Wise Investing Made Simple by Larry Swedroe

I’ve been getting back into reading financial books, but am really behind in writing reviews for them. One book I finished last month was Wise Investing Made Simple by Larry Swedroe, which promises “Tales to Enrich Your Future”.

The key word is “tales”, because this is not a book with complex mathematical formulas or lots of charts and statistics. (Although I love charts…) It contains 27 short stories using simple concepts like sports analogies to explain the benefits of a long-term, passive approach to investing. Each story includes a quick “Moral of the Tale” summary.

I’ve already written about my favorite tale in Why Sports Betting and Stock Picking Are Similar. But here is my paraphrasing of another good chapter:

The $20 Bill
Here’s is a common story used to poke fun at the Efficient Market Hypothesis. An economist who believes in efficient markets walks down the street with a friend. The friend says “Look, there’s a $20 bill on the ground!” The economist says “No way. If there was a $20 bill on the ground somebody would have already picked it up”, and continues to walk away. This supposedly counters the idea that in a truly efficient market it would be impossible to find an under-priced stock (similar to a $20 bill priced at $10 or even free).

However, this argument is not really correct. What the story eventually explains is that while many passive investors believe that the occasional $20 bill on the ground may exist, spending your time looking for them may not be the most effective way to make money. The same could be said about stock-picking or market timing. Persistence in beating the market (finding $20 bills) beyond the randomly expected is very difficult to find.

For the investor that is already committed to passive investing and fully understands the underlying reasons why they believe that is the best strategy for them, this book probably won’t bring that much new to the table. It won’t help you decide whether to hold 20% International or 45% International stocks, or if you should include exposure to commodities or precious metals. If you are a full-time trader who is adamantly against passive investing, this book probably won’t contain enough hard facts to sway you either.

Instead, I think the sweet spot for this book are those investors that have been told “index funds are great” and may even invest in them but don’t really know why they are so great and don’t have the interest level to read some dry investing book about correlations and standard deviations. The problem with this level of understanding is that when things get tough it can be easy to bail out if you don’t really know why you’re doing something. This book breaks things down into simple, bite-size pieces without being patronizing.

On a personal level, this book might not be the very first book on saving money I’d give someone, or my favorite book about investing, but I am going to keep it in my library because it provided some different ways to explain to others (and myself at times) why I invest the way I do.

Overall Rating: 3 Stars (ratings explained)

Do You Have More Questions About Buying A House?

I have organized all of my experiences as a first-time homebuyer to one central page. It’s huge, sometimes I can’t believe I wrote all that stuff. Hopefully it can be of some help so other folks. Although I have few things left, I seem to be close to wrapping things up.

Do you have any other questions about buying a home you’d like to see answered? Please leave a comment below. I’m sure I’ve missed some things. I continue to be amazed by how confusing and complicated the home-buying process can be. No wonder so many people simply make inflated offers and sign their mortgages without even reading them…

How To Buy Paper Series I Savings Bonds

While on my lunch break, I went over and bought some Series I Savings bonds, due to their high interest rates described here. Technically I had two more days until the 30th to get an April 2008 issue date, but I didn’t want to cut it too close in case there were any problems. I was also fueled by the news that interest rates will probably dropped yet again soon by Bernanke and Co.

Here’s how to do it:

1) Find a bank near you that sells paper savings bonds. Although the TreasuryDirect website says “any financial institution”, not all banks participate. I asked a few smaller ones near work and they did not carry them. The big boys like Bank of America, Washington Mutual, Chase, or Wachovia should all have them. If you don’t have one of these megabanks, just call the biggest banks in your region.

2) Either move funds into an account there, or bring cash. You can’t write a check from another institution, because they need to have the funds immediately. Although I didn’t try, a cashier’s check should work, assuming the bank can simply turn that into cash. I just had them withdraw the funds out of my bank account.

3) Ask for the Series I Savings bonds order form. Don’t be surprised if the teller looks confused, as this isn’t a popular request. Have them ask a supervisor, it should be Form 5374. I had one left over, so here is a scan of what it should look like:


(Some larger banks may have an electronic process.)

