Wise Money Decisions

I had a high school math teacher whose husband was a math professor at Utah State University.  He was in the process of preparing an introductory-level college math textbook for publishing.  He needed to test the problems on a student and come up with the answers for the back of the book. 

I was a year or two away from that level of math, but my teacher thought I could handle it.  She recommended me for the job.

Her husband offered me the job.  I accepted. 

I spent my summer vacation doing math problems at $100/chapter.  I was The-Guy-Who-Puts-the-Answers-in-the-Back-of-the-Book.

It didn’t take long before I realized I was in over my head.  I didn’t have the foundation for this level of math.  The author’s writing style didn’t appeal to me. 

But I trudged on.

Most math books at this level have 30 or 40 straightforward problems at the end of each chapter, plus 2 or 3 difficult problems.  The straightforward problems can be answered quickly.  The difficult problems take some thought and effort.  They were used as extra credit by most teachers. 

This book, on the other hand, had 10 straightforward problems and 20 difficult problems for each chapter. 

Many of the difficult problems were proofs.  The book gave the first two steps of the proof, and the student was supposed to complete the proof. 

I learned to hate the proofs.  They took most of my time.  I couldn’t give up and look in the back of the book since it was my job to put the answer in the back of the book.

I learned a few life lessons that summer:

• You can’t be The-Guy-Who-Puts-the-Answers-in-the-Back-of-the-Book unless you know the math.  You need the right foundation to do the job. 
• If you’re asked to do math problems for $100/chapter, there are only two responses.  Negotiate a higher price, or flee.
• One thing I didn’t learn that summer but recently came to understand thanks to Abstruce Goose is why the author included so many proofs at the end of the chapter. 

He made more money with the blog.  Seriously.

I’ve long been aware of one chain of gas stations that openly charges cash customers less per gallon than credit card customers. 

Apparently it’s not alone.  According to a local paper, the Contra Costa Times:

You’re getting charged for using a credit card - up to 3 percent per gallon - and may not have known it.  …

Typically, those who pay with credit or debit cards are charged a fee that’s included in the advertised gas prices, and those who pay cash aren’t charged that fee - between 1.5 percent and 3 percent per gallon.

Who knew?

Yet another reason to use a gas rewards card that pays 3% to 5% for gas purchases.  Otherwise you’re subsidizing everybody else that does, not to mention paying too much for gas.

Sure enough, as soon as I point out how engineering and other college majors mean higher salaries, the Wall Street Journal tries to undercut me:

College-educated workers are more plentiful, more commoditized and more subject to the downsizings that used to be the purview of blue-collar workers only. What employers want from workers nowadays is more narrow, more abstract and less easily learned in college. …

A variety of economic forces are at work here. Globalization and technology have altered the types of skills that earn workers a premium wage; in many cases, those skills aren’t learned in college classrooms. And compared with previous generations, today’s college graduates are far more likely to be competing against educated immigrants and educated workers employed overseas.

However, lest anyone think college is now for chumps, WSJ points out:

To be sure, the average American with a college diploma still earns about 75% more than a worker with a high-school diploma and is less likely to be unemployed.  

WSJ singles out three professions, all finance-related and generally requiring education beyond a BS, as having seen unusual growth:

Indeed, salaries have seen extraordinary growth among a small number of highly paid individuals in the financial sector — such as fund management, investment banking and corporate law — which, until the credit crisis hit a year ago, had benefited both from the buoyant financial environment and the globalization of finance, in which the U.S. remains a leader.

J.D. at Get Rich Slowly wrote about why investors are better off to ignore financial news.  He cites a Harvard study that says:

Investors who received no news performed better than those who received a constant stream of information, good or bad. In fact, among investors who were trading [a volatile stock], those who remained in the dark earned more than twice as much money as those whose trades were influenced by the media.

He concludes that:

The daily fluctuations of the stock market are especially meaningless to me. I’m still learning the basics of saving and investing. I get more from reading the words of Warren Buffett or devouring books like The Four Pillars of Investing than I do from watching talking heads speculate on why Apple’s stock price fell. 

Here’s my spin:

Like any good business, the financial press has one overarching goal:  earn money. 

They earn money by getting you to read their magazine, watch their show, or visit their website.  With few exceptions, they aren’t concerned whether their product makes you a better investor.  Making you a better investor isn’t their primary goal.  Making you a better investor doesn’t help them earn money.

