30 October 2020Stock blogs
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30 October 2020
How do I invest?
That’s the most common question I get asked when people find out what I do for a crust.
Despite there being lots of free information on the internet, most people just don’t know where to start.
You know why?
The free information is confusing.
Most ‘free’ information ends with an invitation to meet with a financial adviser.
You know what happens when you meet with a financial adviser? You end up with the exact same information as everyone else.
Very rarely is that information tailored just for you.
And here’s the thing: You can take control of your investments. You just need to know where to start…Ignore the jargon
There’s so much nonsense in the financial industry.
I should know; I’ve worked in it for over a decade now.
Most websites with free financial information are filled with jargon. Stuff that you can’t understand without googling every second word.
In fact, a large portion of the financial industry in Australia is about drawing you in…and then convincing you that you can’t manage your investments alone.
That’s utter nonsense.
You are the best person to decide how to spend your money.
The problem most people have, is how to go about setting up your own stock portfolio.
Most people don’t know where to start. And if you went to see a financial planner, they’d hand you a slightly tweaked version of the same stock allocation they give everyone else.
A stock selection heavily skewed towards the big banks, a telco perhaps, a couple of mining giants and then maybe Australia’s second-biggest technology stock.
Then, they’d send you on your merry way, telling you that you have a balanced portfolio.
I have a different idea to that.
And with a few simple steps, I’ll show you how to set up your own investing portfolio…without spending a cent…A different type of portfolio
So, how do you get started?
Believe it or not, it’sfairly simple to get going.
The first thing to note is that a stock-heavy portfolio isnât a balanced one, regardless of how well spread out the stock investments are.
While investing in shares is a useful tool to kick-start growing your wealth, it isnât the be-all and end-all of investment ideas.
Instead, I suggest you consider spreading your cash out like thisâ¦
- 50% of your cash into stocks
- 10â20% into gold and silver bullion
- 10â20% into cash
- 10% in bonds
- 10% âfun moneyâ
That seems doable. But how do you go about picking stocks? Well you might know more than you realiseâ¦Keep it simple
Often, picking stocks is the most daunting part for investors. Buying cash and gold seem like the easier option.
Itâs not. Itâs just about getting over the hurdle of understanding the financial jargon.
One guideline to follow when you first start out is to stick with what you know.
When it comes to buying and selling shares, most analysts will suggest you trawl through company financials and market updates.
Thatâs a great method for people who already understand the stock market.
But not everyone enjoys reading those sorts of things. And sometimes, going through pages and pages of numbers actually puts people off.
I do it for a living and there are times when I want to pull my hair out reading them. Financial reports arenât fun.
Investing on your own should be enjoyable, not a chore.
The key to managing your own investments is to pick a business you understand.
I have one rule when it comes to selecting stocks: If the company canât explain what it does in 10 words or less, ditch it.
This approach has rarely failed me.
Complicated businesses spend more time talking to the market than doing the things they claim to do.
Not only that, with their interests scattered in multiple directions, they canât focus on what the core of their business is.
Conglomerates like Wesfarmers Ltd [ASX:WES] and Woolworths Group Ltd [ASX:WOW] have multiple businesses, yet both can explain their business in simple terms.The power of what you know
Step one: Rule out any complicated businesses.
The follow-up to that is to pick stocks you know.
I once had a woman write to me, explaining that she bought share in Ansell Ltd [ASX:ANN] based on her global experience as a nurse.
She had travelled the world. Worked in every top hospital you can think of. Top US private hospitals through to third-world, makeshift medical sites.
Through all her years of working, she explained to me that every single hospital she worked at had a box of Ansell medical gloves.
Then, she took this knowledge and researched Ansellâs financial background a little more, before taking the plunge.
This example shows how you can take your profession and apply that knowledge to certain stocks.
I have heard stories of fly-in, fly-out mine workers buying shares in mine recruitment companiesâ¦or investing in businesses that provide remote power generators and other plant and equipment, for example.
The point is to take advantage of your own knowledge.
You might not feel like you understand the stock market.
