Just got my statment for my American Express Costco Platinum
Rebate Card. Apparently I will be getting a rebate of $398 for
2005 which is great, until I realized that I’ve charged a whopping
$27,893 on it!!! I don’t know whether I’m glad I’m getting something
back or unhappy over spending so much money. Well, i did go to Europe,
India, Canada with the wife and also Boise and SLC 5 times by myself,
and I guess it all added up. No wonder I don’t have any money in the
bank!

I guess its time to start brown bagging my lunches. I spent 2,800 on
eating out[on that card, I use visa where they don’t accept Amex] and
at around $7 per lunch that about 400 meals. I think if my wife and I
cut out the eating out, that would drop our weight a bit and finance
a trip to Australia!

My condor spread on the December oil futures expired worthless and I kept the $1200 in premium that I can collected in october or november. At the time the price of oil was around $55/barrel. My broker suggested that I sell the 70 calls and the 49 puts with a december expiration. We bought the 74 call and the 45 puts for the same expiration.

A condor spread is a delta-neutral strategy and involves a bull put spread and a bear call spread. You sell a call and a put close to the existing price of the commodity [or stock, or stock index].[the call will be higher priced and the put lower]. You then buy another set of calls and puts outside the first set to limit your losses. You should collect a premium based on this and if the price of the asset stays within your 1st set of calls and puts by expiration, you get to keep all the premium. [I hope this makes sense. If you don’t know what a call or a put is, it probably won’t].

The best way to make money with options is by selling the time premium. I’ve learnt this the hard way by losing a lot of money buying options that usually expire worthless.

Here’s a really good book I’m currently reading.

Here’s another good book one of my friends recommended.

Its a bit pricey so i’ll see if the local libraby has it. It probably won’t have it, but its always good to check. Otherwise I’d easily end up spending $2500/year on books.

Back from my so-called vacation. Sadly, my Dad passed away right before I left so I spent most of my with funeral arrangements and sorting through his finances. A few important things I noticed. While my Dad was a very well-respected & apparently very well-known doctor with legendary medical knowledge, his financial knowledge wasn’t very good.

He had a little bit of money in CDs and bonds and a large chunk of money in savings. He also had a pitiful amount “invested” in life insurance. Life insurance is not an investment vehicle. Its used to manage risk. For a nominal sum you insure against unforeseen accidents and ensure the ones left behind are well taken care of. You do not use it as an investement.

Dad had whole life insurance where he paid rather large monthly amounts for a 20 year period. At the end of the 20 year period, you supposedly get your money back with a dividend[probably about 3-6% per year] In the invent you die after the 20 year period, your heirs get the same original amount. Unfortunately, Dad died a few years short of the original 20 year term. So we get only the original value of the insurance. Sadly after over 15 years, inflation has eroded the value of the policy so significantly that its worthless to us. It was effectively about 7 months of his annual salary from his flourishing private practice. If instead he had spent the same amount of premiums on term life insurance, he would have been insured for probably 5-10 times his annual salary. Luckily my mom & I can do without any support from insurance.

The amount of money he [& my mom] saved from a lifetime of work as doctors was also rather unimpressive. Both my parents used to save quite a lot from their salaries, but they did not do enough to invest it. And high inflation eroded most of their savings. A few good investments and they would have had a lot more to show for it. Of course he did much better than the average person in India, but their return on savings was probably 2% under the inflation rate for the past 20 years. So while they started earning more and more, their money didn’t work for them.

Another interesting point is that he worked right uptil the day he died. No doubt he was at the peak of his career[or maybe not even at his peak] but he worked 6 and a half days a week with less than 3 weeks vacation per year. While there is some nobility to his profession and he did a lot of charity work, I realy don’t think that excessive workload is good for you. Hopefully we can learn that life is to be enjoyed with your family and friends and not spent working until the day you die.

If you have minor kids or a stay-at-home spouse who you don’t think can maintain your lifestyle in the event you die, you should get insurance thats atleast 5 times your annual salary. Remember, its for the ones you leave behind. Its not an investment you make for yourself. If you have minor kids, you should insure your spouse as well, even if he or she does not work. Minor kids need full-time care and you’ll need to pay for that in case something happens.

Getting disability insurance is also a good thing to consider, although its more expensive that life insurance. However it’ll pay out a lot more in the case your permanant disabled. Thats the insurance you get for yourself!

And start investing today. Don’t wait to put off your investments claiming you don’t have time or money. The truth is few people start out with both, but with a little sacrifice and effort you can start on your path to financial freedom.

Business week had this excellent article on How to create your own Hedgefund.

Since I’m leaving for vacation shortly I don’t have time to write an analysis of the article but I strongly recommend everyone read it. Merry Christmas and happy holidays everyone!

As a follow up to my previous posts on risks in investing in oil to a dismaying report about the end of peak oil production I thought I’d tell everyone about the current deal I’m working on.

I’m helping put together a deal to uncap an old well that was capped in the eighties when oil was trading at under $10 per barrel. At its current value of $60/barrel its now highly profitable to ucap it. I had a meeting today with my partners in the deal and an attorney who represents an inventor. The inventor put together something called an Atomic Resonance Frequency Device[or something similar] that gives you a 3D image of the amount and depth of oil in the ground. Apparently its 99% accurate. Well, they’re flying out to the oil fields in Texas next week to try and see if our well is any good.