The financial press is composed of journalists and entertainers, not investors.  Those that are investors are compensated with money or brand enhancement to appear on the show or write the column.  They’re not doing it out of the goodness of their heart. 

I’m not saying they’re dishonest.  And I’m not saying they’re incompetent.  Not all of them.  But you should understand where they’re coming from.  They say things because they’re paid to say things, not because they have important things to say.

Let’s use Jim Cramer as an example.  He makes a tremendous amount of money doing what he does.  And what does he do?  He’s not really an investor.  He’s an entertainer.  He was an investor earlier in his life.  But now he’s an entertainer. 

Does that mean you shouldn’t trust his advice?  Just because he’s an entertainer?  Let’s put it this way.  I only have so much time in my life to absorb financial information.  I’d rather spend it reading books and articles with good, solid investing analysis.  I don’t want investing advice from someone who comes up with things to say only because he’s got a half hour to fill every night.

There are many well-meaning journalists that produce good advice.  But there is also a lot of bad advice out there.  Learn to know the difference so you can ignore the latter.

I saw a blip tonight on The Big Idea that Americans work more hours than the residents of any other industrialized nation. 

That might be true, but the Japanese actually have a word for death by overwork:

There is an effort in Japan to cut down on deaths from overwork, known as “karoshi.” Such deaths have steadily increased since the Health Ministry first recognized the phenomenon in 1987. 

I wrote about Bill Miller and his recently ended streak of beating the S&P500 here. 

An interesting article in the Wall Street Journal (”Mean Street: Losing Faith in Freddie Mac and Bill Miller” by Evan Newmark) discusses Bill Miller’s recent slide. 

Key quote:

The Legg Mason Value Trust is now significantly trailing the S&P 500 for the past 10 years. Over that same period, it trails 72% of its peer funds.

To get outperformance from the fund versus the S&P500, you have to go back 15 years or more.

Forbes recently came out with a story on the most lucrative college majors. 

Forbes considered salaries right out of school as well as salaries at various time periods after graduation.  I believe they ordered the top 20 majors by salary at 10-20 years after graduation.  Below I’ve listed the starting salary in parentheses (that’s why the salaries aren’t in descending order). 

Here’s the rundown:

1.  Computer Engineering ($60,500)
2.  Economics ($48,100)
3.  Electrical Engineering ($59,900)
4.  Computer Science ($54,200)
5.  Mechanical Engineering ($56,900)
6.  Finance ($46,900)
7.  Mathematics ($43,500)
8.  Civil Engineering ($52,600)
9.  Political Science ($39,400)
10.  Marketing ($39,400)
11.  Accounting ($44,600)
12.  History ($37,600)
13.  Business Management ($40,900)
14.  Communications ($36,400)
15.  English ($36,700)
16.  Biology ($37,900)
17.  Sociology ($35,700)
18. Graphic Design ($34,700)
19.  Psychology ($34,700)
20.  Criminal Justice ($34,200)

It is always nice to see the various branches of engineering near the top.  It makes all those late nights in college seem a little more worthwhile.  Not that it matters to me now as I haven’t been a practicing engineer for several years!

It’s not a surprise to see engineering near the top of this list year after year.  Low labor supply means high labor prices. 

Why is there a low labor supply for engineers?  The branches of engineering are tough majors, they take brainpower and dedication, and they have a reputation that scares away many high school seniors and college freshmen. 

As Forbes puts it:

If you’re looking for a big paycheck straight out of school, think about an engineering degree. The four highest paid majors for people with less than five years’ experience were all engineering-based, with computer engineering leading the way. “It is a matter of supply and demand,” says Lee, adding, “Engineers tend to stay at their jobs longer, so getting the good people right out of college is important.” Despite the high pay, the number of engineering degrees issued has barely budged the past 10 years; 67,000 degrees were handed out in 2006, the latest year available.

One reason the number of engineering degrees has not grown much is that the programs tend to be very rigorous. This benefits the engineering students who can complete the coursework, though–employers know they’re typically getting competent people straight out of school, and therefore are willing to dole out generous salaries.

An engineering degree also helps wayward engineers (like me).  I’m often asked whether I feel like I wasted my engineering degree by going to law school.  The answer is a resounding no.

I will never know with certainty, but I’ve always assumed my degree helped me get into the law school of my choice.  It also opened up doors when it came time to interview for summer associate positions.