But chances are you understand your industry. Take that knowledge and apply it to stocks listed on the ASX.
Now you have your starting point.
Next up is a bit of due diligence.
You actually donât need to get too bogged down in the financial details of the companies youâre considering investing in.
Look to see if a company is profitable against how much debt it has. Is the companyâs net income slowly increasing?
If so, chances are the company is still growing. This means the share price should go higher as the profits grow.
Both Google Finance and Yahoo! Finance provide free basic financial data. And chances are your stock broking platform will have this information too.
And over time, the more research you do, the less intimating the jargon will be.Blue chips arenât always the answer
Once youâve become comfortable with owning a couple of shares, then you can start to widen your investment scope.
The ASX has more than 2,000 listed stocks.
You donât need to stick to the top 20 blue chip companies in Australia. In fact, thatâs exactly what a financial planner would likely do â pop most of your cash into the top 50 companies in Australia.
Rather than go and dump all your money into blue chips, consider spreading your money out against the market.
Pick a couple of blue chip stocks that pay a high dividend. This is where the top 20 are useful.
Rather than focusing on capital growth â the shares going up in value â look for companies that will provide you with some sort of income.
Then, spread the rest among mid-size to smaller companies.
Outside the top 50 is where your career knowledge could be useful.
For example, if youâre a mechanic by trade, you may be willing to invest in a car parts business.
There are some incredible companies outside the big banks, a telco, the supermarkets and a mining giant or two.
The point is to take advantage of your own intrinsic knowledge and apply that to the stock market.
And the final point for today is to remember that there is no such thing as a âset and forgetâ portfolio.
Thatâs a quick way to end up exactly where you start. Or, worse, broke.
That doesnât mean you need to watch the market every day.
However, you should review your portfolio frequently to make sure youâre on track. Once a month, check in on the companies you have bought shares in. Also, the more frequently you review things, the more comfortable youâll become with market movements.
Until next time,
Editor, The Daily Reckoning Australia
PS: Weâve been tracking the US election closely. It might be hogging the headlines, but does it matter for Australians? Check out our most recent interview over at The Daily Reckoning Australia YouTube channel to see what our experts have to say.
30 October 2020
The share price of small-cap gold explorer Firefly Resources Ltd [ASX:FFR] has soared over the past couple of days, though there has been no news to note from the company.
The last significant update we received from FFR was at the beginning of the month when it announced a successful capital raise of $6 million to fund accelerated exploration.
On Wednesday, the FFR share price spiked heavily, jumping 47% to set a new 52-week high.
A move that warranted an explanation from FFR itself, though the gold explorer said it was not aware of information that would explain the share price action.
Today, the FFR share price has continued its upward momentum.
At the time of writing, FFR is up 4.44% to trade at 23.5 cents per share.Is this the result of anticipation of FOMO?
If you’re not familiar with what FFR is working with, let me give you the short version.
In a recent drilling update, FFR demonstrated some pretty significant mineralisation at its Yalgoo project in the Murchison region of Western Australia.
Highlights from the latest round of drilling include:
- 48 metres at 1.71 grams of gold per tonne (g/t) from 33 metres, including six metres at 5.28 g/t from 35 metres, and nine metres at 2.4 g/t from 70 metres
- Four metres at 3.63 g/t from 38 metres, including one metre at 11.3 g/t from 38 metres
These complemented previous standout results of six metres at 244.9 g/t from 50 metres, including one metre at 1,439.55 g/t from 51 metres.
But why exactly the share price rose so sharply on Wednesday is debatable.
Discover why this gold expert is predicting a HUGE spike in Aussie gold stock prices. Download your free report now.
Having recently received $6 million to accelerate exploration at Yalgoo, FFR said we can expect news from the project in the coming months.
Though this doesn’t explain the recent share price action.
Have a look through tweets from Wednesday and you’ll find an explosion of interest in the FFR share price.
But it is difficult to say whether the interest was a result of the share price action or the cause.
A bit of chicken and the egg, I’m afraid.Is Firefly Resources overhyped?
