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For those who feel like the gas tax holiday will be a great thing to have, please take this into consideration. Just because the 18 cent per gallon tax is eliminated doesn’t mean that retailers will necessarily drop prices by a similar amount. In fact, they may turn the gas tax holiday into a gas profit holiday.

Most gas stations make 10 cents per gallon or less in profits. Some just break even on gas. The reason for this is that they use the gas to get you there, and then profit off of the soda, beer and snacks that are in their convenience store. If a retailer could make a few extra dollars on the sale of gasoline they would.

Imagine that a retailer currently earns 5 cents per gallon. When the holiday in enacted, prices should theoretically drop 18 cents per gallon. Imagine that instead prices drop by only 13 cents per gallon. If this happened, there would be an additional 5 cents per gallon in savings that would not be passed on to the consumer. Guess where those five cents go? That’s right, into the pockets of the gas station owners. The gas station just increased their summer gas profits by 100%. Not too shabby. Even if the station dropped it 17 cents, that left over cent would give the station owners an additional 20% in profit for the summer. Once again, not too shabby.

Click on the following link to see what respondents to a CBS poll thought about the proposed gas tax holiday. The results clearly show that many see it as a political stunt to gain favor.

A market order is not the only type of stock trade available. Another common type of order is a “Stop-Loss.” With a stop-loss, the trader instructs their broker to sell a particular stock as a market order if its’ share price falls below a particular value.

Say for instance you own 100 shares of Washington Mutual (WM), which is currently trading at $11.89. You are afraid that some negative news may be coming out and would like to minimize your losses. In order to do this, you set a stop-loss trade to sell at $10/share. If the price of WM falls below $10/share, the stop-loss will trigger a market order for the shares. This will help to ensure that you liquidate your positions and avoid a major downturn.

While stop-loss orders may seem like a worry free solution, Jonathan Burton of Marketwatch.com has a differing opinion. He feels that they really aren’t all they are cracked up to be. While they do offer great downside protection, they can come back to haunt you as well. Going back to the Washington Mutual example, let’s say that WM drops to $9.85/share. Suddenly a market order for your shares take place and you no longer hold WM. Now let’s imagine that after it hits $9.85/share the stock bounces back up to $12/share over the next few days. Now you are stuck having sold out at $9.85, while you could still be holding on at $12/share.

According to the article, “Stop-loss orders are geared to traders and investment professionals who buy and sell shares frequently. They might lose 10% in a stock one day and make 25% the next. The stop-loss is a way to avoid a beating if they’re wrong.” Short term traders can easily just walk away from a stock and move on to the next. Longer term traders tend to have more of an emotional attachment to the company. This can be in part because of the amount of time spent trying to find the company, or financial roller coaster that the company has put them through. Long term traders are more likely to keep watching the stock after they sell and beat themselves up mentally saying, “if only I hadn’t…”

In an interesting statement, the article points out that “things often rebound very quickly and it’s very hard to recapture the stock at a good cost basis. It’s almost like ensuring that you will sell in irrational market panics.”  The market is not always right and is often subject to major corrections in times of volatility.

Jonathan does suggest an alternative to the stop-loss method. “The trailing stop is a stop-loss order that you adjust upward as a stock moves higher. If a stock rises 10%, raise your stop by 10% and so protect your profits. You still run the risk of being sold out earlier than you might like, but at least you’ll have something to show for it.”

As a final bit of wisdom, Jonathan states that “if you’re a long-term investor it doesn’t make a lot of sense (to use a stop loss), and if you’re a short-term trader you’d be better off watching the stock. Long-term investors should simply monitor the stock’s fundamentals.”

I have been with Cingular/AT&T Wireless for about two years now and have never had any problems with them besides their service black hole in my girlfriend’s apartment. It is interesting though that I have suddenly run into a bunch of problems with them all at once.

This most recent weekend I found that all incoming calls were going straight to my voicemail. They weren’t ringing on the caller’s end, and my phone wasn’t ringing either. Even worse, my phone was not being notified about these missed calls or new voicemails in my inbox. I also could not receive text messages.

Initially I tried to troubleshoot the phone on my own by turning it off and then turning it back on again. This did not seem to help at all. My next course of action was to call the people at AT&T to see if they had any solutions. After spending about three minutes navigating the phone tree, I found out that I had to call from a different phone in order for them to troubleshoot my cell. Since my lunch break was almost over, I decided that I would just have to bring it in to my good friends at the local AT&T store.

When I brought in my phone, the AT&T rep initially powered down the phone and restarted it like I had and then tried calling it. No luck. Then he decided that it must be something with the SIM card. He popped open my phone and pulled out the SIM card. He left and then came out with a brand new SIM card. He put the two cards into this machine that looked very similar to a calculator and transferred the data from one SIM card to the other. After this he put the new SIM card in my phone and powered it back on. He gave my phone a call and it magically started ringing again.

Thanks AT&T!

As a final side note, they did not even charge me for the new SIM card.

This article is a follow up on the previous post on Car Mileage.

