Monday, June 30, 2008

Best and Worst U.S. cities for building Personal Net Worth has released its 2008 salary value index ranking of 69 U.S. cities with at least 250,000 residents. The index measured local salaries, the cost of living and unemployment rates to come up with the communities with the most favorable combinations. The top five and bottom five cities are shown below in the table. The top five offer the largest difference between pay and costs providing the best opportunity to build wealth.

It’s no surprise that New York city or Honolulu are expensive places to reside, but I didn’t expect to see Washington DC so high up on this list at #2.

As for the top five, I can attest that as a whole, Texas has an inexpensive cost of living. Eight other Texas cities made the best cities list as well. Of course, just being a cheap place to live is not enough to rate highly in this index, it’s also important to have good paying jobs. And that combination does not seem to lend itself to some of the prime real estate locations in this country.

Sunday, June 29, 2008

The story of my roof replacement continues....

It took over a week, but I now have my insurance adjuster’s estimate for replacing my roof that has suffered hail damage. I looked it over line by line and found several errors. The estimate is difficult to read. It’s inconsistent, sometimes material and labor are included for an item and other times it is not. I found that he had missed a couple of items (power wash and re-stain a chimney) and one of the subtotals was incorrect (short) by over $600! But, the most surprising thing was that his estimate to replace my roof was $2500 less than the two contractor bids that I have.

The adjuster had left me with a long distance phone number to call him with any questions. I don’t see why I should need to pay phone charges to talk about an insurance claim, especially when I have a local agent. I called the agent and they said they would contact him and have him call me. Two days later, I still had not heard from him. I called the corporate insurance claims center. They gave me another 1-888 number to reach the adjuster. I left three phone messages over three days before he returned my call. He said he didn’t check that voice mail very often!

His response to the huge difference between his estimate and the two contractors bids, was that I needed to get three bids. That’s interesting as these two contractors must have 20 signs up in my neighborhood. Could they be that overpriced and yet have so much work?

The adjuster assures me that the insurance company wants to make my roof "whole" again. If that is the case then why did he underestimate the cost of the work? Here’s an example: he estimated the cost to power wash the chimney and re-stain it as $48.80. I don’t know anyone who would want to climb my very steep roof with a power washer in tow for less than 50 bucks. I wonder if I could even rent a power washer for that?

When I pointed this out, he offered to add on another $50. Then he throws out that they have decided to send the depreciation check immediately. I should have it in less than a week. I mentioned this to a roofing contractor and he looked at me in disbelief. He had never heard of such a thing and said that the depreciation value is usually sent after the work has been completed. I get the impression that this insurance company wants me to put this cash in my pocket and just go away.

It is frustrating that this adjuster was not as thorough as he needed to be. He mentioned that he had completed over 7 house estimates for that one day. It seems quite possible that because he is paid by the claim, he rushes from one house to the next to cash in and then takes weeks to get the paperwork out.

I am certain that this will all work out in the end after I do a lot more work collecting bids. I plan to get that third magical bid, as well as three bids for the power washing and staining of my chimney and wood decks.
But most importantly, I already have an attractive quote for a home insurance policy with another company.

Saturday, June 28, 2008

Upgrading my workstation - the hard way

My Dell Precision 650 dual processor workstation has fully depreciated after 4 plus years and now it’s time to order a new machine. I attempted to go through my employer’s IT department, but the cost of an extra 8 GB of RAM sent the total over their allowed budget for a workstation. I reasoned that it could be ordered with 8 GB and then once it was delivered, I could order an additional 8 GB on a separate purchase order to get it to the desired 16 GB.

The IT guy would have no part of that deal. He said that I should order the machine to meet the requirements – which means I have to write a capital equipment request. That translates into a lot more paperwork, requires 9-10 signature approvals and instead of being on a 2-3 year refresh cycle, the workstation will need to fully depreciate before its next replacement – that’s 4 plus years. All of that for 8 GB of RAM. Such is corporate life…

Last week, I got the price quote and the justification paperwork together and sent it on its journey through the corporate procurement cycle. It’s going to be a great workstation. It’s a Dell T5400 with dual quad Xeon processors, 64 bit OS and a 512 MB video card. I’m looking forward to the expanded capability – it will allow me to build much larger and more complex computer models for electromagnetic simulation purposes.