FFR’s recent capital raise hints at the confidence professional investors have in the small explorer.
FFR said we can expect a maiden resource estimate by year’s end, so we could see the share price climb in anticipation.
Also, with Australia gearing up to surpass China as the undisputed global leader in gold exploration, mining and production, there could be macro-economic factors playing into FFR’s favour.
In her latest report, gold expert Shae Russell breaks down what Australia becoming the new gold ‘epicentre’ means for gold and your Aussie gold stocks.Click here to download the free report.
For The Daily Reckoning Australia
30 October 2020"Historically high operating cash flows have led to a net debt reduction of over Rs 210 crore and net debt or EBITDA (Earnings before interest, taxes, depreciation, and amortization) declined to less than 1, which has been reaffirmed by our credit rating upgrade from A+ to AA-," SIS Group managing Director Rituraj Kishore Sinha said.
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Coal India Limited Shares
Coal India Limited Shares Hiked Almost 1% In Intraday Trade
Coal India Limited Shares Hiked Almost 1% In Intraday Trade On fifteenth October 2020:
Regardless, Coal India Limited offers exchanged with a 0.95% addition in the present Intraday exchange. Likewise, as of recently, the organization traded 4,02,538 offers on the counter.
Besides, the organization shares began at Rs. 111.00 per value share on the National Stock Exchange. The stocks arrived at the Intraday high estimation of Rs. 112.70 per value share. Essentially, it arrived at the Intraday low estimation of Rs. 109.50 per value share.
As indicated by the sources, the organization shares arrived at the 52-week most elevated estimation of Rs. 217.90 per value share. Additionally, it arrived at the 52-week most minimal estimation of Rs. 109.50. According to the records, the market capitalization of the organization remained at Rs. 68,806.86 Cr.
On 30th June 2020, Coal India reported its united deals worth Rs. 17,007.10 Cr. Nearly, the organization deals declined by 38.31% from its last quarter deals of Rs. 27,568.23 Cr. Additionally, its deals declined by 26.77% and remained at Rs. 23,223.00 Cr from the earlier year the same quarter.
Besides, the net benefit declined by 55.08% and remained at Rs. 2,079.60 Cr in the current quarter. By the closure in June 2020, the organization advertisers held 66.13% of its stake, FIIs held a 7.19% stake and DIIs held a 9.36% stake.
Directly, the organization shares provided with a cost estimate to-income proportion in products of 4.86 occasions. Essentially, the organization's cost to-book esteem proportion of 2.68 occasions.
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30 October 2020Personal Finance
30 October 2020
Is there a way to check previous irs income tax filings? We usually file with a accountant however I’ve heard bad stories of accountants not doing their job. Anyway I can be sure that my accountant or tax prep professional did their job? Thank you
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30 October 2020
I am 23 and have had capital one credit card as soon as I turned 18. Never missed payment and about 2 months ago I had gotten my balance down to less than 100$ I only use it for monthly subscriptions and sometimes my debit card doesnt work when ordering online. I really have no reason for a 2nd one just trying to make my credit look better. Should I just keep going with my original one or apply for another?
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30 October 2020
For the past couple of months, a collection agency has shown on my credit report. I’ve never received any communication from them so I don’t know how to pay it off or even what it’s for. I’ve tried to dispute it through my credit monitoring agency but they said it was legitimate both times. What are my next steps? If it’s valid, I’ll just pay, but I have no idea.
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30 October 2020
The 401k with my previous employer got rolled into two accounts- Roth and traditional IRA. At first I thought “ok great, I can leave the $ and it’ll just grow since they do it all for you” until I learned you need a minimum balance of $5k each account for Schwab to manage it for you, which is way more than I have and can put in.