Remember, the limit for paper bonds is $5,000 per Social Security number per year. So you can put down $5k for you and $5k for your spouse if you have one, and simply pay $10,000 by yourself. You may also wish to buy something like five $1,000 bonds instead of one $5,000 bond for ease of paper redemption.

The issue date of the savings bond will be the same day that the bank accepts payment. This date will be noted on the application, and the bank should also stamp it to confirm.

4) Wait. The forms says that processing will take 3 weeks, and then it will be mailed to you. You can have it sent to a P.O. Box if you have one, for more security. The processing time won’t affect your interest earned because again as long as you paid in April it will be stamped as issued in April 2008. Also, you can’t cash out until after 12 months, so there is no hurry.

How do I redeem them?
You can either convert these paper bonds to electronic format at TreasuryDirect and redeem online, or cash them in at the same place you bought them (or any other financial institution that sells them). The cool thing about electronic format is that you can do partial redemptions.

Updates: Earn $100+ In Free Money Trying Out Financial Services

Here’s an updated list of companies willing to pay you to try out their services. None of these listed require a credit check. See links for more info.

RevolutionMoneyExchange $25 Bonus. Offer extended to May 15th, so get in by then if you haven’t already. Just sign-up with this PayPal alternative and grab your $25. You don’t even have to make a deposit or buy anything. More details here.

Ebates $10 Bonus (+$18 possible). Ebates offers rebates on online store purchases. After your first transaction, you’ll get a $10 bonus. Just sign-up with your e-mail and you’ll see the $10 in your account. One suggestion: sign-up for a free trial of Netflix through Ebates and get another $18, and they’ll send you $28 during their next cycle. (Looks like you have to become a paying member, cheapest plan is $4.99/month.) Just remember to cancel in time. More details here.

Prosper $25 Bonus. Peer-to-peer lending means you get to earn interest by lending to people you choose. Make a loan of $50, and you’ll receive a $25 bonus on top of your interest rate. More details here.

Capital One 360 $25 Bonus. One of the earliest online-only savings accounts, Capital One 360 will pay you $25 immediately if your initial deposit is at least $250. The account currently earns 3.0% APY.

ShareBuilder $50 Bonus. If you open an account with this brokerage and make any one trade, you will earn $50. In the application, say you are responding to a promotion and use the promo code “50GO28“. More info based on a previous similar offer.

I have applied and received all of the bonuses above successfully except for the Prosper one, as I had signed up before the promotion started. You can also get $100 all at once by applying for one of these credit cards, although applying will require a credit check (and some spending restraint, I suppose).

IRS Economic Stimulus Check Promotions: 10% Bonus at Albertson’s, Kroger, K-Mart, Sears, and More

The economic stimulus checks are coming! Before depositing your tax rebate at the bank, it might be a good idea to see what retailers will offer you for it. While I don’t necessarily like the idea of treating this extra money as different from any other money (a dollar is a dollar), you might as well take advantage of the promotions if it doesn’t change your intended spending patterns. Although some of these require an economic stimulus check, others work with any tax refund check.

Even if the big names like Kroger and Albertson’s don’t ring a bell, read the lists below carefully for a store that is near you. For example, in Portland, Oregon there is the popular Fred Meyer chain, which I didn’t know was part of the Kroger family.

Supervalue Inc. Supermarkets – 10% Bonus
Including Acme, Albertsons, bigg’s, Cub Foods, Farm Fresh, Hornbacher’s, Jewel-Osco, Lucky, Shaw’s/Star Market, Shop ‘n Save and Shoppers Food & Pharmacy. From their press release:

Customers who are interested in growing their refunds should bring their government-issued economic stimulus or tax refund checks, along with government-issued identification, to customer service counters at their local stores between May 2 and July 31, 2008, to purchase store gift cards in $300 increments, not to exceed $1,200 per household. Each gift card will be loaded with an additional $30, to bring each gift card total to $330.

