Gas stations and card fees

As you've probably noticed, many gas stations have started charging different prices for cash and credit/debit. Up until 2010, gas stations that accepted credit cards were prohibited from charging a lower rate for cash customers. (Reason: Mastercard and Visa rule the country.) After a court ruled against the two credit giants, stations started listing two different prices.

As a warm-up to what might be more intensive posting during my Korea trip (yes, I'm going!), I decided to document my observations locally. I don't have a gas card, and I don't have much brand loyalty. Consequently, I've got a fair amount of anecdotal evidence that there's some standardization across stations of a specific brand, and that not all brands treat the card fees equally.]

Note: most of my direct experience is with debit card purchases. However, debit cards are generally treated the same as credit cards, even though debit transactions typically have lower merchant fees associated with them. I'll note places where debit is treated differently than credit.

Arco:

As the article above mentioned, Arco didn't take cards until quite recently. They currently apply a $0.35 charge for debit-card customers, but that appears to be a flat fee. I don't know precisely what the merchant fees are (I'll update the post later), but a good estimate is 3%. If that's true, then Arco is not passing on the full cost of a card transaction to the customer.

Mobil:

Mobil is often one of the pricier brands of gas in this area. Perhaps as a consequence, they don't charge a different rate for cash and credit/debit. This appears consistent over the handful of Mobil stations I explored in the San Gabriel Valley.

Chevron:

Chevron tends to add about 10 cents a gallon for credit and debit transactions, which translates into about 2.5% at current gas prices in Southern California. This means they're passing on the full price.

76:

76 stations seem to exhibit a bit more variability than the others. I don't know why -- maybe the franchisees generally have more freedom to set rates. I've seen some that list the same price for cash as credit/debit, but I think a majority charge about 10 cents more per gallon.

Shell:

Ugh. The Shell closest to my house charges 20 cents a gallon more for card transactions. This is about 5%, or well above what they should reasonably expect to have to pay in merchant fees. Another one a bit farther away is a bit more reasonable, and charges *only* 10 cents a gallon more for card purchases.

Valero:

These stations tend to be less common, and, honestly, they have the feel of an independent station. The one closest to my house charges 4 cents more per gallon for credit purchases, but charges the same as cash for debit purchases. This might have to do with the difference in fees between credit/debit, as mentioned above.


Other notes:

Of all the stations I've tried, I haven't noticed a major hold placed on my card by any of them. The policies may have changed at some point -- previously, a hold, often of more than the amount of gas purchased ($75 in some ridiculous cases) was placed on the card. This could be Very Bad Indeed, and lead to overdrafts or cards being declined if one flirted too closely with a zero balance. It's a welcome development, but I'd need to investigate further as to when this changed and why, if it is, in fact, a real change.

Update: it appears debit card PIN transactions aren't subject to holds. Not sure why that would be true, but that credit cards would be subject to holds. Fraud? That doesn't seem to make much sense to me. Maybe there's a different clearing mechanism for credit and debit purchases with a PIN.

My local HSBC banker was a dick to an old lady in a walker

A follow-up that reduces most, but not all, of my initial anger/concern, is described here.

This really, really pissed me off today.

I was trying to deposit some money at the counter at the one surviving HSBC branch near to my house.

#199
ROWLAND HEIGHTS OFFICE
(C. F. PLAZA) 18250 COLIMA ROAD 
ROWLAND HGTS, CA  91748

An elderly lady, accompanied by her grandson, entered the bank, assisted with a manual walker. She and her grandson make their way slowly to the window nearest the safe deposit boxes. Once they are at the end, the local branch manager (or some high-ranking banker in the branch), a tall Chinese guy, informed them that they will need to actually wait in the line. The old lady shuffles back slowly to the line. The banker barely mumbles a "sorry" before hurrying away to his office.

The line goes very slowly. They are understaffed on a Friday afternoon - understaffed, at least, at the counter.

I, the old lady, and the grandson wait in line for about 20 minutes.

There were a few bankers in cubicles, including the unhelpful tall guy. Not a single banker stepped back behind the counter to open a register. It's possible they don't have that authority or flexibility. It's possible they were required to fill out paperwork or process critical information at 4:30 PM on a Friday.

But the overwhelming message I got was a big "fuck you" to the people waiting, and especially to this old lady. I wonder if it would've been different if she hadn't had her grandson carrying a heavy satchel.

