datacase

data-oriented financial and economic commentary

Would you rather drive with an 80-year-old or an 18-year-old?

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We all know that kids aged 16-19 are worse drivers than adults. Or, perhaps more accurately, all of us adults know that. We also all know that, as we enter our 70s, our driving deteriorates. The question for today is this: How old to you have to be before you’re as bad a driver as you were in your teens?

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Written by datacase

April 26, 2011 at 1:22 am

Posted in Uncategorized

29% after-tax returns(*); or, how not to get screwed by your car insurer

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There are good bets and bad bets. Here’s a good bet: you pay $1, and if a coin toss comes up heads, you get $3. The payout percentage on that bet is 150% (you win $3 half the time, so expect to get $1.50, which is 150% of your dollar invested). If you were to get $2.00 when it comes up heads, the payout percentage would be 100%, a neutral bet. Of course, if you were to only get $1.50 when it comes up heads, the payout percentage would be 75%, and you’d be a chump to make that bet.

Here’s a list of betting games: blackjack, roulette, and auto insurance. Can you put them in order of payout percentages? I’ll give you percentages below.

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Written by datacase

April 10, 2011 at 12:25 am

Posted in Uncategorized

Hey Buffett, say something interesting about taxes!

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Warren Buffett loves to make a splash and say that his tax rate is too low, and lower than his secretary’s.

But Buffett’s tax rate makes virtually no difference to him anyway. In the year in question, Buffett had taxable income of about $50 million. Let’s suppose that was his taxable income for the last 50 years, which is a very high assumption (he wasn’t always so rich). So, over his lifetime, he’s recognized taxes on $2.5 billion of income, and accumulated a net worth of about $50 billion. He’s paid, in his lifetime, income taxes on 5% of his net worth. Let’s use a round number tax rate of 20%. In that case, he’d have paid 1% of his net worth in income taxes, over his entire lifetime. So Buffett thinks it should have been twice that? He thinks he should have paid a whopping 2% of his net worth in taxes? Am I supposed to be impressed with his civic mindedness?

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Written by datacase

April 1, 2011 at 10:59 am

Posted in Economics, Taxes

Gas prices

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This graph won’t surprise you. It’s the price per gallon of gasoline, over time.

Gas Prices, Nominal Dollars

Gas Prices, Nominal Dollars

But let’s take a look at what’s under the covers here.
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Written by datacase

March 19, 2011 at 11:32 pm

Posted in Economics

A challenge to passive investors

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If you don’t believe in passive investing, don’t bother reading this.

But if you do, take my challenge.

Why do you believe in passive investing? Probably because you don’t believe that, net of the fees involved in trying, you can beat the market. It’s not because you are particularly focused on perfectly tracking a particular index; it’s because the fees are lower, it’s more tax efficient, and over the long run you doubt you can beat the market and you doubt you can predict who will.

OK, so you
1. Want to match the market return
2. Are not particularly focused on perfectly tracking an index
3. Want low fees
4. Want to be tax efficient

In that spirit, here’s what I’ve done, and invite you to do the same.
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Written by datacase

March 19, 2011 at 7:24 pm

Posted in Investing, Taxes

Carried interest and capital gains

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About myself: in private equity from 1998 through 2010 (and still in it part-time), worked at The Riverside Company, the largest buyer of companies in the smaller end of the middle market. The Riverside Company managed over $3 billion, deployed into many small companies worth, typically, between $10 million and $150 million. I earned a very good living, depending upon how investments did and the timing of realizations. Most of my earnings were as carried interest, taxed at capital gains.
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Written by datacase

March 18, 2011 at 11:46 pm

Posted in Taxes

States’ pension problems

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Dean Baker recently put out a surprising perspective on the various states’ pension funding shortfalls. Below is my reply, addressing his executive summary point by point.

First, here’s an interesting question for you, one that shows how political this issue really is: Should the federal government invest the social security “trust fund” in equities? Does your opinion on that differ from your opinion on the state pension funds? Why?

Back to Dean Baker. His words in italics.
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Written by datacase

March 16, 2011 at 10:17 pm

Posted in Economics