Our $616 Windfall Could Be Yours

December 7, 2012

 

It’s 2012. Why are we still getting mail?

This summer we wrote about the inefficiency of the live event ticket market. The primary sellers – TicketMaster and their ilk – have attempted to maximize profits by not only tacking on dubious charges and fees, but selling tickets as much as 10 months in advance of the show date. That gives said ticket distributors a chance to enjoy your money even earlier. A bird in the hand, etc.

We can’t emphasize this enough, which is why it warrants a 2nd post – buy your tickets as late as possible. (See? We can be repetitive, too! All the greats do it.) You people who claim “I like to collect experiences, not things”, whatever that means, especially should take heed here.

Like that of a lot of goods in the last decade, the market for tickets has changed drastically. The original problem was that it was a pure monopoly, or at least had most of the characteristics of one. You bought your tickets from TicketMaster, or whomever, or you missed out and panicked on the day of the event, which involved going to a scalper at the venue. And for anyone who’s ever done it, buying from a scalper feels slightly less seedy than patronizing a pot dealer or a veiny prostitute.

You don’t have to do this anymore. There’s a better way. As business author and envelope maven Harvey Mackay puts it, “There’s no such thing as a sold-out house.” Here’s how you get tickets for that basketball game/Lady Gaga concert/flea circus without tying up your money unnecessarily.

Wait until the last minute. Not literally the last minute, but close enough. Tickets go on sale this week for a concert that doesn’t take place until April? Major League Baseball released its schedule and you plan to see the Diamondbacks play the Dodgers in the final homestand of the season? Relax. Have a soda. Go for a walk. Fly to Argentina, marvel at the Andes for a few weeks.

Then, 3 (or better yet 2, but it’s hard to get there without practice) days out, hit

  • StubHub
  • eBay
  • The underrated superstar here, Craigslist.

You know how you can lose all sense of discretion when you’re enthralled by a live event, playing air drums along with Neil Peart or cheering a football team onto victory against a division rival? There it is again, that cursed right brain getting in the way and ruining our lunch. Cutting loose during an event is fine, even encouraged, but you still have to be icy and logical during the process of buying your ticket. OMG RAVENS-STEELERS GOTTA BE ON THE 50-YARD LINE NO MATTER WHAT NO MATTER WHAT I SAY is no way to commit what could be a few hundred dollars to what’s only going to last 3 hours or so, tailgating excluded.

Slow down and remember – you’re buying something extremely perishable. Getting excited about buying a car, and risking overpayment because you’re afraid it’ll be gone tomorrow, is dumb. But behaving the same way regarding an event is even stupider because…

On balance, it’s almost always a buyer’s market. Unlike the tickets in the seller’s possession, the cash in your pocket will still be worth something tomorrow. Use that leverage.

But I have to see Chris Brown! It’s the last show of the tour, and he might be in prison a year from now.

Again, slow down. You don’t “have” to see anything. And they’ll play the Super Bowl next year, too. They always do. It’s fun to think that your life becomes more meaningful if you inconvenience yourself to see a concert or a game that you think holds special meaning. Maybe it even does. But if it does, that doesn’t mean you should overpay for the privilege.

If you’ve never used StubHub, it’s straightforward. And credible, after eBay bought it and made it a wholly owned subsidiary. eBay still maintains its own ticket marketplace for some reason, and lets you see availability and prices on both sites side-by-side:

 

 

So that gives you a starting point. Another thing to remember, and this is critical:

Asking prices mean nothing.

This is a corollary to it being a buyer’s market. A seller wants $900 for a pair of tickets with an official price of $100? Good for her. She can offer them at $30,000 if she wants, it doesn’t matter. Maybe some sellers do this in the hopes that some maldextrous buyer will accidentally press the “Buy” button and create the easiest windfall ever.

(Side note: The media attention surrounding the recent “hyperinflated” prices for Twinkies on eBay. A local newspaper reporter in CYC’s hometown claimed that Twinkies were selling for $250 apiece. They weren’t being sold at that price, they were being offered at that price. You need to look at the actual auction closing prices, which were more in the neighborhood of $2.50 per, to gain any useful information here. The exaggeration was 100-fold, but isn’t that what journalism is largely about?)

Watch one eBay ticket auction, participate if you must. Once it closes, you have the knowledge that turns the buyer’s advantage into an overwhelming one. You’ll know the crucial second half of the equation, and thus where supply and demand intersect. This places the sellers at an even bigger disadvantage.

Here’s a real-life example. We wanted to see Rush play our hometown a few weeks back. And if we were going to go, we wanted to be on the floor. The sticker price for floor seats? $154 each.