A common belief amongst people is that the value of a car declines more rapidly the newer it is. Some say your car loses 25% of its’ value when you drive it off the lot. I am about to put my Craigslist data to the test to help prove whether or not this theory actually works.

In my first example I used 2001 Jettas found on Craigslist. Based on those Jettas that came up in my search, only 26 of them were qualified to be entered into the data. I did not accept any VR6, TDI or wagon Jettas. I did this in order to keep the data the most consistent. The average 2001 Jetta had 82,312 miles and was selling for a price of $8,106. I found that for 2001 Jettas, they lost on average $.0342/mile driven. If this theory is to hold true, the 2003 Jettas should decline in value more per mile than the 2001 Jetta.

Let’s take a look at the data:

Listings with a negative difference are underpriced based on the data. Listings with a positive difference are overpriced based on the data.

I took the exact same approach as I did with the first test, except this time through I searched for “2003 Jetta” on the Craigslist site for Seattle. It returned 40 matches, and of those only 21 were qualified to put into the data. For the 2003 model, the average Jetta had 64,488 miles and was selling for $10,869.

After processing the data, I find that the regression of the data points has a coefficient of -.0328, meaning that for every mile that the car is driven, it loses 3.28 cents. It turns out that this is actually less than the 3.42 cent per mile loss for the 2001. The Y-intercept for the 2003 is $12,981.62 as opposed to $10,927.01 for the 2003.

You may recall that I calculated the value of a 2001 Jetta with 80,000 miles to be worth $8191.01 from the 2001 Jetta equation. Taking the 2003 Jetta equation, we shall find out what the value of an ‘03 Jetta with equal mileage should be. We can find this by subtracting from the intercept. So: $12,981.62 - (-.0328 x 80,000) = $10,357.62. This shows us that a buyer would pay $2166.61 for a model that is two years newer, even though it has identical mileage. In order for the consumer to pay the same amount for the 2003 as they would for the 2001 with 80,000 miles on it, the 2003 would have to be at 146,055 miles.

This data seems to find that the value of a car doesn’t seem to decline quicker the newer it is. Given the somewhat small sample sizes, it is possible that the data could be a bit skewed. It would also be interesting to see what the actual sales price of these cars are, because most won’t be sold for their asking price.

For those who must have the latest and greatest though, check out the 2008 Jetta.

This image comes from Autoblog.com

The new Jetta starts at $16,990 + taxes, licensing and all that other fun stuff.

Do the number of miles on your car’s odometer have that much of an effect on its resale value? In this experiment I find the answer to this pressing question.

This stock photo was obtained from automotive.com

In order to find the answer to this common question, I went to Craigslist.com. There I did a search for a fairly common car, the 2001 Volkswagen Jetta. I chose this car because VWs tend to hold their value fairly well, and Jettas are a very popular model. I conducted this search under the Seattle-Tacoma Craigslist section. The search term that I used was “2001 Jetta.” This search returned 54 results for ads that were posted from 4/1/08 - 4/8/08. Of these 54 results only 26 qualified for my statistics.

There were a few major reasons that certain ads did not qualify:

• No mileage was given
• The car listed was not a Jetta or was not a 2001 model
• The Jetta was a TDI (Turbo Diesel) model. These typically have higher resale value.
• The Jetta was a VR6 model. These typically have higher resale value.

All other models including the Wolfsburg were included.

My research found some fairly predictable data. The Y-intercept was $10,927.01. This means that a 2001 Jetta with zero miles on it should have a value of $10,927.01 based on the data. The X-variable coefficient was -$.0342. This translates into a loss in value of 3.42 cents per mile driven from the initial $10,927.01.

Based on the above data, let us calculate how much a 2001 Jetta with 80,000 miles should be worth. We can find this from the following equation. $10,927.01 + (-$.0342 x 80,000). This Jetta should be worth roughly $8191.01 according to the equation that was derived from the data.

In the study, the average 2001 VW Jetta had 82,312 miles and was selling for a price of $8,106.

The following table shows the data that I collected. The miles and price were actual data from the Craigslist listings. The projected column shows what the equation projects that the price should be based on the data. The difference column shows the difference between the projected value and the asking price. Listings that have a negative number are priced under the market value for their mileage. Listing with a positive number could be said to be overpriced in comparison to the other cars in the market.

For a scatter plot of the data, click here.

As you can see from this study, you can find good deals on cars if you compare them across a broad range of listings. In a month I may redo this study on a new batch of 2001 Jettas on Craigslist to see if the data holds up or if it has drastically changed. In most cases the graph should have a negatively sloping trendline meaning that the vehicles are worth less as the accumulate more miles.

When I went to return my most recent book to the library I decided to pick up a new one while I was there. The one that I chose is called “How to invest in Condominiums,” by Andris Virsneiks. I am only 19 pages into it so far, but I have a good feel for it so far. It appears that it will be fairly informative while keeping at a level that will be easy enough for anyone to understand the basic concepts. The author makes is very clear in the first few pages that investing in condominiums is not a difficult task if done correctly.