To my shame, I didn't offer her the opportunity to go ahead of me in line. I really should have. I thought about even lugging a chair from the waiting area to the line so she could at least rest for a while. (But then I thought that she could have rested in the waiting area, and had her grandson wait in line for her, if she felt the need.)

This isn't the first time I've witnessed this crappy customer service by the tall guy. A similar situation, a couple months ago, involved long lines and zero support behind the counter by the senior bankers.

Look, I realize HSBC is restructuring its North American footprint. Although the heavy Chinese  concentration in Rowland Heights probably means this branch will remain open, I understand if people are stressed about keeping their jobs. At a previous visit, I congratulated a teller, explaining that I assumed she had recently gotten the job. As it turns out, it sounds like she lost her full-time position elsewhere and was now a part-time employee. :(

Also, I like HSBC. They've kept their fees low, and I've really enjoyed their customer service in New York, Maryland, and in Pasadena/San Gabriel. So I'm not someone who has an axe to grind with a bank because I was dumb enough to let my account be overdrafted.

But the point is, I still think he should've let her go to the safe deposit box. At the absolute bare minimum, he should've apologized a bit more generously to the lady, explaining either that it was unfair to other customers to help her first, or at least acknowledge her existence. Hell, this lady probably survived the Cultural Revolution. Or early KMT rule in Taiwan. That should count for something.

It is dangerous to generalize from a single person's behavior on multiple instances to a more general statement about culture. Yet I will do precisely that, because it does mesh with other experiences I've had with the emerging Chinese and Chinese-American culture. If this banker is any indication, the narrative of Confucian reverence for elders is absolute bullshit, at least in the finance industry. The bank is completely Chinese or Taiwanese; not a single employee I saw was not fluent in at least Mandarin.

What this banker communicates is that it's perfectly acceptable to treat someone like shit, no matter how old, as long as they are a low-value customer. The bank wasn't making much on that safe deposit box. Maybe she didn't have a mortgage with the bank. Maybe she, like me, had just a crappy checking account and modest savings there.

But she's still an old lady and a human being.

Maybe there's a cultural thing I'm not getting. Maybe its considered rude to imply, however obliquely, to the elderly that they need help. I hope my Chinese friends let me know. (Given the other experiences, I'm unwilling to extend the banker the benefit of the doubt.)

I usually don't do this, but I'm going to definitely communicate this as a letter to the branch manager. I had to do some banking at Chase later the same day, and it was shocking the difference in attitude and basic human decency. It takes a lot to get this old crank into action. But congratulations asshole; you achieved the impossible today. I'm not going to pretend that my withdrawal of my broke-ass cash will make a difference. But I will tell people as much as I can about this disgraceful incident.

ETF spreadsheet updated for week of Jul 13-17

Update 15 Jul 2009, 18:17 - Updated with values from today's trading; should be ready to go for Thursday. (link) Sorry it took a while. Note: simple moving average and Bollinger band data NOT updated. Given the size and scope of the rally, I may update these at some point tomorrow - old Bollinger data is unacceptable when an ETF begins riding it up/down.

Update 15 Jul 2009, 11:25 - Updated with values from yesterday's trading. Sorry it took a while. Note: simple moving average and Bollinger band data NOT updated, but should be acceptable for the rest of this week.

Update 13 Jul 2009, 19:22 - Updated with values from today's trading. Note: simple moving average and Bollinger band data NOT updated, but should be acceptable for the rest of this week.

I've updated my custom ETF spreadsheet that covers a ton of sectors, asset classes, and related Proshares/Direxion leveraged and inverse ETFs, where available.

Refer to my earlier post for instructions on how to read/interpret the spreadsheet. Do let me know if you note any errors, or would like to see changes.


NOTE: The pivot-based levels are calculated based on the previous trading day's range, and might be effective only for the next trading day (Monday). I'm considering experimenting with weekly pivots, which might be more useful than the daily pivot levels. I need to consider whether I will be updating this spreadsheet daily or weekly. If you know of ways to automate the download of some of these values (trading ranges, 20, 50, 200 day SMAs, and Bollinger Bands), please contact me ASAP!

Thanks!

Ryan

Interesting arb. opp. for cash advance/float

I occasionally peruse the Fatwallet.com Finance forum and have stumbled across some interesting ideas. In addition to providing me about $1,000 in "free cash" over the last year by highlighting sign-up bonuses for checking accounts, it provides some interesting and clever ways of making successful use of unintended consequences.

One I have taken advantage of is the US Mint $1 Presidential Coin Direct Shipment program.