Kroger Co. Supermarkets – 10% Bonus
Including Kroger, Baker’s, City Market, Dillons, Fred Meyer, Food 4 Less, Fry’s, Gerbes, Hilander, Jay C, King Soopers, Owen’s, Pay Less, Ralphs, Smith’s and QFC stores. From their press release:

Kroger customers who are interested in exchanging their refunds or economic stimulus checks should present their check and customer loyalty card at their local store’s Customer Service center from May 2, 2008 through July 31, 2008. The program is limited to one offer per household with a limit of $1,200.00.

Kroger tax rebate promo

Sears, K-Mart, and Land’s End – 10% Bonus
I was going to buy a Martha Stewart futon from K-mart just last week… From their press release:

When customers bring their stimulus checks to a Sears or Kmart cash register, they can convert the amount of the check into gift cards, plus receive a bonus gift card worth an additional 10 percent. To be eligible, the amount of gift cards purchased must be equal to the full value of the stimulus check. The gift cards can be redeemed at any Sears, Kmart or Lands’ End retail stores or online at sears.com or landsend.com. The promotion is scheduled to last from May 14 to July 19, 2008.

Radio Shack – 10% off $50+ Purchase
Targeted at the “underbanked”, but if by chance you want something from there… Personally, I’ve only bought a headphone splitter from there in the last 5 years. Their press release.

Customers who use their checks to pay for purchases above $50 between May 4 and July 12, 2008, will receive a 10 percent discount on their purchases. Any amount left over from the purchase will be placed on a Vision Silver Prepaid MasterCard, which can be used at any place that accepts MasterCard.

Via Reuters, Fatwallet, and Consumerist. Oh, Staples has a page of special offers like $50 off $500 spent on computers, but nothing specifically tied to a stimulus check. Anyone else?

Don’t lose those $660 gift cards!!

No Rice For You!

While shopping at Costco yesterday, I was greeted with a peculiar sign:


We bought one bag, which apparently did not require supervisor approval. My weak understanding of all the buzz:

1. Rice prices globally are rising.
2. This is greatly affecting countries like China, Vietnam, India, who are usually great exporters.
3. They may not export as much.
4. US citizens will likely pay more as a result.
5. Big rice buyers like bakeries worried, want to buy lots of rice now.
6. Costco and Sam’s want enough rice to make all their customers happy, so they limit purchases.
7. Buzz from CNN playing this story all day long causes (I think) undue hoarding.

But, why not just raise the prices now? It’s not like a Wii where the price is set by Nintendo. Is this happening near you as well?

How I Plan To Shop For My Next Mortgage Loan, Part 2


Continued from Part 1, where you should have figured out what type of loan you want to get, gathered copies of your important paperwork, and gathered a list of potential lenders. Now to narrow things down to one final lender.

III. Narrowing Down The List
To trim down your list, you may want to call some of them up and ask them a few questions.

1) What type of loans do they specialize in? (Don’t tell them what you’re looking for yet.)
2) What do you need for a rate quote and Good Faith Estimate? What is your quote? Many will give you a rate quite easily, but the GFE is sometimes harder without submitting private information. Just remember, any such quote is only as good as the information you provide.
3) How fast can they lock their quoted rate/points if you choose them? Can I lock this quote you just gave me today? Will they provide written lock confirmation? Will they guarantee their lender fees? (See below.)

Some other people throw in some quiz questions that relate to guessing future mortgage rates, but I don’t really care about that. Your final list might look something like this:

  1. A few Upfront Mortgage Lenders. These lenders have agreed to disclose accurate rates/points for the market niche they service, as well as guarantee their lender fees. At the very least, you should be able to get a good idea of a competitive current rate.
  2. First-time homeowner programs in your area, or perhaps you have a preferred lender for your housing project.
  3. Credit unions that are either local or otherwise restrictive (only teachers in your county, military affiliation, etc.)
  4. A broker that was highly recommended by a trusted friend experienced in real estate.
  5. A loan officer from a “big” bank, perhaps where you have an existing relationship.

