of $20K, it is implied that you will not use the timeshare about 30% of the time.

Should You Buy One?

Timeshares don’t work for me, but that doesn’t mean they are not right for you. I know a few very savvy people who are skilled at their own personal finances who own timeshares. If you do want to purchase one, carefully consider the cost versus a realistic assessment of how much you will use it.

This article was featured at the Carnival of Financial Planning at TheSkilledInvestor.