There is a greater than 50% chance that the medium BAG of popcorn has more popcorn than the large TUB of popcorn in movie theaters.

I am mildly annoyed with GW for its class schedule.  For the Phud Program, we've got 2 required classes in the fall, the standard Micro I and Macro I.  Macro I is all night on Wednesday (6-10).   Micro I is on Thursday (6-8) but FRIDAY(OMGWTFBBQ) from 5-7.  Seriously?  A class on Friday?  That stinks.  I'm going to change my AWS (I work longer for 8 days in a pay period to have an extra day off every pay period) day to Monday for the first semester.  I'm not going to commute into Washington DC just for class.  Might as well be at work.

Ugh

So umm, those friends of mine who read this: Please dont schedule anything early on Friday.

Note:  This is just a back-of-the-envelope calculation and therefore many of the assumptions like constant returns may be as useful as a holey umbrella in a hurricane.  However, it is an interesting bet and

http://money.cnn.com/2008/06/04/news/newsmakers/buffett_bet.fortune/index.htm

Will a collection of hedge funds, carefully selected by experts, return more to investors over the next 10 years than the S&P 500?

That question is now the subject of a bet between Warren Buffett, the CEO of Berkshire Hathaway, and Protégé Partners LLC, a New York City money management firm that runs funds of hedge funds - in other words, a firm whose existence rests on its ability to put its clients' money into the best hedge funds and keep it out of the underperformers.

You can guess which party is taking which side.

Protégé has placed its bet on five funds of hedge funds - specifically, the averaged returns that those vehicles deliver net of all fees, costs, and expenses.

On the other side, Buffett, who has long argued that the fees that such "helpers" as hedge funds and funds of funds command are onerous and to be avoided has bet that the returns from a low-cost S&P 500 index fund sold by Vanguard will beat the results delivered by the five funds that Protégé has selected.

Here is a quick and dirty assessment. I used constant annualized returns over 10 years and the article's cost figures. Yes, there are bad assumptions here like constant returns, but excel has its limitations, so accept this as a rough guide.

it goes without saying that in a long term bear market (around 0% growth) the index fund beats the hedge fund

If the market returns 2% and the hedge returns 5%, the market wins. (150 diff%)
If the market returns 6% and the hedge returns 10%, the market wins. (66 diff%)
If the market returns 10% and the hedge returns 15%, the market wins. (50 diff%)

If the hedge can return 20%, it wins, unless the market returns 14%

Since market returns between 2-10% are most likely, I listed those results. The hedge funds must beat the market by around 66% percent of the market return to win the bet. In the time period prior that Protege and Buffett looked at, the market returned 64% while the hedge fund gained 95%. This is for a net rate of 48% greater for the hedge fund.

The bet would appear to slightly favor Buffett given a down market to start off the betting years.  In down markets, index funds retain larger shares of their capital due to lower fees than hedge funds (which on average lose more as their fees are higher and most funds do not beat the market in any particular year, noting exception which Prodigy may be in the future, but who knows?

So who's going to win the bet?

Just a quick finance tip:

If you're looking for a budget / savings planner software out there, you can buy it in a store for about 50 dollars, or you can find a free service online.  The two best free services are Motley Fool's Mint   or Yodlee's Moneycenter .   I've used both, and I'd say that they each have their strengths.

Mint is much more useful for tracking spending habits, identifying where you really spend your money, and where you can cut back.  I think its useful for folks without mortgages and post-tax investment funds.  Moneycenter, on the other hand, is really comprehensive, and gives a much better picture of total net worth including mortgages, stocks, bonds, etc.  However, its MUCH more difficult to set up, and its spending reports are not up the quality of Mint's.

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In more worldly news, our garden is now having blueberries and blackberries budding, and the vegetable plants are finally over a foot tall.  I was worried I was going to miss the growing season.  I guess it is hot enough now.

Note:
This will likely be xposted at GetRichSlowly.Org next week.  I'm interviewing David Gardner, founder of the Motley Fool, tomorrow.  I'm also going to be talking to some Urban/Regional Economists next week

Thoughts on the Motley Fool Focus Group

 When I was in high school, I participated in my state’s stock market game.  It was designed to introduce our economics class to the world of investing.  That’s where I first heard of the Motley Fool, which at the time was an upstart website for financial investors and went against the grain of having advisors manage your money.  Rather, I remembered their newsletter analyzed the advantages of managing one’s investments themselves, and advocated index funds over managed funds.

Yesterday I had the unique opportunity to visit The Motley Fool.  I unknowningly was sitting next to David Gardner, one of their founders.  Imagine my suprise and excitement when I found out.  I'm going to have a full blog post written and crossposted to GetRichSlowly.org next week.  However, I am excited to say that I'll be sitting down with David for a 1on1 interview over coffee next week.  That too will be on GetRichSlowly.org once I finish transcribing.