IV. Compare Good Faith Estimates
When you apply for a mortgage, the government requires your lender to give you a Good Faith Estimate (GFE) within three days of your application. But you should be able to get one, or something similar to one, beforehand with no cost. When done, you should have GFEs from about 2-5 people to compare side-by-side. The actual document looks like a huge list of different fees and can be pretty confusing, but you need to simply break it down into three parts:

a. Interest Rate / Discount Points
– Use interest rate, not APR
– Also note lock period

b. Fees Paid To Lender (Add these all up)
– Application Fee
– Commitment Fee
– Rate Lock Fee
– Origination Fee
– Funding Fee
– Administrative Fee
– Transfer Fee
– Processing Fee
– Loan Set-up Fee
– Wiring Fee
– Discount Fee
– Flood Certification Fee
– Tax Service Fee
– Underwriting Fee
[Read more…]

Sandy and Jott: Create Your Own Free Virtual Assistant

Nobody has ever accused me of being the most organized person. I don’t carry a PDA, a dayplanner, or even a notebook/moleskin. It’s pretty much just Outlook at work, and a lot of Post-Its at home. But recently I’ve discovered two applications that help me remember all the thoughts that flit in and out of my mind. This is in turn saves me money indirectly with less late fees and missed opportunities. Both have been around a while, but were new to me:

First up is IwantSandy, which is an assistant that you can interact with by sending e-mails. She communicates back to you via e-mail or SMS text messages.

Say you want someone to remind you for your doctor’s appointment at 4pm next Monday. No problem, just send an e-mail to Sandy:

Remind me about Dr. appointment at 4pm next Monday.

Sandy will send you an e-mail or text message to do just that, both in a daily digest and a specific reminder 15 minutes (by default) before the event. Most casual language is recognized. You can set repeating reminders easily:

Remind me to pay off Citi 0% credit card on 4/24 @monthly

You can also tag items for easy organization, add contacts, and or create To-Do lists.

Remind me to call contractor back in 3 hours @newhouse

Remember Melissa Valiant (415) 555-1212 mval@gmail.com

Remember my United mileage number is A4362215 @travel

Remind me to refill my prescription tomorrow @todo

You can even “snooze” by replying to a reminder with “snooze 4 hours”. Lots more examples here. I live by my e-mail and I have unlimited text messages, so this system has been working out well for me. (Text messages can be better if you are under e-mail overload.) I basically just shoot Sandy an e-mail anytime a thought pops into my mind.

Remind me to blog about Sandy @daily @blogposts

Remind me to sign up for Citibank 25,000 mile banking bonus @daily @todo

Try it! It’s free and even a bit fun at first. I’m not quite sure how or even if they intend to make money. More organized people might not need Sandy, but I learn a new feature every day. For example, if I e-mail Sandy from any computer with “lookup blogposts”, I get a reply with all my post ideas. Very handy while traveling.

Now what if you’re away from your desk? Jott is a service that convert your voice into text and sends it as an e-mail. It’s like having your own secretary transcribe your thoughts.

On top of that it, even integrates with Sandy. Just add Sandy as a contact, and call her. From the EfficientMD:

Let’s say you’re on your mobile phone and a colleague tells you about a meeting you have to attend tomorrow at 3pm. You’re walking quickly and don’t want to slow down, so you call Jott’s toll-free number and have this conversation:

“Who do you want to Jott?”
“Sandy. Is that correct?”
“Remind me about meeting tomorrow at 3pm.”

And that’s it. Sandy/Jott will email you a confirmation to ensure that they’ve heard you correctly (which in my experience, is practically 100% of the time), and then tomorrow before 3pm, you’ll receive a text message reminding you about the meeting.

Together, it’s like having your own personal administrative assistant. She’ll remind you about stuff, remember important contact and numbers, and you can just e-mail or call her like a regular person. You don’t need to install any new software or buy any new gadgets.

More Reviews
LifeHacker posts on Sandy and Jott
Mrs. Micah on Sandy
Efficient MD on Sandy and Jott

Looking Back: How I Plan To Shop For My Next Mortgage Loan, Part 1


Shopping for my recent mortgage loan was a pain. It shouldn’t be this hard! I had hope for Zillow, but a recent quote request for my same loan only got two offers from lenders, both of which weren’t very good. Ah well. Until it gets better, here’s how I would go about things if I could go back and do it again.