ETF spreadsheet updated for week of July 6-10

I've updated my custom ETF spreadsheet that covers a ton of sectors, asset classes, and related Proshares/Direxion leveraged and inverse ETFs, where available.

Refer to my earlier post for instructions on how to read/interpret the spreadsheet. Do let me know if you note any errors, or would like to see changes.

Thanks!

Ryan

spreadsheet for trading leveraged ETFs

UPDATE June 22: Spreadsheet now online via Google docs. However, the formulas are not saved. I should be updating it semi-regularly. Still, numbers updated as of today's close, and should be helpful for trading tomorrow.






I trade the Proshares and Direxion levered ETFs. The problems associated with levered ETFs have been well documented (see "The Case Against Levereaged ETFs" by Tristan Yates and Lye Kok, located on SeekingAlpha's website).

Of particular note, technical analysis on the levered ETFs is of limited value. The levered ETFs' value have a tendency to decay of the ETFs in volatile markets makes previous price levels useless.

I'm still learning Technical Analysis (TA), and I definitely advise that one keep in mind fundamentals when using TA. (It's a valuable sanity check, though I suppose we've been in insane markets for quite some time.)

I try to do TA on index ETFs in sectors I trade frequently (in particular, financials (XLF), energy (XLE), real estate (IYR), the SPY (large caps) and IWM (small caps).

I find it is helpful to map out price levels of potential support and resistance prior to a trading day, and update them with intraday levels/trends. To calculate entry/target/stop points for my trades using the leveraged ETFs, I decided to put together a spreadsheet that automatically calculates the prices of the levered ETFs based upon the underlying (index) ETF.

Note: the index ETFs I use are not necessarily the ones that most closely track the underlying assets. Usually I chose one that more or less tracked the sector, but was most heavily traded (liquid). Unfortunately, I haven't tested how effectively the Direxion Energy Bull (ERX) and Bear (ERY) ETFs track XLE; consequently, I'm not trading energy very much.

How to use the spreadsheet

(1) Create a portfolio of the ETFs listed on the first page in a Yahoo! portfolio. I enter the ticker "BREAK" to create spaces corresponding to spaces on the spreadsheet.

(2) After the close of a trading day, download stock quotes from Yahoo.

(3) Copy and paste the field highlighted on the first page. It should match up with the format Yahoo uses.

(4) (Optional for daily; recommended for weekly) Enter in the 200, 50, 20 simple daily moving averages, as well as the Bollinger bands (I use 20 day, 2 standard deviations). I have to do this manually using stockcharts; drop me a line if you know of a better way to get SMA numbers in a spreadsheet!

(5) For the sectors/markets of particular interest to you, I recommend adding additional price levels based on TA on the specific index ETF. Enter these numbers in the yellow boxes located on the page specific to the ETF of interest.

(6) Assuming I didn't botch the formulae, the key price levels, as well as pivots, and the corresponding levered ETF price, should be calculated in the gray box in the lower left of each sector/market sheet. I find it handy to enter in a description of what the price level corresponds to (support/resistance, hi/low/trend, as well as the time period over which it applies.) Copy and paste ONLY the values into the magenta area.

(7) Sort the data pasted in descending order of the first highlighted column (labeled by the unleveraged index ETF).

(8) You should now have an ordered set of price levels for the index, as well as the corresponding prices for the ETF.

Hope this helps. Please let me know if you've got any suggestions. I tried to make it as plug-and-chug as possible, while allowing for some customization with manually entered price levels.

NOTE: If you're interested in a copy, send me an email (ryan.yamada - at - gmail.com), and I'll be happy to email you a copy. Access to my website appears to be restricted; I'm contacting the sysadmin.

Daily Show Interview with Jim Cramer

Ok, I'm going to blog about the Daily Show interview with Jim Cramer, because I hate to feel left out.

It was a great interview. But Jon Stewart didn't win. And Jim Cramer didn't lose.

We all lost, some time ago. And we continue to lose.

Interesting forum on buying a car right nowthread

I'm interested in buying a car, mostly because my car is not interested in staying alive. A reputable dealer priced repairs at around $5k for it to make inspection, which doesn't include an additional $2-2.5k that was recommended, but put on hold, when I went in last time. It sounds ridiculous, but I really do trust this shop.

For those of you who don't know or remember, I drive a 1993 Toyota Camry, V6 LE. So it's completely ridiculous that I will put in $7.5k into this car, especially since I put in $1.7k a few months ago... >:(

Anyway, Fatwallet, a site I genuinely love, has a great thread on buying a car in the present environment. I may just move to a place that will let me use the Metro, but I'll keep this in mind.

