Wednesday, July 29, 2015

Don't Leave Money On the Table: How I Do Vegas

Each year in June, my wife and I take a trip to Las Vegas with her twin sister and her husband. Sometimes their other sister joins us as well. We have a gambling budget and a food / lodging budget. The problem is my wife and I don't agree on how a budget works. My wife thinks a budget is money we planned on spending, so if we spend it all, it's no big deal - we planned on it.

On the other hand, I look at the budgets differently, at least the gambling budget. My goal is to return from the trip with at least as much of the gambling budget as I went with. If we can do this, my reasoning goes, we can possibly take a second trip later in the year, basically for no extra money. (We live within driving distance of Las Vegas and our rooms and meals are usually either comped or at a big discount, so that expense is relatively small.) If I win and come back with more money than I took, that's great, but I don't plan on it. Instead, I try to break even.

This difference in views is a constant source of friction between us on each trip. If we are losing, I'll stop gambling or switch to a game with a lower minimum bet or less volatility - moves designed to make my money last longer. My wife does the opposite - she'll place larger bets or play games with larger payouts but more volatility, with the goal of getting a big win to recoup her losses. And if that doesn't work out, it's not a big deal, her thinking goes, because it was money we planned on spending anyway. She says she's there to gamble and that's what she's going to do.

I am perfectly happy sitting at a blackjack table for 5 hours and coming away even or up or down a few bucks. That's five hours of free entertainment and free drinks. Plus, I've still got my money and can play again later. As the saying goes, a push is as good as a win. If I can manage to do that over the entire trip, I'll have enough of my budget left to make another trip later in the year.

I don't have a way to reconcile our opposing views. The best I've managed to do is just give her her gambling money and don't pay any attention to what she is doing with it.

It should go without saying, but if you are gambling, be sure to join the player's club at whatever casino you are gambling at. Make sure your play is being tracked because that's how you get good offers and comps. Spend a little time investigating how the player's club works. Some casinos are very open about how many points you need to earn certain comps, while others are quite secretive.

The two casinos we frequent most are Wynn / Encore and The Cosmopolitan. The difference between the two player's clubs is quite striking.

The Red Card at the Wynn is fairly secretive about what you need to do to earn comps. They do say you earn 1 point for each $2.50 wagered on reel slot machines and 1 point for each $6 or $15 wagered on video poker, depending on which game / denomination you play. There is no information about how many points you earn for spending money in the hotel, although they do claim you earn something. However, they don't publish any information about points needed for certain rewards. The theory is that everyone is treated individually and that this gives the casino hosts discretion to award comps to people as they see fit. It is, supposedly, a way to show off their great customer service. I call bullshit on this theory. Asking for comps is never something I like to do because it feels almost like begging to me, and when you are turned down, it's even less enjoyable. The standard response from the casino hosts is that you should just charge everything to your room and then, right before you check out, ask if you played enough to get anything comped. I usually get maybe one meal comped. (Although, to be fair, I do get our room for free.) The consensus seems to be that the Red Card is one of the worst casino cards out there. We go to Wynn / Encore because we like the casino environment, but during our trip last month, the scales finally tipped and the gambling negatives finally outweighed the decor benefits.

In contrast, the Identity card at The Cosmopolitan is very explicit about how many points you need for certain comps. It's even published on their website. They are also very clear about how many points you earn for spending money at the hotel. Maybe it's just the engineer in me, but I love the transparency. I love the fact that I know exactly what I am getting and what I need to do to get to the next level. It's like a video game and I'm trying to level up. (As an added bonus, Marriott Rewards hotel points are exchangeable into Identity points and vice-versa, although converted Marriott Reward points do not count towards your Identity tier progression.) Somehow, it's not so distasteful to me to ask for a comp when I know I've earned it and there's no chance of getting turned down. I suppose that is why the begging feeling isn't there.