The Primary Goal
The most common pitfall with mortgages is the classic bait-and-switch. They lure you in with a rock-bottom rate and low closing costs… until signing day when your final HUD-1 statement looks completely different. Fees get changed, and by then is really hard to back out. Good Faith Estimates are not legally binding, and there is no real penalty for lying on them. In addition, interest rates change every day. If they don’t list their rates publicly, how do you know if the next day you’re still getting their “best” rate? “Oops, rates went up!”

I think the best thing to do is to be prepared, so that when you are ready you can go out and obtain some firm rate quotes, and lock it in. I would not sleep well until I had a loan commitment from the lender, an agreement on closing costs, and a signed rate-lock letter.

I. Prep Work

  • Learn about mortgages. Many people rely on their mortgage broker to tell them what kind of mortgage to get. This is nice, if you have a honest, unbiased broker. This is also how people got talked into 0% down subprime adjustable rate mortgages. I hate the idea of signing up for something you don’t understand. Some reading suggestions: Fixed or adjustable? Loan term? Paying Points?
  • Fill out a Uniform Residential Loan Application. You’re gonna have to provide this information anyway, so why not do it ahead of time. Download it here.
  • Save and/or make copies of all your supporting documentation. For a full-documentation loan, you will need at a minimum your last two months of paystubs, bank statements, and investment statements. (More assets is better, but for simplicity I only provided my primary accounts and left out the ones with tiny balances.) You’ll also your last two years of tax returns. If you’re self-employed, they’ll want two years of those returns as well, including your accounting books for this year. Collect whatever else might be important, including any divorce or bankruptcy paperwork.
  • Get a copy of your credit report from all three bureaus. Getting reports should be free. A score is also helpful, but not necessary since they will pull their own scores anyways. See here for ways to get a free credit score. Check for inaccuracies, and get them fixed as soon as possible. File dispute forms online at each bureau, and follow up.

II. Find Potential Lenders
This part should be pretty easy. Suggestions:

  • National credit unions – Navy Federal, Pentagon Federal (1st and 3rd largest in the US)
  • Local credit unions and banks
  • Huge national banks
  • Upfront mortgage brokers
  • References from Realtor, family, friends
  • Websites, both from aggregators and direct lenders

If you’re in the military or have direct family in the military, check out Navy Federal Credit Union for some great rates. I’m trying to sign up my family member right now in preparation for our next mortgage.

Some of this is personal preference, but I think most brokers and websites have access to the same general rates for common conforming loans, because they rely on what the secondary wholesale market is providing. Credit unions and local banks sometimes lend their own money, which means their rates might be better (or worse).

Next time: Comparing Offers, Negotiating, etc.

The post is a new addition to my Experiences in Buying A Home.

Photo credit: Muha

The Financial Freedom Ratio: A Better Way To Measure Your Net Worth?

Most of you are reading this right now because you want that elusive “financial freedom”. This usually revolves around net worth, and many of us (ahem) have a specific net worth goal they want to achieve. Various formulas and calculators abound. The popular book The Millionaire Next Door suggests this formula for a target net worth:


In addition, there are various debates on how to measure net worth. Do you include your primary residence, or not? What about cars or jewelry? How do you properly account for pre-tax accounts? However, while reading this post at Early Retirement Extreme amongst others I realized that these are not the things I need to be focused upon.

Financial Freedom Ratio
If someone tells you that they have a net worth of $1,000,000, you might be impressed. But what if they spent $150,000 per year? If they stopped working, the money wouldn’t last very long. However, if they only spent $15,000 per year, they might already be set for life. In other words, your income doesn’t matter. Your expenses do. It may be assumed that the two are related, but that is not necessarily true. We all have the power to disconnect the two.

I’m sure somebody somewhere has already coined this term, but until told otherwise I will call it the Financial Freedom Ratio (FFR):

Liquid Net Worth divided by Annual Expenses

By liquid, I simply mean you can sell it for cash while not affecting your expenses. (Don’t count your car if you need it for work.) For example, if you had $200,000 but only spent $20,000 per year you would have the FFR value of 10 as someone with $1,000,000 but spent $100,000 per year. This also calls into focus how important spending patterns are when talking about financial freedom. Let’s say you had the 200,000 net worth and you wanted to increase your FFR from 10 to 11. You could either

  • increase your liquid net worth by $20,000 and spend the same,
  • decrease your annual spending by $1,820 and not earn any more money,
  • or some combination of spending less and accumulating more.