So now the money (about $3k total) is basically going to have to sit in two self directed accounts. My question is: is it possible that they can grow in value without me doing anything? I know nothing about funds and really don’t have time or energy to learn. Thanks in advance
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30 October 2020
So basically the title explains it all. My husband signed on a 2021 suv, I caught him giving information to his mom over the phone, he didn’t talk to me about it prior. His mother asked for a co-signer, because she needs one, the banks don’t trust her enough to finance a vehicle on her own. In the 12 years that I’ve been with my husband, she’s had multiple vehicles, a lot of them repossessed/given back. I’m at a loss, we’re married so, debt incurred while being married, is a mutual debt, I think. I’ve never owned a brand new car in my life, I’ve always had cash cars, this year I was able to finance a 2 year old vehicle for my husband and I. I’m extremely worried about how this will impact our credit, and I feel like I can not trust my husband at all.
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30 October 2020
I have my Roth IRA and an Investment account (stocks, bonds, etfs) through this company. Set it up when I was in my early twenties and didn’t really know what I was doing. Just recommended to me from my local bank. I don’t ever see people mentioning them, so I feel like maybe I can do better with a more reputable/known institution? Anyone have any advice or experience with them? Likewise, if I wanted to go to another company, what does that process look like?
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30 October 2020
30 October 2020
I got a call once by the original creditor about the debt but I thought I paid it so I told her it was already paid. The person I spoke to on the phone told me to ignore future mail because they do make mailing errors sometimes with billing. So I did, didn't think much of it. Then fastforward to today I received a mail with a balance so I double checked my bank to see if I made any payments in the last year for the amount they're asking for to dispute it... I did not. It was unpaid and it was my mistake.
It's sent to AARGON collections.. I really want to preserve my credit and this was honestly a mistake. How do I minimize the impact it will have on my credit...? I plan to buy a home within the next 5 years... It's literally just $35... I can't believe I made this mistake....
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30 October 2020
30 October 2020
Should I sink more money into this rusty piece of junk? Or just get a new car? Every car owner faces this question–and many others!—and must understand the true cost of car ownership to find the answer. In that way, car expenses are darn close to a personal finance must-know!
This article pulls data from automobile aggregation sites and government agencies to bring you a complete understanding of the cost of car ownership.
You’ll walk away today being able to answer questions like:
- How should I compare time owned vs. miles driven?
- What’s the full-life true cost of owning a car?
- How much does a car’s value depreciate over time?
- How do I place value on the utility of my car (e.g. a work truck vs. a compact sedan)?
- When is a used car purchase smarter than a new car?
- How does leasing compare to owning?
- Should I sink more money into an old beater? Or just get a new car?
One of the challenges in finding the cost of car ownership is that certain car expenses compare like apples and oranges. As you read through today’s article, make sure you understand the assumptions I make and how those assumptions affect the final verdicts.
How can we judge a grandma who drives to the grocery store once per week against the commuter who drive 100 miles a day? Those are two completely different use cases.
Similarly, how do we compare costs per mile (like gasoline costs and oil changes) against costs per time (like yearly registration and inspection)?
Thankfully, we have a lot of data to help answer these questions, and below are some useful conclusions that enable a single, consistent cost metric.How Long Do People Own Their Car For?
The period of ownership is a key question to answer in this analysis.
50 years ago, the answer was around 12 years per vehicle. But with better market competition leading to better engineering, the average lifetime of cars today is around 15 years. (source)
Of course, this ties back to our previous comparison. Do we care more about the duration of car ownership or the distance that the vehicle has driven? The answer is both. Some expenses are tied to duration. Others to distance.How Far Do People Drive?
Understanding the average distance a car travels is another key variable for today’s analysis. Thankfully, we have a significant pool of data from the U.S. Department of Transportation’s Federal Highway Administration.
The FHWA states that the average U.S. driver travels around 13,500 miles per year.
If we combine this yearly mileage statistic with the typical lifetime duration from above, we can calculate another important stat. The average car will travel approximately 13,500 miles per year for 15 years, totaling 202,500 total miles in its lifetime.
This aligns closely with AARP’s longevity estimate of 200,000 miles.
Some cars will go further, others not as far. And we’re also making a benign assumption that the yearly mileage of 13,500 and lifetime of 15 years are stable statistics.