The sweet thing about this book is that it is a signed copy. That kind of surprises me for a library copy. Maybe someone was bored and decided to forge his signature into the book. The book was written in 2002, conveniently at the beginning of the real estate boom but I’m sure that the majority of this information can be applicable in any market environment. I also found it interesting that the author did his condominium investing in Seattle, which is the area that I am from.

This weekend my girlfriend and I went down to Portland, Oregon to visit some friends. It is always nice getting away from all the hustle and bustle of Seattle and going somewhere different. Portland is a nice city that seems to be quite a bit smaller than Seattle, but is not lacking in any of the amenities of a larger city. One of the main draws for people to the Portland area is the fact that Oregon does not have a sales tax. According to Taxadmin.gov, there were only five states that had no sales tax as of 1/1/2007. Those states were: Alaska, Delaware, Montana, New Hampshire and Oregon.

The sales tax in Seattle is roughly 9%. When we go down to Portland, we like to take advantage of the fact that there is no sales tax. I got to thinking on the way down that there is probably a decent population that drives from Seattle to Portland and back in one day just for shopping. These people have no other reason to visit the city (ie: visiting friends/family, sightseeing etc.) They only make the trek to save some money. I started to think about how much money a person would need to spend in Portland so that their tax savings would equal what they spent on gas to get there.

The trip from Seattle to Portland is roughly 175 miles. This would make the round trip (175 x 2 = 350 miles). Let’s also assume that the car being used is fairly economical and gets 30 miles to the gallon and gas is $3.10 a gallon for regular (which it currently is in our neck of the woods). It would take the car (350 miles/30 mpg) 11.67 gallons of gas to make the whole trip. At $3.10/gallon, it would cost (11.67 x $3.10) $36.16 to make the trip. In order to save $36.16 in taxes, one would have to spend ($36.16/.09) $401.77. At this spending level, you would be no better off than shopping in Seattle. Anything spent over this amount, and your trip would be a success. If you spent any less than this amount, then it would actually cost you more to shop in this tax free environment. If you decided to carpool with a friend, then you would only have to spend half as much to break even.

Let’s take a look at a chart that shows how much you would need to spend based on the mileage of your car in order to break even.

Obviously, the worse the gas mileage, the more you would have to spend on goods to break even. Here is something else to think about. The lower the differential between tax rates, the more you would have to spend to break even. Lets go back to the 30 MPG example. Imagine if the tax rate in Seattle was only 6%. Here is how much you would have to spend. 350/30 = 11.67 gallons of gas x $3.10/gallon = $36.16 to make the trip. Now, we divide $36.06 by .06 rather than .09, and we get $601. With a change of only 3 percentage points, a consumer must spend almost 50% more to break even!

The lesson learned in this story is that although tax free purchases may sound good on the surface, you must spend a lot to make the trip worth it.

I have attached to this post a graph I created in Excel that shows how as MPGs decrease, one must increase their spending to make the tax free savings worth it.

Sometimes you may be wondering as you read these articles what stocks/securities I own. I have stated earlier in my posts that I want to be as transparent as possible so that the reader does not think that I am trying to lead them astray with any subliminal opinions. In order to accomplish this, I am going to create a fixed page that is easily accessible by the side menu bar that lists the current securities that I own. I am not going to list a chronological list of my buys and sells so that I can gloat about my gains and sulk over my losses. I intend to make this page be purely informative in nature. I can write post after post talking about what I think would be a good investment, but in the real world you have to put up your money to back up your words. I am creating this page to show what I think or in some cases thought were good stocks. Use this page to learn from my successes and losses. I am only going to list dates and prices that the securities were bought on. I am not going to list the number of shares owned for obvious reasons.

So without further ado, here is a link to my current stocks.

Hi, so this is my very first entry (obviously). I am just going to talk a bit about what this whole blog is about. This should seem vaguely familiar to the about me page.

I guess you could call the creation of this blog to be a bit of a new year’s resolution. I have wanted to have a blog for quite some time, but just never got around to setting one up. The whole idea of blogging is somewhat intriguing to me. Blogging is essentially a personal diary that is made public for the world to see. This seems a bit odd, because usually diaries are meant to be kept secret from all but the writer. I am generally one to keep most of my feelings private, with the exception of a few choice people that I trust. That works out fine for this blog since I won’t really be sharing much of my personal feelings. This blog has been created to discuss topics of finance.

Ok. I guess I lied when I said that this blog will be entirely about finance topics. From time to time I plan on making some non-finance posts as well. Perhaps I will write about some electronic gadget I bought or a movie that I saw or something else of that nature just to spice things up a bit. Another thing I was thinking about adding is maybe a guest column. Every once in a while I will accept a guest column and post it on my blog. We’ll see how things go I guess. Also, if any readers have any suggestions on topics that they would like to hear about, I would be more than happy to hear them. Also, I encourage comments to all of my posts. I would like to hear what others have to say about my posts, but just don’t be too brutal. I have a fragile ego.