Curiously, the Fool has an open position for a freelance writer / analyst.  It would be a waste of an opportunity to not throw my hat into that  ring
 

My wife's scooter was stolen (dragged) from our alleyway driveway Sunday night.  We recovered it a few blocks away Monday afternoon, just on luck of seeing it.

The theft itself will cost us about 1000 when all is said and done between insurance and deductibles.

The cost, in terms of our sense of security, and our attempt to mitigate it with more security, will be more.   I suppose its very easy to give into extra security when you feel really threatened.  That feeling though, disipates over time, and then you're left with just alot of really big and annoying locks.  But it's sure easy to justify at the time.  I mean, I was halfway to the gunshop (figuratively) 30 minutes after finding out it was stolen.

Really, though, it was a random act of a stupid kid (who left prints).  And no amount of security makes one safe from random events.

Yesterday at 5PM I received notice from George Washington University that I was accepted into their PhD Program in Economics.  The PhD Department is a whole two blocks away from my current job.  This should make commuting a breeze.  Furthermore, I have a flexible schedule so I'll be able to go to seminars during the day.

With my MA from GMU, I should get about 20 hours credit towards my degree (a cost savings of 20,000 dollars).  Further, I there's a not very often used OPM program http://www.opm.gov/oca/PAY/StudentLoan/   that will fund up to 60K of student loan repayments provided I sign on for about 3 more years of service. 

Since I have no intentions of leaving the Federal Government in the next 10 years, this is a boneheadly easy decision.  When my Chief is back in the office on Monday I'll be talking to him about it.  This was part of the deal we struck when I had an offer to be an senior economist elsewhere.

While G-Dub isn't a top economics school, for what I need it for it'll do just fine =-)

Omaha is sometimes referred to as the Mecca of Capitalism.  When Warren Buffett and Berkshire Hathaway have their annual meeting, thousands flock in for what's as close as you can get to a Carnival atmosphere of economics, finance, and capitalism.

His annual reports and letters are an excellent read. 

It's my goal next year to attend the meeting.  I've got my B class shares, which means I can sit in, but I can't ask questions.  One has to be an A class shareholder for that.

http://www.berkshirehathaway.com/sharehold.html

When the sun is shining and the weather warm but cooled by a small breeze, working outside is close to heaven.  On Sunday morning, my wife worked all day (really, all day, sunrise to sunset) laying stone and stone dust to finish our patio.  It looks wonderful.  I spent the morning mowing the lawn with our RealMower (human powered mower), trimming, edging, and bringing stone over for our patio. 

Then I sat outside and worked on my laptop.  I had a few cold ones.  Beautiful day, you just can't put a value on it.

Sunday afternoon, sitting outside, was time I used to check over our budget.  It's probably a good thing to, every few months, see how we're doing on our finances.  I still have a problem with eating out far too many times in a week.  I'd like to get it down to 2 times a week, but right now I'm at 4-5.  That's too much.  We're really good about not eating out when we've been grocery shopping, but there's that period of a few days where your stocks are running low and nothing looks good...so you eat out.  We need a better stock of staples to keep eating in during the grocery store avoidance stretches.

That's not to say we're not doing good.  We knocked out over 15,000 extra off of our Home Equity Loan that built our addition in the past year.  We had positive cashflow each month for the last 12, which can only bode well since we had a home addition project, a wedding, and a honeymoon to pay for.  It even looks like our retirement accounts are back to where they were return wise pre-downturn.  That's a nice sign. 

Let me just say, unequivocally, on the record, that a "Gas Tax Holiday" has got to be one of the most idiotic, downright stupid, embarassing, shallow, pointless proposals to help our economy of this entire deplorable primary season.

Here's the deal.  Senators McCain and Clinton want to roll back the 18 cent a gallon gas tax for the summer.  Senator Obama and President Bush, along with nearly every single economist and newspaper editorial board of either political persuasion, oppose it.

First, the net benefit to the average household?  50 bucks.
The cost?

Under Sen McCain's plan?  5 billion dollars, to be paid for with future taxes.  Probably on our children.  Guess we can officially bury the "fiscal conservative" wing of the Republican party.  So long guys, you had a nice run in 94!

And in the meantime, we lose 5 billion dollars towards the interstate highway maintenance fund.  Yeah, our interstates sure look pristine and un-needing of maintenance, don't they.

Under Sen Clinton's plan?  She replaces the tax on gas with a tax on the oil companies' windfall profits.  Thusly, she (and her husband, a Rhodes Scholar in economics who should know better, but is making me think less of Rhodes scholars daily) moves the tax burden from the consumer, to the producer.

Except, that's not how taxes work.  The tax on profits would be passed on right back to the consumer.  Not entirely all of it, but a good bit of it.  Simple microeconomics theory tells us that.  That no less than Paul Krugman and Greg Mankiw agree on this point should be proof enough of its stupidity.

Yet, it appears that the promise of 50 dollars a month is enough to move votes.  Even if it means we continue to mortgage our so-called good times on the soon to be sweaty backs of our laboring children.