202,500 total miles is a reasonable estimate for today’s discussion, and we’ll be using it throughout. Similarly, we’ll be using the conversion of 13,500 per year to convert all metrics into dollars per mile. That’s the metric of merit.Breaking Down the Cost of Car Ownership
There are five significant costs when it comes to car ownership.
- Purchase/Depreciation cost
- Maintenance and Repair
Let’s break them down one by one.Depreciation Costs
There are two ways to address the purchase cost of a car.
The first is to assume that the total base price of a car get spread like peanut butter over the entire life of a car. A $30,000 car that lives for 202,500 miles would cost 30,000/202,500 = 14.8 cents per mile of initial costs.
But the second way to address the purchase cost of the car is via depreciation. And I think this method tells a more complete story. Rather than spreading the cost evenly like peanut butter, the depreciation method examines the year-by-year decrease in resale value of a car. This argument assumes that a car is an asset insofar as it has a resale value.
On average, a new car depreciates by 11% the minute you drive it off the lot. It then depreciates by another 10% of the original value per year for the first five years (source). For the average 15-year lifespan we’ve established today, the car would have to depreciate another 3.5% of its original value per year for the remaining six years to reach an eventual value of $1200 (e.g. the value of the car as scrap metal). An example of this depreciation is shown below.
Year 1 sees 21% depreciation of the $30,000 value, or $6,300 of depreciation. If that is spread out over 13,500 of annual driving, that’s 47 cent per mile! Much higher than the previous estimate of 14.8 cents per mile.
But if we look out at Year 10, we see a depreciation of $1050 over 13,500 miles, or 7.8 cents per mile. Depreciation hurts much more early in a car’s life.Maintenance and Repair
New tires, oil changes, or even new windshield wiper blades. Maintenance and repair are a drag on your wallet. And similar to depreciation, maintenance and repair costs change significantly over the life of a car.
First, most new cars come with a bumper-to-bumper warranty, covering most maintenance and repair. That typically lasts for 36,000 miles, or about 2.7 years in today’s analysis. But these warranties typically exclude basic maintenance like oil changes.
So for the first 36,000 the maintenance costs are minimal. Let’s assume $40 per oil change (every 5,000 miles in most cars) and another $50 per year to cover random odds and ends (e.g. new wiper blades). That adds up to about 1.2 cents per mile. But what about after those first few years?
Thankfully, the website Your Mechanic has a treasure trove of useful data on car repair frequencies over their lifetime. The data below shows their data converted to dollars per mile, included the initial low maintenance costs during the warranty phase of the car.
An old car costs more than twice as much as a new car (~21 cents per mile vs. 8 cents per mile). In general, maintenance and repair costs can be expected to increase in a linear fashion after the initial warranty period.Fuel
According to the EPA, the average modern car gets 25.1 miles per gallon of gas. As of this writing, the average national gasoline cost is $2.16 per gallon. But we all know how gas prices can fluctuate. So for the sake of round numbers, I’m going to use $2.50 per gallon of gas.
The math is now easy. If we drive 25.1 miles for every $2.50 we spend, then the average price of gas is 10 cents per mile.
We are also going to make the benign assumption that gas mileage does not change over the life of a car.Registration and Inspection
Registration and Inspection are two expenses that don’t necessarily apply in all states. Each state has its own rules—some flat rate, some weight-based, value-based, or even age-based.
I’m going to use the average of all costs and suggest you look up your own state’s costs.
The average cost of registration is $54 per year, or 0.4 cents per mile.
Only about 2/3 of state require car inspections. In New York, for example, an inspection typically only costs $20 per year, or 0.15 cents per mile.Insurance
I surveyed a few different sources on the first few pages of Google. They all report the average yearly cost of full coverage car insurance in the $1300-$1600 range, and minimum coverage in the $300-$700 range.
For the sake of today’s analysis, I’m going to assume a middle-of-the-road (get it?) insurance package at $1000 per year, or $1000/13,500 miles = 7.4 cents per mile.