Sure, it can be very difficult to keep slashing expenses, but this ratio keeps you honest as to how close you are to financial independence.

What Is A Good Financial Freedom Ratio?
To find this, I went to the Vanguard Annuity website and looked up a price quote for their inflation-adjusted fixed immediate annuity (Lifetime income option, fixed payment, bottom right). This means that, if I give Vanguard a lump sum of money, they will give me a regular income that is adjusted every year for inflation per the CPI-U. (Annuities are subject to the claims-paying ability of the issuing insurance company, which is AIG Insurance.)

I input that I was 30 years old and wanted an inflation-adjusted $30,000 a year ($2,500 a month) for the rest of my life. The quote was $857,000. So a lifetime of my required income requires an FFR of 28.6 ($857,000/$30,000). As you get older, the number decreases.

Using the popular but controversial 4% safe-withdrawal-rate rule for a balanced stock/bond portfolio, you would need a FFR of 25 to have a good chance of living off of your investments without having to annuitize. Keep in mind the 4% value is not adjusted for inflation, so your buying power would decrease each year.

What’s My FFR?
I’m not sure exactly how much I spend per year. I need to fix this. I should be able to back out the numbers for 2007 pretty easily since I track our net worth and I just did my taxes, but I’d need to cancel out things like unrealized investment gains. Roughly, I would say that last year we spent somewhere between $25,000 to $30,000. This year, it will be much higher due to housing expenses, although one day the house will be paid off. My FFR is certainly less than 10 right now, more like in the 8 range. Single-digits! 🙁

Track Your Expenses
I like the FFR because it gives me a better idea of how close we really are to financial freedom. In addition, it reminds me that our expenses matter equally as much as our net worth. Do you know how much you spent last year? I am convinced that spending is a habit. If you spend modestly now, it will be easy to maintain this in the future. If you spend lavishly now, it will be very difficult to downgrade later on. We all have our luxuries which we hold dear, I know I certainly do, but it has to be weighed against how long you want to keep working and saving.

So, after all this I suppose I need to figure out how to gradually shift to a simpler and less costly lifestyle. Heck, forget cutting expenses, I spend a lot of effort simply trying not to accumulate more expenses these days…

April 2008 Investment Portfolio Snapshot

Since we just made our IRA contributions for 2007 recently and had made a few mutual fund exchanges, I figured this was a good time to post another portfolio snapshot. Since we have so many different accounts now, I changed the presentation layout a bit to clean things up.

4/08 Portfolio Breakdown
Retirement Portfolio
Asset Class / Fund $ %
Broad US Stock Market $38,836 32%
VTSMX – Vanguard Total Stock Market Index Fund
DISFX – Diversified Stock Index Institutional Fund
DODGX – Dodge & Cox Stock Fund
US Small-Cap Value $10,480 9%
VISVX – Vanguard Small Cap Value Index Fund
Real Estate (REITs) $10,017 9%
VGSIX – Vanguard REIT Index Fund
Broad International Developed $29,925 26%
FSIIX – Fidelity Spartan International Index Fund
VDMIX – Vanguard Developed Markets Index Fund
International Emerging Markets $10,198 9%
VEIEX – Vanguard Emerging Markets Stock Index Fund
Bonds – Short-Term $8,989 8%
VFISX – Vanguard Short-Term Treasury Fund
Bonds – Inflation-Indexed $8,260 7%
VIPSX – Vanguard Inflation-Protected Securities Fund
Total $116,705

Contribution Details
Through the end of 2007, we maxed out the salary contributions of both of our 401k/403b plans and put in $15,500 each. We didn’t qualify for a Roth IRA contribution in 2007, but after exploring the options of a non-deductible contribution to a Traditional IRA, we decided to go for it and put in $4,000 each in early April. For 2008, my wife has contributed about $5,000 so far to her 403b and is on track to max out again. I’m lagging a bit behind, but should catch up later in the year.