If my kids wants to go to law school, I will encourage them to consider engineering as an undergraduate degree.

Commuting is something I’m not willing to do.  I live 3.25 miles from the office.  I’m looking for something closer.

I bike to work when it’s warm and not raining.  Which, thankfully, is most of the time here. 

TANGENT ALERT: 

A couple miles up the road in Redwood City there’s a sign that says, “Climate Best by Government Test.”  Apparently the U.S. and German governments scientifically determined Redwood City to have the world’s best weather in a three-way tie with the Canary Islands and the Mediterranean Coast of North Africa.  

A colleague insists that Hitler planned to move his headquarters to Redwood City after he took over the U.S.  I haven’t found any supporting evidence.  But it makes circumstancial sense.  The government test was conducted before World War I.  Presumably Hitler could have known of the test. 

Free lifetime WMD email subscription to the first person that finds anything.

END OF TANGENT

When I drive I get 20 mpg and use a third of a gallon of gas for the round trip.  That’s $1.50 per day.  It takes less than 10 minutes.

A colleague lives 45 miles away.  He probably gets higher mileage because he’s on the highway.  I assume he gets 25 mpg.  He uses 3.6 gallons, or $16/day.  He also has higher cost of insurance, wear and tear, depreciation, etc. 

He spends at least 45 minutes each way.

Yikes — more than $16 and an hour and a half every day! 

Two thoughts come to mind:

That’s roughly the cost, in time and money, of a nice lunch.  If someone offered you free lunch every day, and did your job for you while you ate so you didn’t have to make up the time, would you take it?

The $16 is measly compared to the time.  Think of it this way.  Suppose there were a store where you could buy time.  Let’s call it the time store.  The time store sells 90 minutes for $16.  Would you buy? 

I would.  I’m long time. 

First and foremost, it’s the only way I could get back the time I watched Zoolander. 

Almost as important, I could engage in “time arbitrage” and make a profit.  Anyone clearing $11/hour after tax could do this.  Note that you can’t easily do this with a salaried job because you don’t make more by working more hours.  It takes an hourly or overtime job, or a side job.

But what would I really do?  I would spend 90 minutes not working!  There comes a point in life when time becomes more important than money.  I always figured that point would come in my 50’s.  I was wrong.  It came in my early 30’s.

I realize that there’s a commuting tradeoff.  Many people commute because housing is less expensive.  That’s certainly the case where I live.  I’m paying a housing premium to be where I’m at. 

I’ve never tried to put a number on it.  Someday I will.  I have a hunch I’ll conclude that my time is more valuable.

I don’t have enough time to blog about all the interesting articles I come across.  So I throw them into a recommended reading list.

Here are some from this past week:

Will McCain’s plan for a tax credit for health insurance spell the end of the employer-based insurance system?  It’s too early to follow McCain’s and Obama’s every move so I haven’t paid attention to McCain’s plan.  In a nutshell it seems he’s proposing a tax credit for buying your own health insurance.  The idea is to level the playing field between those that look for and purchase their own insurance and those that obtain insurance through their employer. 

The article is focused on the mechanics and not on the politics (otherwise it wouldn’t show up on this blog), but it seems to be written with the assumption that keeping our employer-based insurance system is best.  Needless to say, that’s a large assumption.

Every day there’s a new article out on how to save gas.  They all have the same formula.  They tell you how much you spend on gas and how much you can save if you follow their tips.  The tips are always the same: light on the accelerator, cruise control, fill up tires, roll up the windows on the highway. 

The linked article includs a few less common tips though: turn off the ignition when traffic is at a standstill (I’m glad this hasn’t caught on cause it would drive me crazy waiting for everyone to start their car every time traffic moves 20 feet), and don’t make left turns.  Apparently three right turns can accomplish the same thing as one left turn.

This hard-hitting expose on how California government workers pull in 6-figures on overtime and bonus pay.  The poster child is the state prison nurse that made $310,000, mostly from overtime.  The top bonus went to the chief investment officer of California’s pension fund: $403,000 in incentive pay, brining his total take-home to $945,000.  A decent year.

Finally, North Dakota farmers are becoming millionaires.  The estimate is that one-third of the residents of Mountrail County, North Dakota will be millionaires in the next 5 years because of oil found under their land. 

The only problem for the sweet old couple in the picture accompanying the story, is it happened so late in life they may not be around to spend it all.