But wherever and whatever you play, always use your player's club card. It's your key to getting free stuff. Pay attention to the details. For instance, I discovered that Identity points at the Cosmopolitan expire after 1 year of non-use, so if you want to maintain your tier level, go more than once a year (or give your card to someone who is going and will play a few games using your card). Also, know what games earn you points. A trend I have noticed over the years is that video poker typically earns fewer points than slots at just about every casino and the points it does earn are getting fewer and fewer. Vary your play and  don't leave money on the table!

Wednesday, July 22, 2015

Prepare for Ludicrous Speed!

Elon Musk made three important announcements during the Tesla investor conference call on July 17th:
  • A new Model S version - the Model S 70 - will sell for $70,000 and will feature at 70 kWh battery back.
  • 90 kWh battery pack upgrade for 85 kWh Model S owners costing $3,000, which will give the car another 15 miles of range. Musk recommends holding off on this unless it's really needed as he says the range will only improve over time.
  • New Model S vehicles will now feature ludicrous mode - one step beyond insane mode. Ludicrous mode will launch a Model S from 0 to 6 in 2.8 seconds, a 10% improvement over insane mode.
Ludicrous mode will not be a software only upgrade. It requires new hardware - specifically fuses the won't melt as the car draws 1,500 amps from the battery pack.

I like what Musk said in response to an analyst's question about how many more sales he thinks these tweaks would generate: “I have no idea. We are just trying to make awesome cars.”

Other good news is that the Model X should be available in 2 months and the model 3 in just over two years.

Musk did mention there is still room to improve, acceleration-wise:
“There is of course one speed faster than ludicrous, but that is reserved for the next generation Roadster in 4 years: maximum plaid.”

While this is crazy, I have to think we are quickly approaching the limits of what is possible in an automobile. At some point, the tires won't be able to maintain enough traction with the road to accelerate faster, even with computers monitoring for slippage and adjusting torque amongst the various wheels. It would be interesting to see what the theoretical limit is - what is the fastest speed tires can rotate and still maintain sufficient traction to move a car.

Wednesday, July 15, 2015

The Difference Between APR and APY you've done any sort of comparison shopping to find the best rates on savings accounts or loans, you've likely seen the initials APR and APY after the interest rate. You usually see APR after interest rates quoted for loans, and APY after interest rates quoted for investments (savings accounts, checking accounts, certificiates of deposit, etc). What's the difference?

Before we get into the differences, let's define what they stand for. APR stands for Annual Percentage Rate and APY stands for Annual Percentage Yield. Now that we have that out of the way, we can begin investigating the difference between the two.

Believe it or not, the two terms were not made up just to confuse people. There is a valid reason for the difference - compound interest.

What Is Compound Interest?

Simply put, compound interest is interest earned or charged on previous interest. If you are investing, this is a good thing. You want to earn compound interest. If you are borrowing, this is a bad thing. You do not want to pay compound interest.

Compound interest is a bit tricky because there are two factors that really affect how it is calculated. The first, obviously, is the interest rate. By convention, interest rates are usually quoted on a per-year basis. For example, if we say something pays 12% interest, it's assumed to be 12% interest per year. But another factor determines how much money you will have at the end of one year - the compounding period or compounding frequency. Think of the compounding frequency as how often your accrued interest gets added to your principal and thus earns more interest.

Let's look at an example. Suppose we have $100 and we invest that in a product that pays 12% per year, compounded monthly. Our compounding period is a month, so at the end of each month, we are paid our interest and that gets added to our principal that we earn interest on the following month. Because interest rates are quoted on a per-year basis, to do our math, we need to convert that to a per-month basis. Twelve percent per year is equal to one percent per month.

The following table illustrates our balance for the first 3 months. Notice that in the second month, we get paid interest on the interest we earned in the first month. Likewise, in the third month, we get paid interest on the interest we earned in the second month.

MonthStarting BalanceInterest EarnedEnding Balance

Using a compound interest calculator like the one found here, we can see that after one year, our balance will be $112.68.