Personal Finance: Four Calculations That Will Save You At Least $2.5 Million

In recent months, I've been spending my time reading up on personal finance and investing. It's not a new interest-- I was introduced to stocks at the age of 8 by a family friend. Although I had no money to invest, and no real knowledge of how the market worked, I remember periodically following stocks in middle school, listing the closing prices of twenty large-cap companies. My interest it stock cooled somewhat, when through a miscommunication with my mother, I encouraged her to buy the Palm IPO. Well, as it turns out, we bought at about 100, and sold at 3. Fortunately, we didn't put the farm on the investment, but it led to both of us distrusting my financial prowess. (My mom continues to bring up the Palm plunge whenever I encourage her to do something remotely related to personal finance.)


Many of us probably wouldn't be surprised that the average American man lives about 78 years, and that the average American woman will live 83. (The weakness associated with the Y chromosome, and scientific evidence for the eventual "extinction" of men, c. 122000 CE, will appear in a later post.) But it surprised the hell out of me that this translates into 28,470 days for men, and 30,295 days for women. There's a finite finality about those numbers.


These numbers got me to thinking: am I really getting a good return on all this reading? I decided to run some numbers.


I found the following:


1. Reading on saving a fair fraction (~10-15%) of my income probably paid off. ($811,421)

2. Reading on tax-advantaged accounts (IRA) probably paid off. ($850,740)

3. Reading on index funds paid off. ($824,283)

4. Time spent researching/trading individual stocks will likely NOT pay off.

Detailed explanations follow.

A word of caution before we start:

All of the examples below assume about a 10 percent average annual compounded return, based on historical S&P 500 data. However, as Warren Buffet mentions in his 2006 letter to shareholders, there may be reason to suspect that investors should NOT expect that average return. This has implications for the value of actively managed funds, and equity investing in general.

Now, back to the four points.

1. Reading on saving a fair fraction (~10-15%) of my income probably paid off.

This should be a no-brainer. But as evidenced by a negative savings rate in this country, it shouldn't be taken for granted.

Take for instance the example of the "latte millionaire".

Let's say you drink a latte every morning right before work (or in the afternoon). Let's also assume you spend about $5 for each latte, that you drink one a day, five days a week, fifty weeks a year. That translates into $1250 a year. Let's say you kept up your latte habit until you retired 40 years from now.

But wait, there's more! Let's also say you used the compound annual growth rate (CAGR) of 10.4 percent, including inflation, which according to Warren Buffet in his 2006 letter to shareholders is the average rate of return in the stock market. I'm going to simplify this and estimate 10 percent. For this analysis, let's also ignore inflation (roughly 3.2 percent) because it's irrelevant for the purposes of this analysis. (Also, latte prices would also inflate, meaning it wouldn't be a huge factor.)

How much would that latte money be worth in, say, 40 years?
As it turns out, it would be worth $609,815.

Note that this isn't counting taxes - if you wanted, you could probably make a pre-tax contribution into a traditional IRA instead of a post-tax contribution to your local Starbucks. Then the figures go up to $717425 for a $1470.58 pre-tax annual contribution (corresponding to a 15% income tax bracket), $813,088 ($1,666.67 pre-tax annual contribution).

A picture says a thousand words.



The morals of this story are

(1) Think twice about quitting if your company has a communal espresso machine.
(2) Compounded savings do matter.

Potential savings after 40 years: $811,421
At $10/hr (my current salary), worth it if I spent < 81,142 hours on this (= 3381 days, or 9.2 years)

2. Reading on tax-advantaged accounts

Yes, I'd say this helped me. Automatically, I potentially increased my rate of return by 15-25% by avoiding federal taxes. Including state taxes, I've probably avoided an additional 6%. Assuming I didn't spend an ungodly amount of time getting it through my thick skull that I am not morally bound to pay taxes above and beyond my strict legal requirement, then this was worthwhile.

Again, a table to illustrate. I assume I've somehow squirreled away about $4,000 pre-tax in savings.



Additional Notes:

1. Traditional IRAs tend to win if you expect to be taxed at a lower rate after retirement. Roth IRAs win if you expect to be taxed at a comparable or higher rate after retirement.