But do insurance rates change as a car ages? Yes! Car insurance rates drop by ~3.4% for every year your car ages. This is likely tied to the depreciation. It’s cheaper to replace an old car than a new car, and insurance companies account for that.
So our insurance costs will look something like this.Grand Total Cost of Car Ownership
The total cost of owning and operating the average car falls between 35 cents per mile and 65 cents per mile over the lifetime of the car.
But the total plot is a little funky looking. Why the zigzags? Thankfully, the subplots illuminate where that funk comes from.
Initial driving costs are quite expensive due to the rapid depreciation of the vehicle. As the rate of depreciation stabilizes in Year 2, so do the driving costs. That is, until the warranty expires—this causes the cost of driving to notch up.
Slow increasing maintenance and repair costs can then be seen in Years 3 through 6. Another notch occurs when the rate of depreciation decreases yet again. Years 6 through 15 are then marked by a slowly increasing maintenance cost and a slowly decreasing insurance cost.
P.S.—do you have maintenance, insurance, and fuel covered in your budget?The Total Cost of a $30,000 car is…
You math nerds might recognize that we can integrate the total dollars-per-mile plot over the life of the car to solve for the total cost of car ownership. For quick review, remember a few of our assumptions:
- The car cost $30,000 up front.
- We assumed an average life of 15 years and 202,500 miles.
- We assumed average depreciation and average expenses based on accredited data sources.
The total cost of car ownership is $91,200 over this average 15-year and 202,500 mile life, averaging 45.0 cents per mile.The U.S. Government’s Thoughts on Cost of Car Ownership
Our estimate—45 cents per mile—lines up reasonably well with what the U.S. government thinks. The current mileage reimbursement rate in 2020 is 57.5 cents per mile. This suggests two useful conclusions.
First, it suggests that today’s analysis has some merit. Perhaps my estimates are a bit low, or perhaps the U.S. mileage reimbursement rate is meant to cover not only average cars, but also more expensive cars.
And second, it suggests that you should not consider mileage reimbursement as any sort of “free money.” The reimbursement rate is closely matched with the cost of car ownership—especially if you drive a vehicle with a higher sticker price or poor gas mileage. Instead, think of mileage reimbursement as you would a tax refund. You’re getting what’s owed to you.Cost of Car Ownership vs. Cost of Flying
We’ve established that driving is far from free. How does it compare to flying?
My home in Rochester is 400 miles from Boston and 330 miles from New York City. If I were to drive there (in non-COVID times), those round trips of 800 miles and 660 miles would cost me about $360 and $297, respectively, in car costs.
They also take ~12 hours and ~10 hours, respectively. We should also place a value on our time.
A $200 round-trip flight makes a lot more sense. Plus it saves you half a day in car.But My Car Isn’t Average!
Let me present one more useful plot. Below, I’ve mapped out costs for three Ford cars: the economy-class Fiesta, the “average” Edge, and a F-250 truck with all the trappings.
The sticker prices on these three cars are $15,300 for the Fiesta, $30,000 for the Edge, and $59,000 for the F-250.
The Fiesta gets 36 miles per gallon, the Edge gets 26 m.p.g., and the F-250 about 16 m.p.g.
For the sake of building a true range, I assumed the Fiesta owner would get minimal insurance and forgo repairs when possible. I assumed the F-250 owner would get maximum insurance and spare no expense on caring for the truck.
This method doesn’t cover every possibility, but provides a better range of potential costs than the previous average analysis.
The Fiesta costs an average of 27.2 cents per mile. The Edge is basically average at 44.9 cents per mile. And the F-250 costs 80.6 cents per mile.
Over a 200,000 mile life, the Fiesta will cost $54,400 against the F-250’s $161,200.
But an F-250 can do many things that a Fiesta can’t. How do we monetize that factor?The Need For “Utility”
Every driver will use their vehicles in their own way. This idea—each driver’s unique utility—is a difficult cost/benefit analysis to quantify. But it’s worth discussing. Here’s an example:
How much value should a family of six place on a mini-van over a small sedan? The sedan is cheaper but cannot fit the entire family. The mini-van enables family trips and makes logistics simpler. There’s some monetary value that should get placed on that, but how do we find that value? (I think I’ve found a way, discussed in the next section.)