This is where the difference between APR and APY comes into play. In this case, 12% is our APR - the annual percentage rate. But if we just figured out 12% of $100, that is $12, so at the end of the year, we'd expect to have $112. When we take into account the monthly compounding, we end up with more money - $112.68. The amount we actually get, or yield, is larger due to compounding. To account for this, we use the annual percentage yield figure, or APY. In this case, our APY is 12.68%.

Note that the compounding period has a direct influence on APY. In our example, if we changed our compounding period from monthly to daily, our APY becomes 12.747%. The more often we add that accrued interest to our principal, the more money we make. Likewise, a longer compounding period results in a lower APY. If our investment was compound quarterly (every 3 months), the APY drops down to 12.55%.

You can play around with various compounding periods to see the effect on APY using this calculator. Note that if your compounding period is one year, your APR and APY will be equal. (In this case, the interest is often referred to as simple interest, rather than compound interest.)

APY gives consumers an easy way to compare to investments. for example, if you were asked to choose between two investments where one paid 12.2% compounded monthly and one paid 12.5% compounded semi-annually, it would be somewhat tedious to figure out which one will earn you the most money. But if we look at the two investments in terms of APY, it becomes easy. The first has an APY of 12.905 and the second has an APY of 12.890 (which can be found using the calculator linked to above). All other things being equal, the first investment will generate more money for us, so that's the one we should choose, even though the quoted interest rate is lower.

Which Do I Pay Attention To - APR Or APY?

My examples so far have been using investments - situations where we are earning money - but these terms also apply to loans and interest we might be charged by a lender. You may have noticed that the APY figure is almost always higher than the APR figure. This leads to an interesting advertising phenomenon: For products where the consumers pay interest, the lower APR figure is often often quoted. For products where consumers earn interest, the higher figure, APY, is often quoted. Here's two examples from Bank Of America's website:

Advertisement for a loan

Advertisement for a savings account

In general, you always want to pay attention to the APY figure. If you are investing, you want that number to be as high as possible. If you are borrowing, you want it to be as low as possible. You may need to read the footnotes or small print disclosures to find it, but it should be provided somewhere. If you are comparing two products, make sure you are comparing apples to apples - APY to APY and not APR to APY.

Credit Cards

I've written previously about how you should not carry a balance on your credit cards, but here's another reason to not do that: You're paying a higher interest rate than you think. The interest rate listed on your credit card statement is quoted as APR, but the amount you are actually paying, the APY, is almost a full point higher! And, not surprisingly, they don't make it easy for you to find out.

Here's an example from my Discover credit card. This is on my statement:

This is in the fine print on my statement:

No details, but it sure sounds like are going to be compounding daily. To find out for sure, you can call the number listed, or dive into your cardmember agreement document you received when you signed up for the card. (You did save that, right? Me neither. Luckily, we have the internet.) Here's what they say:

Yup. They describe it, rather than flat out say it, but by adding the accrued interest to your balance each day, they are compounding daily. Now let's hop back to our APR to APY calculator and see what that does to our 11.99% APR interest rate:

Yikes!! That's almost a full percentage point higher! Don't carry a balance, folks.

Saturday, July 4, 2015

Model X Falcon Wing Doors - Supposed Design Flaw?

I read an article the other day by financial analyst James Sanford that claimed the falcon wing doors on the Model X, those doors that open upwards instead of out, are a major design flaw that will hinder sales of the Model X. The author states:

Here's the problem with the Model X: The target consumer is women, according to Tesla, but the design has falcon-wing doors that open up, not out, precluding the ability to attach anything to the roof — like a ski rack or luggage carrier. Would you buy an SUV or crossover that couldn't carry excess luggage, surfboards,kayaks, etc.? Isn't the primary crossover/SUV buyer a large family, sports enthusiast, or both?

I'm not sure what women have to do with this. Are they somehow more likely to store stuff on the roof of cars than men? Why did he bring this up? Is it just a not-so-subtle hint that the Model X is somehow not a car men would want to drive?