2. The 2008 contribution limits for both traditional and Roth IRAs is $5,000, not $4000. The maximum contribution limits for both traditional and Roth IRAs are indexed to inflation, and rise in $500 increments. The limits are the same, meaning you can get additional compounded earnings if you can invest after-tax the maximum amount allowed in your Roth IRA.

Potential savings: $ 850,740 (more factoring in increasing contribution limits)
At $10/hr, worth it if I spent < 85,074 hours to learn this (= 3545 days, or 9.7 years)

Note: This post does not cover other interesting tax-advantaged accounts, like 529 plans (for college), health savings accounts (for medical expenses), and of course, your company's 401(k)/403(b), nor does it cover the other nine or so IRAs that exist.

3. Reading on index funds

This, too, has paid off. According to Motley Fool, the average actively managed fund tends to underperform the S&P 500 by about 2%. How much does this matter?



The reasons behind this are many, including management fees and tax inefficiency (buying and selling securities costs money, and also generates capital gains, which are taxed. Index funds tend to have much lower turnover - a lower fraction of portfolio being bought and sold over a given time period - and therefore generate less taxable capital gains).

Potential gain in 40 years: $824,283
At $10/hr (my current salary), a good deal if I spent < 82,428 hours (= 3435 days, or 9.4 years)

4. Investing

At about this time, you might be asking yourself, What if I don't like being a passive investor? What if I think I can pick stocks, and outperform the S&P 500? What about becoming an active investor?

Obviously, it depends on how good you I am at beating the market.

If you've read Malkiel's A Random Walk Down Wall Street, or more generally subscribe to the idea that the market is efficient -- that is, prices reflect all known information. Note that this isn't quite the same thing as saying that prices will randomly fluctuate around a fair value. Nor is it to say that news doesn't affect stock prices. In fact, given what I'm reading about behavioral economics (and in particular, behavioral finance), there are a lot of features that don't jibe completely with a strong form of the efficient market hypothesis.

But all of that is somewhat academic. Let's stick with a simple question.

Let's say I spend anywhere from 10 to 500 hours a year managing my portfolio (10 corresponds to about 1 hour a month, while 500 corresponds to about 10 hours a week.) How much would I have to beat the market by in order to make it worthwhile? Let's calculate:









Wow. This means that if you are a full-time trader with a $250k portfolio, you need to outperform the S&P 500 (or your index fund of choice) by about 8 percent in order to do better than a $10/hr job. Of course, if you can do that on an annual basis, you could probably make money doing it professionally, while managing even larger amounts of money.

Key Points:

1. The decision between active and passive investing depends on portfolio size. Therefore, if you don't have much, sock it away in an index fund, or an actively managed fund that you are convinced will outperform, even after fees and tax considerations.

2. As your portfolio grows, it might be worthwhile to check in once in a while (say, annually) to readjust your portfolio. This is especially more important as you age, since you will be less able to recover from a sharp decline in the years before you retire.

3. That said, frequent checking can actually be detrimental to your portfolio performance. An interesting study by Benartzi and Thaler explores reasons for the "equity premium puzzle" - that is, why, when the stock market consistently outperforms bonds, would institutional investors, pension fund managers, and endowment managers consistently choose a roughly equal balance of stocks and bonds. (The reason, they suggest, is that these managers, like you and me, are subject to annual reviews, which skews their timeframe and their risk tolerance.) Long-term investors - know yourself, and know BEFORE you invest whether you'll be tempted to pull out of the market when faced with a 20-30% short-term decline (NOT an academic point in 2008).

4. These calculations DO NOT include trading costs and capital gains taxes. Therefore, these figures are conservative - you would have to outperform by a larger percentage than listed in order to make it worth your while.

5. If you like investing for fun, do it, but do it with money you can afford to lose, and with time you can afford to spend.

6. If money is really important to you, and you aren't born rich (with a large portfolio at your disposal), you're best off working hard in a high-earning profession. Be a doctor, a corporate lawyer, or an effective businessperson. If it's less important, but you want to be comfortable in retirement, go do what you like, but start saving now.

A final thought:

There's a hell of a lot more to life than money. In a later post I will comment on the other properties of a person's life that may make him or her happy, powerful, or otherwise important. But money is powerful in that it is a fungible, widely accepted form of power and value. It is important to know how to manage it, and what our time and comfort costs us, at least in monetary terms.

If you've read this in an hour, and follow the above advice, you may have saved about $2.5 million over your lifetime. Please consider making a donation to yours truly for providing you with this information (all of which I got for free from the Internet).

I hope to post at some point about estate taxes, another potential source of financial and personal grief.