Posts Tagged “finance”
Ross • 1st Mar 2010 • Uncategorized • air miles, airmiles, arbitrage, california, economics, finance, hacks, money, pudding, reward, saving, usa
Why the museum of arbitrage? Well, because if arbitrage existed now, I would be doing it rather than writing this.
In 1999, UC-Davis civil engineer David Phillips was grocery shopping when he noticed something peculiar. Healthy Choice Foods was offering frequent-flyer miles to customers who bought its products. But a 25-cent pudding would bring 100 miles — the reward was worth more than the product itself.
Recognizing a good thing, Phillips bought 12,150 servings of pudding for $3,140, claiming he was stocking up for Y2K. Then he enlisted the Salvation Army to help him peel off the UPC codes, in exchange for donating the pudding.
He mailed his submission to Healthy Choice, and to their credit they awarded him 1.25 million frequent-flyer miles, enough for 31 round trips to Europe, 42 to Hawaii, 21 to Australia, or 50 anywhere in the United States.
There’s no downside. Phillips also got Aadvantage Gold status for life with American Airlines, which brings a special reservations number, priority boarding, upgrades, and bonus miles. And he got an $815 tax writeoff for donating the pudding.
Lifted wholesale from Futility Closet.
Ross • 11th Nov 2009 • Living • banking, boats, finance, Friends, sailing, yacht
No doubt there are more pressing problems in the world, but the other night some friends and I were grappling with what a hedge-fund manager of mutual acquaintance should call his new yacht, currently on order from Princess.
I suggested various epithets, from the funny to the lame (Bailout, Liquidity, Too Big to Sail, Floating Charge) but the winner was a banking friend, with the inspired Quantative Ease.
Ross • 9th Nov 2009 • Learning, Living • finance, investing, money
I sold out of Tesco in October at 407, having bought them at 321 exactly a year previously and enjoyed two dividends in addition to the 26% rise in share value. It was my first investment. Of course, commissions took their toll from my profit: although I try to keep these as low as possible, I’m playing with hundreds rather than thousands, so it’s hard not to lose a few points to the brokers. However, perhaps that’s a good thing as it discourages frequent trading, a sure fire way of making brokers rich at your expense. The asymmetric brokerage costs that I now have arranged (£1.50 flat to buy, £10 flat to sell) are a good incentive to stay in the game too. Despite this, not staying in the game is my first investment mistake. Tesco passed 420 today, making 321 seem even more of a steal.
Ross • 8th Oct 2009 • Learning • buffett, business, finance, investing, investment, shares, stock market, stocks
Very slowly, I am learning about investment and investing. I do believe that investing requires learning: I am firmly in the ‘value’ school. From the various books I have read and people to whom I have spoken, this is the wisdom I have distilled to date, with sources and my subsequent embellishments.
- Never invest what you can’t afford to lose. From Caleb Loom, my grandfather. You need an income, and you need shelter. Don’t do anything that jeopardises this. Your investment baseline should not be zero, nor should you consider all your assets as part of your portfolio.
- Invest on the basis of fundamental value. From Benjamin Graham. Every system is phoney, every day-trader a gambler. Patience is not only a virtue, but a competitive advantage.
- Diversification reduces your potential for large losses, but also your potential for large gains. From Warren Buffett (who put it more succinctly, “When your advisor tells you to diversify, he’s telling you he doesn’t know what he’s talking about”). Note that (as John Kay would argue) diversification is the best way to ensure modest growth – but by prioritising the need for diversifying your portfolio, you are adding another reason to buy a stock: for the sake of diversity. This is one reason too many. The only reason you should have is because it’s a good stock.
- Hammer down your investment costs. From John Kay. Fees and charges eat your return. Buy and sell smartly – take advantage of deals, buy in bulk. Try for a maximum 1% annual overhead.
I hope to learn much, much more, but this isn’t a bad start.
Ross • 19th Aug 2009 • Thinking • development, finance, international development, microfinance
…it is impossible to read this year’s text without coming to the conclusion that microfinance is at a crossroads, and that it might do the industry a power of good if it was able to call a “time-out” to reassess its role. In the popular press, microfinance is still very much the developmental flavour of the month – and even the most battle-hardened aid veteran has to acknowledge its appeal as an alternative to the conventional ‘top down’ model for wasting taxpayers’ money. But… microfinance currently faces serious challenges – challenges that have been exacerbated by the global crisis. Should microfinance institutions shift from their essential social role to a (perhaps) more sustainable profit-seeking model? Can they go on relying (as they have done) on subventions of one sort or another from Western investors? Should they develop into more or less full service financial institutions, and become part of the formal financial sector?