YTD Performance
The 2008 year-to-date time-weighted performance of my personal portfolio is -1.96% as of 4/18/08. Although not necessarily a benchmark, the Vanguard S&P 500 Fund has returned -4.77% YTD, their FTSE All World Ex-US fund has returned –3.47% YTD, and their Total Bond Index fund has returned 1.32% YTD as of 4/18/08.

Portfolio Construction Details
We followed the general asset allocation plan outlined here. I went ahead and moved forward to a 85% stocks/15% bonds split since I base it on the formula [115-Age] and I’ll be turning 30 in a few months. Here is an example of how we implemented the asset allocation across multiple accounts, although I’ve since moved some funds around. It’s definitely not an exact science, we just did the best we could with the fund choices available.

You can view all my previous portfolio snapshots here.

What I Learned About Money In The 6th Grade…

Thanks for all the diverse and interesting insights on teaching kids about money, I learned quite a few things myself. As I was trying to think back and remember what I personally learned – or wish I learned – about money in 6th grade, a couple of amusing stories came to mind. They may not be all that helpful to young folks (quite possibly the opposite), but I’ll share them anyway since I am curious to see if others had similar experiences.

Flips and Underage Gambling
The allure of gambling knows no age limit. For those that haven’t heard of it – I have no idea how widespread it was – “Flips” is a simple game where first one person flips a coin, and then the second participant flips another coin of the same type. If the coins match, either both heads or both tails, then the 2nd person wins both coins. If the 2nd coin does not match, the 1st person wins both coins. Quarters seemed to be the coin of choice. For a while I was regularly losing or winning a few dollars each day playing Flips, which was a lot of money to me at the time.

The main idea was for the 2nd person to be able to control Heads or Tails, with each us having a secret flipping “method” much like craps players have when throwing dice. As the game got more and more popular, people would start to create their own cheats. One kid brought a double-sided quarter with heads on both sides to school. He was promptly beat up and the quarter was stolen, never to be found again. After that, we started to check coins. 🙂 In addition, the more adventurous kids would even play with dollar bills, and people quickly found that folding the bills a certain way would help the bill land on a certain side. Lots of new ground rules were made up on the fly.

Lessons learned? During a particularly bad losing streak, I was unable to eat lunch for a couple days. I stopped playing cold turkey. What did I learn? Gambling is a rush, but that’s not always a good thing. Someone else is always trying to gain an edge, fair or unfair. Don’t bet what you can’t afford to lose.

Pre-teen Candy Mogul
My second memory was of a 12-year old entrepreneur. Chip was a kind of a big kid, he looked like he had been held back a grade once and could have easily been the school bully. Instead, he sold us candy. I remember in particular he sold Charms Blow-Pops for 25¢ each and Crybaby Extra-Sour Gum and Atomic Fireballs at 10¢ each. I was a regular customer, as was most of our school. His backpack was 80% candy and 20% books.

I remember thinking he was pretty smart back then, but as an adult I am even more impressed.

  • He had a monopoly. Who else could sell candy directly to kids at school? Competition is also rare when you weigh 20lbs more than everyone else. Besides, it was against the rules, and I was too scared to try and pull something like that off.
  • Smart pricing. He chose simple pricing, and at about the same price as 7-11 convenience stores. He even gave discounts for bulk purchases – instead of 10¢ each, you could get 3 for 25¢. Instead of 25¢ each, you could get 5 for $1. Even us slower folks could figure out that was a better deal.
  • Smart buying. I even recall running into him at Sam’s Club buying candy. I would guess that’s as close to wholesale as you can get as a 6th grader. This also meant that his parents were in on the scheme, or even encouraged it?! Ethicists would go nuts.

Running rough numbers in my head, I would say he maintained a 100% profit margin markup on all his candy. That gum couldn’t have cost more than 5 cents apiece. He probably made around $10-$20 a day in net profit, tax free! Sure, this was probably illegal in various ways – no business license, on school grounds, too young, non-existent tax reporting – but I like to imagine Chip as the CEO of some huge multi-national corporation now.

Is it bad that both of these stories involve illicit activities?