Whatever his reason, the other point he makes may be valid - with doors that open up, it becomes impossible to store items on the roof. But is this really a widespread problem? I'm sure there are some people out there that do haul kayaks and surfboards on the roof of their SUV, but when is the last time you saw that? Honestly, I can't think of a time in the past two years when I've seen an SUV on the road with items tied to the roof. I might have seen a Christmas tree tied to the top of a car once in Decemeber, but that's all I can think of and that might have been a regular car, not even an SUV.

In fact, it's something of a cliché that most SUV drivers really don't need an SUV precisely because they don't haul a lot of stuff. The SUV changed from a utility vehicle to a status symbols years ago. The number of people who buy an SUV so they can haul stuff on their roof is likely a remarkably small segment of the potential Model X buyer pool.

The whole article sounds like it was written by someone who has an axe to grind with Tesla, rather than an impartial piece. (And, to be fair, it is listed as a "commentary," so opinions are to be expected and holding him to an impartial reporter's viewpoint might not appropriate.) But if the author put an ounce of thought into it, I think he'd come to a different conclusion. For instance, he mentions that bikers prefer to carry their bikes on the back of the vehicle, rather than on the roof, using a special mount that attaches to a towing hitch. He asks
Are SUV /crossover buyers going to tolerate being forced to dramatically increase the length of the car, carry increased risk when changing lanes, and making it very difficult to park, especially parallel park?

Increased length? Really? Has he ever seen one of these bike mounts? They add maybe 2 feet to the length of a car. You could also make the argument that a roof-mounted bicycle causes you problems when it comes to overpasses and parking garages, making it at least equally difficult to park as rear-mounted bikes do. Bottom line is anytime you mount something large to the outside of your car, you are going to have to make allowances for it.

But a few sentences later, he actually made me laugh out loud:
When the target Model X consumer, the "soccer mom," realizes she can't fit extra luggage, surfboards, etc., what is her reaction going to be?
I can't recall the last time I saw a "soccer mom" hauling a surf board. I think, by definition, they haul soccer balls, which easily fit into the inside of an SUV. Most surfers are old enough to drive their own cars and don't need their mom hauling their gear around for them.

Look, it's an SUV. It has ample storage room in the back and the front trunk as well. That's where luggage goes. Does he really think the entire inside of SUVs are so crammed full of people that a couple of suitcases won't fit? Does he really believe people pile on top of each other in the rear cargo area in addition to using the back seats? Hell, I drive a Prius and it can fit four to five people and two suitcases and it doesn't even have a frunk.

A little bit of digging explains Mr. Stanford's willing lack of critical thought about the Model X: James Stanford is the founder and portfolio manager of Sag Harbor Advisors, a registered investment advisory company. They recommend shorting Tesla stock (PDF file) and it is conceivable they have a short position themselves. Thus, they stand to make money if the stock price falls. His commentary was published the day Tesla announced record Q2 sales for the Model S, 52% higher than the same quarter a year ago, and the stock price took off. He probably dashed off this transparently biased negative piece to try to lower the stock price. should have required that his commentary be labelled with a disclaimer that he and / or his company are short Tesla stock.

Wednesday, July 1, 2015

Goal Update: End of June 2015

At the end of each month, I post an update of my goals, including a brief discussion of any notable events that might have occurred during the month. The latest month's figures can always be found under the Featured menu in the menu bar at the top of the blog.

Last updated: End of June, 2015
Current value: $13,946
Change from last month: +$169
Percent of Goal:  12.82%

Note that the funds in this account are invested in stock, so there will be fluctuations in value that are outside my control. I never withdraw money from this account, so any dips are purely due to stock price changes.

Events Of Note Last Month:

Not much news this month. I made $280 from my online courses. There were a few days when it was looking like I was finally going to end the month over the $14,000 mark, but events in Greece sent the stock market down on the last two days of the month and I ended up just under $14,000 for a fifth straight month, albeit this time only by less than $60.*sigh*

Next month, I hope to add another online course to help boost that revenue stream. I've got the script written and the demos all made. I just need to make the PowerPoint and record it.