The only downside is that now my PC at home is going to seem like even more of a slow dog! It’s a little old Dell Dimension 2400. I actually won it in a lottery at work. If that sounds odd, let me explain how it worked. For each piece of old computer equipment brought in for salvage, you got a lotto ticket. The first 5 names to be drawn won various types of new computers. I hauled in a bunch of old computer equipment from the labs that I manage and amazingly my name was drawn 2nd and I won a desktop PC. Too bad they don’t have those lotteries anymore!

Tuesday, June 24, 2008

Behavioral Finance - Bias from Deprival, super-reaction syndrome

This is the eleventh in a series of posts about common human misjudgments. The series is based on a Charlie Munger speech at the Harvard Law School in 1995.

Why study human behavior in relation to finances?
Recognizing and understanding why people do the things they do, what drives them, and what are innately human tendencies is the first step in overcoming your own self and making sound decisions! We want to make rational, logical decisions, but emotions and irrational tendencies get in the way.

These behaviors are not all bad, many are good in some way - that is why they survived. In fact, these behaviors served some purpose that helped extend life at some time in the evolutionary process.

11. Bias from Deprival, super-reaction syndrome
Have you ever noticed that when there is a perception of scarcity, people totally over react to the situation? It seems that when people believe some item or thing might run out they tend to hoard that something. This behavior would probably be a pretty good survival instinct. For instance, if grain was running in short supply, early humans might try to stash away as much as they could to prepare for more lean times. That is probably a good trait in that type of situation.

Problem is, that behavior also permeates into other areas – like gambling and stock market speculation. Charlie provides the example of slot machines. Casino owners know that a slot machine that provides a lot more near misses than another machine that has the same probability of winning will translate into more collections for the casino. Its the near misses that keep enticing players to put more money in. If you weren't coming close to winning, you would probably give up a lot sooner.

As for stock speculation, a lot of the motivation is to get in on a stock that is moving up so as not to miss the boat. There is nothing worse for a stock trader than to miss out on a big move. These folks are motivated not so much by what they have to gain but what they stand to lose if they don’t do something.

I see this type of bias on a regular basis and have recently experienced it myself. The most recent case involved my dealings with my home insurance company. The insurance adjuster was late making an assessment of my damaged roof and then late getting the estimate to me. I didn’t really get upset until a couple of my co-workers with similar claims for hail damage with the same insurance company told me they got their estimate the same day as the assessment. One even had a check within a week of filing. It had been over two weeks since I filed my claim - Why wasn’t I getting the same level of service? It prompted me to start calling the adjuster, then the agent, then the corporate claim office to get my estimate. I got motivated once I realized I was missing out on something.

Monday, June 23, 2008

Still awaiting my hearing notification for Property Tax protest

On June 2nd, I filed a protest of my property taxes. As of Friday, I had not received a notice or any type of confirmation from the county, so I called them. They do have my paperwork on file, but the clerk said they had not yet assigned a date for my hearing with the appraisal review board. Hmmm. According to the county, all of the deliberations are to be completed by July 18th. That doesn’t leave much time. The clerk assured me that I would get two weeks notice and she encouraged me to come down to the office now to settle this before the hearing.

I suspect that they have received a lot more protests this year than in the past. Most indicators are that house prices are declining and yet the county is raising the appraisal values.

I have my fingers crossed that the review team will try to settle my claim prior to the hearing, so that I don’t have to miss work for this. To my surprise the clerk said that most hearings only last 15 minutes with the home owner allowed 5 minutes to state their case. She also suggested that I bring lots of photos of the house and estimates for any work that needs to be done.

For now, I will wait until I either get the hearing notice or a settlement. If I get a notice, I will probably go in to their office ahead of time and try to work out a compromise with the appraiser.

Sunday, June 22, 2008

Free Nuvi with TD Ameritrade deposit

TD Ameritrade sent me an “exclusive” offer for a Garmin nuvi 660 navigation system in exchange for a deposit of $50,000 into my TD Ameritrade account. For another $50,000, I can get an additional $200 Shell gift card.

Those are some pretty nice gifts – sure beats the old toaster or steak knives that Savings and Loans once offered for opening a new account. The nuvi can be purchased for $399 or less with a little shopping around.

The fine print on the offer indicates that the account must maintain the balance for a year.

Account must remain open with minimum funding required for participation in the offer for 12 months, or TD AMERITRADE may charge the account for the cost of the product(s).