Utility is a sliding scale. Let’s consider the family of six once again. They might need to full seating of their mini-van on a weekly basis. It’s a constant need. Similarly, a carpenter or contractor might need to utility of a pick-up truck for their daily work. But how often does a Jeep Wrangler owner require the utility of trekking across the savannah?
I’m cherry-picking a bit. People don’t buy Jeep Wranglers only to take them off-road. But the frequency of utility of a vehicle is an important consideration.
Does it make sense to own a $40,000 vehicle where a $20,000 vehicle fulfills the same utility—e.g. only commuting to work? Of course not.
But does it make sense to purchase a $40,000 vehicle because it fulfills a daily utility that a $20,000 vehicle simply cannot fulfill? That’s worth investigating.Defining Utility Using “Value Over Replacement Car” (VORC)
There’s a new-age sports statistic called value over replacement player, or VORP. In short, VORP objectively defines how good a player is compared to a replacement player of “freely available talent” level.
Example: if Lebron wasn’t on the Lakers, they’d have to go hire the next best player not already on an NBA roster. How much better is Lebron than that guy? The answer is Lebron’s VORP.
Similarly, I think we can define a value over replacement car, or VORC, to define how good (or bad) our vehicles’ utility is. Let me give it a try.Jimmy’s Truck
Jimmy owns a truck that costs him $850 per month (per AAA) to operate. At 76 cents a mile, this lines up well with the F-250 analysis from above.
Jimmy needs to truck for the utility of towing his camper. He loves camping and takes ten weekend trips per year. But are ten weekends of utility worth owning a truck for? What is Jimmy’s replacement scenario? What’s the “freely available talent?”
One possible answer: Jimmy could buy the best value car for his day-to-day commuting needs, and then rent a truck when he needs to tow his camper. By my estimation, Jimmy could get a Fiesta for about $300 per month. That would save him $550 per month, or $6600 per year.
But then Jimmy would need to replace the utility of his truck. How? There’s “free available talent” out there precisely for this need: rental trucks.
A three-day truck rental for Jimmy’s camping trips would cost about $400 per trip. Over 10 annual trips, this could cost Jimmy from $4000. Compared to his annual Fiesta savings of $6600, it seems Jimmy could net $2600 of savings per year.
Is the hassle of the rentals worth $2600 of savings per year? That’s a subjective question for Jimmy.
Are there other factors I’m not considering? Probably. How about trips to the hardware store? A truck bed is a nice luxury for hauling lumber.
But at first blush, I’d say Jimmy’s truck has a negative VORC (at least on the axis of utility). There is a significantly cheaper option that would provide Jimmy with the same exact utility.When is a Used Car Smarter Than a New Car?
When is a used car smarter than a new car? Lots of people have pondered this question—with some good attempts at an answer. The total cost plot that we’ve established today makes it quite easy to answer. Thankfully, used cars are more trustworthy than they used to be.
To keep variables consistent, I’m going to look at a Subaru Outback. With a couple non-basic features, a new Outback sells for $30,000. That’s the average price tag we used earlier. But now we want to see if buying used is a better than buying new.A Real-Life Average Car
I found a used 2018 Subaru Outback with 40,500 miles—or 3 years of average mileage—selling for $23,000. We’re going to assume—rightly, I think—that all costs (except depreciation) associated with miles 40,500 to 202,500 cost the same whether the Outback has switched owners (i.e. is used) or not. On average, all cars are the same and their cost of car ownership are the same. This is an important assumption.
Why exclude depreciation? The depreciation of a new car is based on that new car’s price. But for this analysis, I’m going to assume that our used car depreciates from its used price ($23,000) to zero over its remaining life.
By my math, miles 40,500 through 202,500 for this Outback (reminder: it’s an “average” car by this article’s standards) cost $49,500. I simply looked at my total cost-per-mile chart from above, removed depreciation, and calculated from the beginning of Year 4..