That’s from the CSFI’s Microfinance Banana Skins 2009, available as a free PDF. My answers would be yes, no, more, and yes, respectively.
Ross • 6th Aug 2009 • Living • credit cards, finance, money
On the back of a general crackdown on credit card benefits, American Express have just changed the cashback rates on their Platinum credit card. Running the numbers, the new rebate schedule looks like this:
You now need to spend £4.5k per year to make the card pay. This is quite difficult if you play multiple cards off against each other, especially given that AmEx are probably the least widely accepted (after Diners’ Club?). I think that these changes will lose them a lot of smarter customers: good for them, bad for me. Note also the new £20 dormancy charge. Putting the card in the back of the wallet is not an option.
Ross • 5th Aug 2009 • Thinking • economics, finance, money
Will Wilkinson seems to have sparked off an interesting debate on the value of money, which I picked up thanks to The Economist’s Free Exchange blog. I should really read Will’s blog directly, but although the posts are generally high quality, they are too long for my blog-browsing habits, so I dip in only when interesting questions here are picked up elsewhere.
The interesting question in this case is:
Suppose you made a million dollars last year and put all but $50,000 of it in a shoebox. Now imagine you lose the box. What good did the $950,000 do you?
I have spent only ten minutes thinking about this, but I would evaluate access to cash as having ‘real option value’. In other words, the value of the shoebox is the value of the options it gives you: to retire, to start a new business, to travel the world.
This real option value will vary from person to person. $950k won’t increase the real options available to Bill Gates, but it would make much more of a difference to the options open to me (even at $1.70 to £1). Therefore, I figure that the value of money to an individual will vary in real option terms.
Real options will have value, even unexercised. That’s why people pay more for flexible travel tickets. As such, the money in the box has value… up to the point you lose it. Afterwards, no value. However, I don’t think the eventual loss of the box means that it was never worth anything. Okay so the money was sitting in the box, but it wasn’t doing nothing. Even in the box, it was storing value and holding open potential options – that is the unglamourous job of money. Its loss matters.
Ross • 18th May 2009 • Thinking • advertising, banknotes, economics, finance, money
An idle thought: apart from the vulgarity, would there be any disadvantage to allowing advertising on banknotes, and might this note help government fund printing them? Advertisements could be restricted to a small, standard area, so as nobody could be in any doubt as to them corrupting the general recognition of the note, and the frequency with which such advertisements changed may even prevent fraud, by forcing fraudsters to change their designs regularly. I know that in many places (like Scotland and Hong Kong) private banks issue notes bearing their logos – so why not go all the way?
Ross • 24th Apr 2009 • Learning • business, economics, finance, reading
I’ve just finished John Kay’s The Long and the Short of It. In the terms of the analysts that the book derides, I’m upgrading my recommendation from a Hold to a Buy.The book does have some downsides: I think it over-promises on investment advice and, at times, it rehashes many ideas from the author’s regular columns in the Financial Times and elsewhere. For example, there is little in the chapter on future regulatory reform that isn’t said more succinctly in this Guardian piece. Perhaps this is a remnant of Kay’s working methods on his previous books The Hare and the Tortoise and Everlasting Lightbulbs, which were collections of columns by design. Still, this is only a problem for people who have read other John Kay books and articles. Readers new to his admirably direct and forthright style will not suffer this slightly disappointing déjà vu.
Despite these gripes, it’s still a good, and quick, read – a good deal better than Hugo Dixon’s Introduction to Finance, which I struggled through at the end of last year. In fact, I read Kay’s book so quickly that I’ve set aside half an hour this weekend to nip back through the investment advice sections and précis the advice. The big lesson I do remember (and it is a key theme through the book) is that holding many unrelated and diversified risks can reduce portfolio risk more than just holding supposedly safe blue chips. Frankly, the book was worth it for this advice alone.
It’s also worth mentioning that the book has a great ‘Bookshelves and bookmarks’ bibliography at the end, with some further reading recommendations. I’m now awaiting about six tomes from Amazon Marketplace to build up my investment library.
Ross • 20th Apr 2009 • Learning • business, credit crunch, economics, finance
I’v always been into microeconomics (particularly of the individual and of the firm) but the breadth of that field means that I’ve not really ever got to grips with specialist financial products in anything more than the broadest terms. I understand the principles and could probably have a decent conversation on Mogdaliani-Miller or Black-Scholes, but two days ago I didn’t understand what CDOs were, or how they were created. Thankfully, John Kay’s The Long and the Short of It is proving useful to refresh the basics, and this Harvard Business School article (found via Marginal Revolution) was very interesting on structured finance and the limitations of rating agencies. I recommend both.