I wonder how many investors will take them up on this offer? I don’t hear too much talk about people wanting to invest in the market, right now. Most seem to be in damage control mode. They are frustrated with losing money and are moving into safer, non-stock related investments. Moving 50 grand into a trading account is the last thing on their mind.

Friday, June 20, 2008

Evaluating Risk and Reward

We all take risks, especially when investing our hard earned money. And, most of us have heard that risk and return are closely linked. Risk is an important factor in asset selection, because if you select an investment that is more volatile or goes down more than you can handle, you may be tempted to make irrational choices at the wrong time – such is typical of the “sell low and buy high” crowd.

As I approach the brink of financial independence, I want to reduce my risk. I won’t need to take so many chances anymore. I will have enough. Of course, I do not want to eliminate all risk as I believe some is necessary to continue to grow, slow and steady. So, how does one go about assessing risk?

It’s easy to calculate the returns on investments, but evaluating the risk is much more nebulous. Everyone has a different definition of risk and how to quantify it. One approach that I have used in the past applies the statistical measure called standard deviation.

Standard Deviation can be calculated based on returns over several years and provides insight into how often an investment's return is different than its mean return and by how much.

How much return does risk-taking buy you? To help answer that question, I created the following table with data that was pulled from this Matt Krantz article in USA TODAY. The analysis begins with the average annual compound returns and standard deviation for several asset classes over a bunch of years. The return data was derived from the market research firm Global Financial Data.

From there, I calculated the 68% confidence intervals for one standard deviation. For normally distributed data, 68% of the values will be within one standard deviation of the mean, while 90% will be within 1.645 deviations of the mean. So, it is very likely that the return for an investment will fall within the minimum and maximum values provided in the table. I then determined the return to risk ratio for each investment type.

The return/risk ratio is the amount of percentage points of return that can be expected for every percentage point of risk. In other words, how much risk is involved in achieving the return. Volatile investments, with average or poor returns, such as oil and emerging markets, have low ratios.

With a little bit of study, the table can provide some valuable information. For instance, you may notice that value-priced stocks have beaten the S&P 500 and are considerably less risky. In fact, its even money for value stocks. Surprisingly, corporate bonds have an excellent ratio providing good returns for low volatility, while municipal bonds do not appear to pay out enough to compensate for the downside risk.

Housing is another interesting asset class that has an extremely low return to risk ratio. It averages 3.5% return, but it has significant volatility. This is one of those asset classes that is difficult to make a broad assessment because property values vary considerably with location. While I have seen steady appreciation in my neighborhood, others have seen sky-rocketing home values and now plunging prices. Another thing to keep in mind when looking at this data is that some of these assets, like gold and housing, have not historically been considered investments.

One other item of note is the years column. This indicates how far the data series goes back – the more years, means more data and more reliable numbers. Gold is the only asset class with data for more than 200 years.

What other information can you glean from this data? Were you surprised by the return to risk ratios associated with certain asset classes?

Monday, June 16, 2008

How I $aved Money this week

It’s that time of year again. Once a year, I call Time Warner Cable and threaten to discontinue my internet service. Why do we have to play this little game?

Every year, TWC raises my bill about 10% which prompts me to call TWC to request a discount. They give me one for 10% that is good for one year and we start the process over again.

Evidently, TWC is banking on the fact that a lot of people do not bother to call in and get this discount. The price goes up and they don’t notice, or don’t care, or just don’t know what can be done? As usual, the squeaky wheel gets the grease. I hate being the squeaky wheel and I find this type of business practice repulsive. And as soon as I find a better internet/ TV deal I will show them just how much I dislike doing business with them. LOL.

Another little savings was realized by using a Home Depot coupon that I received in the mail. I purchased over $50 worth of reflective insulating material and got $5 off the bill. It was an easy ten percent savings.

Saturday, June 14, 2008

Helpful Hints to common problems

I stumbled upon several practical ideas here at cents to save to help alleviate some common household problems. I particularly liked the mosquito repelling dryer sheets, Ant stopping cornmeal and will be sure to try the neat hot water trick to eliminate peanut butter stickage.

I have already had a chance to try out the upside down banana peeling with great success. Hey, if that’s the way the pro’s (monkeys) do it, there has got to be something to it, right?