The sad reality is that Senators McCain and Clinton are gaining support for this platform.

I'm not worried.  If things get really bad in 20 years, we're packing up to St. Eustatius and becoming Dutch

Managing a good personal finance lifestyle is not unlike managing a good personal health lifestyle.  Temporary changes don't breed lasting results, but creating permanent changes does.  For instance, my wife and I have actualized a commitment to eat healthier.  In our diet we now have a decidedly larger proportion devoted to fruits and vegetables, and our portion sizes have declined, from last year.  When pared with another goal of ours, to exercise regularly, these two life changes will make permanent a difference in lifestyle.  Our bellies will be gone, and our health will be better.  We'll live longer, spend more time outdoors, and according to most research, be happier.

Your finances are similiar, and the lessons on a good diet and good exercise apply to your checkbook as much as to your fanny.
Being a frugal personal finance nut, I've compiled a list of small life changes that I've made within the last year. 

1) Eat out significantly less
My year-over-year change in monthly general food spending has declined by 150 dollars a month.
2) Brew my own latte
The latte-a-day savings plan strikes.  That's 3 dollars a day, or 60 dollars a month.
3) Substitute away from the gym
We changed lawnmowers from a gasoline powered to a manually powered one.  Now mowing our (albiet small) lawn is a workout.  Our bi-weekly walk to Trader Joe's nets us about 4 miles of walking exercise.  Keeping our car at home and using foot power to get to the local stores gives us an opportunity to exercise.  By taking a few more minutes per activity by walking, rather than driving, I'm able to maintain physical health without a gym membership.  40 dollars a month.

My small list total - about 200 dollars a month.

What's that worth in 20 years?

If I assume an inflation adjusted real gain of 7% on the money I save, that's worth a little over 100,000  in today's dollars. 

There a plenty of small, needless expenses that we incur without noticing every day. 

What fat can you cut out of your daily financial diet?

Hello to all my old livejournal friends who've followed me over to my new journal.  I needed a change, because my old journal suffered from a split personality, of who I was when I first started blogging versus who I am today.  Fast forward from 2002, and my life did, and did not, follow the path I thought it would.

Hello to all my old friends who have followed me from GetRichSlowly and CivFanatics (and other sites).  I hope the quality (and quantity) of my posts improve in this new venture.  I'm going to reference questions from various forums.

For the relaunching, I'm happy to revisit a old topic: time.  More specifically, I'm referring to how we value time, how it's value is internalized, and how we can make better personal, and financial, decisions based on understanding our values of time better.

In economics, we define value of time as an opportunity cost.  That is, we want to know what our next best alternative use of time is.  Our values of time are probably most evident in the lifestyle we choose to lead, and further obvious, where we choose to live.   But what exactly is one's value of time?  It's not our hourly pay, for sure, as that's the value our employer puts on our labor time, and is only an imperfect reflection on what we feel the value of our labor time actually is (Equilibrium or market-clearing wages are often paid on the aggregated industry scale, they are vastly imperfect on an individual basis, as we often over or under value our own labor price, or make that difference up in intangibles, or office pens).  We do use our pay as a base, but an hour of work may be worth more or less than an hour of commuting, or an hour of gardening,  depending on how much we enjoy our work or our commute or our garden. 

How much is your time worth?  Are you using up your time that would make you happier if you could spend it elsewhere?

Time, being a quantity that we have an unknown fixed supply of, is thereby our most precious possession.  We would want to maximize the happiness we derive from it.  For myself, knowing that the least enjoyable part of my day is my commute, I choose to live close into my work site, close to a metro stop, and free from my biggest annoyance of all, interstate traffic jams.  I can also substitute my time for more money.  By walking to and from the metro station as a regular habit (along with other habits), eliminates the need for a gym memberships (and the subsequent time commuting to the gym.  As an aside, the gym really does seem like an incredibly silly commercial business, and quite a sign of just how much more leisure time we have and how cheap food has been (that may be changing).  

So, while those of us who obsess about our personal finance (call us cheap, thrifty, frugal, whatnot) want to trim every penny, such a strict rule willfully ignores the truth that it's not just money that makes us wealthy, but that it's how we use money, and how we use our time, that does.

It's okay to pay more than market average for a rental, or for a home, if it fits your lifestyle.  If  you know yourself and plan accordingly, the increased cost there will be made up by savings (time, money, or less unhappiness) elsewhere.

So readers, what are some stories of your life where you've internalized your value of time that led to your lifestyle improving?

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I had to make a decision recently about whether to take a job as a senior economist or go back to school for my PhD.  While the job was exactly the job I had put as a goal of mine, I decided in the end that it would mean more to me (ie, make me happier, provide more utility) to go get my doctorate in Economics.  I'm about 2 years away from a dissertation.  I'm hoping my late application will be accepted so I can start this fall, otherwise I'll start somewhere next year.  Even for us PF geeks, sometimes cash doesn't rule everything around me.