One thing that worries me is the amount of personal liability if we run into environmental issues. There’s no hiding from the EPA. But the potential rewards in this deal make the investment definitely a risk worth taking. Anyway, we’ll find out more info on it late next week. But so far I’m pretty excited about it and think oil is definitely worth exploring [yes the pun’s intended].

I’m also leaving for India this weekend and I’ll be checking out the investment scenario there too. Apparently the Indian Stock Market and also real estate market are BOOMING. I had to put that in caps to emphasize the amount of booming taking place!

I got a speeding ticket a few months back. I was going to fast for the judge to let me go to traffic school, which seems kind of strange. He should’ve made in mandatory at that speed but anyway my car insurance premiums with Century 21 have jumped $320/year which really sucks.[The 6 month polciy jumped from $748 to $907] Considering its the only ticket to show up on my license I think its quite a hike! Also considering the fact that my cars have aged significantly in the past few years, its also quite mysterious as to why my premiums haven’t dropped at all. I called a few different companies like Liberty Mutual and Allstate and their quotes were even higher!

I tried to see if there was any way I could reduce my premiums. It seems the consensus is for a set of common sense principles.

• Shop around
• Increase you deductible
• Drive less
• Don’t use your car for business
• Buy a low-risk[read boring] car
• Move to a rural area
• Garage your car
• Get multi-policy discounts
• Get student/professional discounts
• Get an anti-theft device installed
• Keep your credit clean

So I decided to call up the insurance company and talk to them directly. I changed myself as the driver of the Accord to the Altima.[its the old version thats the size of the Civic]. Since I get a Professional Discount and my wife doesn’t we saved a whooping $2. Then I dropped the annual milages by 2,500 miles on the Accord and 1,500 on the Altima and raised the deductible to $1000 from $500. The premium dropped from $905 to $824. Then for another $14/6months I raised the liability coverage from $100/$300 to $250/$500 which I thought was a sweet deal. So I now have better coverage for $838, saving myself $138/year.

I spoke to a friend yesterday who was smart enough to get a pharmacy degree that pays awfully well. However, she’s racked up a ton of student loans and it seems like she’ll be paying them for quite a while.[Not because she doesn’t make enough, but because buying a new luxury car and travelling to exotic locations takes preference!]. I was lucky enough not to have any student loans. I graduated with about $3500 in credit card debt and that was it. My parents paid for some of it and Northern Telecomm paid for the rest. As usual I was deemed the financial expert to ask about consolidation and funnily enough I knew more about it than my friend did.

• You can only consolidate your loans once, and thats it
• If interest rates are going down, wait to consolidate
• They calculate the weighted average of all the loans and add a margin on to it
• You can consolidate at any bank or credit union and the terms are usually all the same, regardless of where you go
• Many lenders will lower the interest rate after you’ve made on-time payments for 3 or 4 years, so it helps to be regular
• As they say, “A penny saved is a penny earned!”.

What does this have to do with making money??? Until you get out of consumer/student debt, you’re not in a good position to build wealth. So thats the first step in making money!

I logged into my Ameritrade account to check out how much money I have there and I saw an ad on the front page offering 35 free trades plus $100 bonus. Sadly it only applies to new customers who have decent amounts to play with so I’m out of luck on that deal. But its a sweet deal, considering 35 trades is worth about $385 at $11/trade.

On the other hand, Scott Trade offers $7/trade with no inactivity fees, but no sign-on bonus.

Charles Schwab charges $12.99 if I remember correctly. TD Waterhouse used to charge me $14 but
they’re merging with Ameritrade so they’ll probably be around the same $11 pricing.

If you planning on buying shares everymonth like clockwork, ShareBuilder has a good program at $4/trade, although I’m not a fan of dollar cost averaging. [I believe in market cycles and so does reknowned economist and actor Ben Stein. Read his good book Yes, You Can Time The Market!].

UPDATE: I also found about a new brokerage called Firstrade. They offer $6.95 trades which is a pretty good price.

One of my lenders sent me a notice yesterday. Apparently on the loan docs that funded 1 year and 5 weeks ago, I had forgotten to sign the document that alerted me to the fact that my loan had a soft prepay penalty. This is the 2nd time this company has sent me this very document. The first time was about a week after I closed on my first house in SLC last year, which I duly signed and sent back. Now this is on the 2nd house. Not only did they want me to sign it, they wanted me to get it notarized as well.

As a matter of principle, I’m not going to sign it unless they threaten to call the loan due [in which case I’ll ask for $100 for my troubles]. Its only a 2 yr soft prepay penalty so I’m definitely sure there’s no difference to me whether I sign it or not. But life is unfair so they should just suck it up and cut their losses.

Insurance companies have taken a beating with all the damage caused by all these hurricanes. Maybe its time to start investing in their stock. We know that a lot of damage has already been done and in New Orleans it won’t happen again. [Mainly because nothings being rebuilt!]. Also historically insurance companies have raised premiums and deductibles and are going to do the same thing again. Also historically, people are more likely to get extra coverage right after a major catastrophe, which means their income is likely to go up in the near future.

Doesn’t mean I’m going to rush out and start buying insurance company stocks, but its a thought. If anyone can do the research and would like to post a follow up article, please let me know.