Hopefully some of these ideas will help you. It’s exciting to be doing my part to spread the word to help solve the world’s most befuddling problems. ;)

Wednesday, June 11, 2008

Hailstones bring out the Roofers and Chicken Little

This past April a hail storm blew through my neighborhood. The hail was marble size, with some being the size of two marbles. In addition to the damage that my 20 yo asphalt shingled roof incurred, numerous holes were blasted through my porch covering and the stain on my 700 sq feet of wood deck was chipped away to bare wood in hundreds of spots. Fortunately, the house roof does not have any leaks and most amazing of all my garden of peas, green beans, peppers and tomatoes survived with minimal carnage.

It didn’t take long for the roofing companies to bear down on the neighborhood. Within one day of the event, I had several calling cards at my door and within weeks roofing company signs were sprouting up in the yards around the area. However, it has taken more than a month for the first new roof to go up. I had intended to wait, check out each roofers work and decide which to call – then a roofer caught me at home.

He explained how prices were escalating weekly, shingles were getting scarce and there was even talk of rationing shingles to certain areas of the country. Heavens to Betsy, the sky is falling. He also explained that with time, hail damage can become obscured, so I needed to act quickly. Furthermore, he stated whether you file a claim or not, your rates will increase, since nearly everyone in the neighborhood is filing. This high pressure approach may work on some, but it was way over the top for me. I asked him for an estimate and politely kept my sarcasm to myself.

After the roofer made some measurements, his initial rough bid nearly doubled. Wow! He noticed my shock and suggested that they could do some things to help me with my deductible. Hmmm. So, the roofer over charges the insurance company and refunds the money to the homeowner to get the roof contract. I despise insurance – the incentives are all misplaced. Does anybody repair roofs anymore? If there was no such thing as insurance, home owners would try to get a lot more mileage out of their roofs and save a lot more landfill space in the process.

I thought it was interesting when the roofing contractor told me that no one replaces their roof unless the insurance company is paying – even in Ross Perot’s neighborhood. This particular roofer did not convince me that the roof was actually damaged and even suggested that he should be there to talk to my insurance adjuster to help seal the deal.

I wanted another opinion – did I really need a new roof? I called my insurance agent who informed me that I had to file a claim to get an adjuster to examine the roof. The agent assured me that the claim would not go against me unless they paid out money. Thanks a lot. So, I called another 1-800 number to get a claim number and was told that a third party contractor would be my adjuster and that he would call to set up an appointment within 3 days. He called me at 9:47 PM on the second day to arrange to view the roof another 4 days later. He gave me a window between 2 and 4 PM and then didn’t show up until 5:15 PM. Darn, I missed work for this.

The adjuster climbed up on the roof, made some measurements and then pronounced the roof “totaled”. I have heard that some adjusters are able to give an estimate of the insurance payout right on the spot, but not this guy. He said he would get back with me via e-mail once he figured up the squares and itemized the costs. Hopefully, I will hear something within the next week before the sky falls in. ;)

An Easy way to make your Home more Energy Efficient

Chalk up another fun project completed. This past weekend I installed a reflective insulating material on the inside of my double garage door. The door faces West, so it receives a lot of direct sunlight in the afternoon, plus there is indirect reflection from the concrete driveway.

Because I wanted to reduce the radiant heat transfer through the door, I chose a foil based, reflecting bubble material. The idea is to reflect the heat as opposed to sealing or simply insulating the door.

I found just the right material at Home Depot called Reflectix®. A lot of folks get hung up on R-values, but in this application R-value is not the driver. The Reflectix® website provides a good explanation comparing the foam insulation of a styrofoam cup to that of a glass-lined thermos. The foam cup has a higher R-value than the thermos lining, but the internal surface of the thermos reflects the heat or cold from the liquid back inside the thermos keeping the liquid much warmer or colder than the cup. Think about it, would you rather drink coffee from a thermos jug or a foam cup hours later?

I bought three 25 foot x 24 inch rolls of the material at $21 each and had 10-12 feet left over that I plan to use later to wrap AC/heat ducts in the attic. I measured each door panel, cut the material to fit the length and cut the width to allow at least an inch and a half overlap on the top and bottom. I then tucked the top and bottom edges (overlap) into the channels of the door panels. The material stayed in place very well without any adhesive, but you could use a light dusting of spray 77, if desired.

The low emittance surface of the reflective insulation blocks up to 97% of the radiation. And I can definitely feel a difference in the temperature in the garage. I can only assume that this will help keep the house a little cooler as well. Especially since I have a doggy door between the wash room and the garage.

Is it worth it? How long will it take to recover the initial costs? It may take a year or two to recoup the costs, but it’s really irrelevant because it has already made the garage a lot more comfortable place to be in the summer time.

Because the material is reflective on both sides, I anticipate that in the winter time the warm air in the garage (warmer than the outside air temperature) will be reflected back into the garage keeping the area a skosh warmer. Along those same lines, I have also noticed that the heat from my vehicle when pulled into the garage with the door shut – heats up the garage more so than before! Exactly as one would expect, right?

I seem to have alleviated one problem only to be “foiled” by another. So now I leave the door open for a short time to let the vehicle cool or if the weather is nice I park in the driveway. I can rationalize that having the garage door up or down in the evening is not that big of a deal because by the time I arrive home on a typical work day, the sun has set below the tree line and is no longer impinging on the garage door.

Monday, June 9, 2008

Early retirement was always the plan

From the day I started my engineering career, I already had a plan to retire early. On that first day, I learned that I would be eligible for full retirement at age 54. I was 23 yo and that sounded like a long ways off. I decided right then to make it a challenge to better that date. At the time, I didn’t even know whether I would like my job, let alone engineering in industry. A few months later, I was certain that early retirement was for me.

As I looked around the halls, I noticed that there were a lot of old people working in this place. I know everyone looks old to a 23 yo college grad, but these guys were really old. Some engineers just never quit. For instance, even today, I work with people that are in their late 70’s. They have no plans to retire. It’s frightening to think that one day we will probably find them expired at their desk. It has happened here before.

I know these people love engineering and they enjoy being with their work families, but come on. There must be something else? Surely they have a hobby or even a desire to sleep in occasionally? Did they lose their something else? How many years does it take to lose it? Is there some switch that gets flipped and one day you walk in to work and you never want to leave?

Or maybe these folks always wanted to work forever? Hmmm. I can’t imagine that. Nobody says they want to work for a large corporation for fifty years of their life and die at their desk. Do they?

Very few of these geriatrics are driven by money. At their age, they are triple dipping: they are required to draw their pension, eligible for social security and still earning a salary. These guys are rolling in the dough. Money and wealth is no longer the target.

I hope I never understand this desire to work for someone else to the end of time. To me, retirement is a chance to explore anything I want in life. To these guys, retirement is doing the same thing they have been doing for many, many years.

I keep thinking that they are missing something in their lives, but could it be that they have completed their explorations and found whatever it is that the rest of us are looking for?

Tuesday, June 3, 2008

Simulations have their Limitations

Okay, I appreciate the fact that a lot of animals lives will be spared by using this software. The software allows students to skip the hands on dissection of frogs with a virtual simulation. But, when I read this article, all I could think about was my own experience with recent electrical engineering graduates. It seems a lot of universities are saving money by buying software to simulate oscilloscopes. We actually have electrical engineering graduates that have never used real scope hardware.

Oscilloscopes are a critical design and diagnostic tool and no design or test engineer worth his or her salt would ever be without one. Yet, I have had new hires point at the trigger control knob on a scope and ask me, what is this for?

All that we can expect from colleges and universities is to teach students basic fundamental engineering, but now so many are not even grasping the core skills. This is a problem for the future of electrical engineering and really frightens me when I see the same thing could happen with medical students who one day may only use simulation software even though they will eventually deal with real living and dying humans daily.

Surely, we will never get to that point, right? If you had told me 10 years ago that I would be working with engineers that had almost no hands on, lab experience, I too would have thought that impossible.

Sunday, June 1, 2008

Back in Black (Ink) Deal of the week – All-in-one printer/scanner/copier/fax

I have been in need of a printer for months and finally found one on-line that was compact, met my needs and was easy on the pocket book. I ordered it from on Thursday morning and it arrived Friday at 230 PM via UPS. Awesome. I was skeptical about the next day delivery claim, especially since the shipping cost was less than 5 dollars.

The All-in-One is a refurbished Brother MFC-240C that came with two rebates. One was an instant $10 off at checkout and then another $20 off with an on-line rebate. I didn’t have to print anything out (which is fortunate because I didn’t have a printer, yet). To get the 20 dollar rebate, I just clicked a link, typed in my order # and sent off the rebate form. The final cost including shipping will be $34.

I also found a link for ink cartridges for my model that cost $5 each. Not bad!

The setup was easy; the instructions were very clear and the software install a breeze. I was printing, copying and scanning in no time at all. I can’t believe I waited so long to get a new printer!