By the way, we didn’t get financially independent by making it a habit of dropping $308 for a few hours’ entertainment. Instead we hit a couple of eBay auctions, 2 and 1 nights before the show. Each time we were outbid in the final seconds, which told us a couple of things:

  • There’s some sort of demand for tickets. It’s not as if we could just swoop in and lowball on an item that no one else wanted.
  • Floor tickets were selling for about 10% below cost. Which meant they’d be getting cheaper, not more expensive, as showtime approached.

We were legitimately hoping to win the 2nd auction, but that’s the point. Don’t overpay, which means don’t overbid. We set a maximum bid before we started, and didn’t raise it, no matter how tempting doing so sounded as the clock ticked down to 0.

Then we headed to Craigslist, where buyers aren’t protected as well as eBay buyers are. You might get scammed on Craigslist, but most of the people who do are idiots and are practically pleading to be taken advantage of.

Go to NameOfYourCity.craigslist.org/tix. You can select tickets sold by owners, sold by brokers, or both.

You want tickets sold by owners. It that isn’t obvious, there are several reasons:

  • An individual owner has more incentive to sell his tickets than a broker’s employee does.
  • The former is easier to negotiate with, and probably easier to research (again, covering yourself when dealing with unknown players is critical.)

There were maybe 25 sellers hawking tickets on Craigslist. We eliminated anyone who didn’t advertise what section their tickets were in. (Why are they wasting our time, and why would they waste theirs?)

That left maybe 12, all of whom we sent the same email to. “Will you sell them for (10% below cost)?” (Unless some of the sellers had been already offering them for even less, in which case we’d offer something still less than that. But no one was offering them for so little.)

A few didn’t respond, a few said their tickets were already gone, and one liar claimed that if he didn’t get his asking price, he’d just eat the tickets. That left one guy, who said that we could name our price. Why? Because he was thousands of miles away, and had physical tickets in hand.

We improvised. We suggested he call the venue’s ticket office, explain that he couldn’t go to the show and wanted to transfer ownership to someone local, and plead his case.

And damned if the venue didn’t say yes. Even better, the poor guy had bought 4 tickets – twice as many as we needed. They emailed him a PDF of all 4, he forwarded it to us, and said “enjoy the show”. Your mileage may vary – of course, you can’t assume that you’ll find that one person in a thousand who’s willing to give away $616 worth of tickets that he’d already written off.

Did we sell the remaining pair (for something around 10% below cost) and pocket it, essentially getting paid $277 to go to a concert?

Did we sell the remaining pair and give the proceeds to the original owner?

Yes, maybe, no, that’s not the point. The point is that we never would have been in such a position had we repeatedly hit “Refresh” on TicketMaster.com on the day sales opened, until we could finally purchase a pair. Again, let other people be the profit centers – not you.

Filed Under: Capitalism, Making Smart Choices Tagged With: , , ,

Ordinary Income. Extraordinary taxes.

November 28, 2012

 

Manna wasn’t legal tender, but that doesn’t mean the IRS wouldn’t have tallied it.

 

A couple of days ago we pointed out how money doesn’t care where it came from. Some people think that their regular salaries should go towards daily expenses, while windfalls (inheritances, stock appreciation, house appreciation, etc.) can go towards less vital stuff like vacations and ATVs.

That’s an idiotic perception. If you have an asset to buy, defining “asset” as we do here at CYC (something that’ll build wealth), buy it. With your paycheck, or with a handout from Grandma. Or even a loan from Grandma, depending on what interest she charges. Otherwise, it shouldn’t matter. Regardless of its origins, money goes where it goes.

Well, that’s not entirely true. The only entity that cares how you came by your money is the Internal Revenue Service. Receive money one way, it’s taxed at a certain rate. Receive it another way, it’s taxed at a higher rate. Seeing as the IRS has the power of deadly force*, soon for the crime of not doing your duty for the Motherland and buying health insurance, it makes sense for us peons to accede to the agency’s capricious demands.

As far as the IRS is concerned, there are 2 ways you can receive income:

  1. ordinary income and short-term capital gains
  2. long-term capital gains.

This is simplified, obviously. A full accounting of every exception would take us years to write about.

Ordinary income? That’s:

  • Wages, salaries, tips, commissions, bonuses
  • Interest, dividends, and net income from a business that you own a piece of
  • Gambling winnings
  • Royalties
  • Rents
  • Pensions, assuming you’re one of the few people who collects one.

Meanwhile, capital gains are:

  • Money from the sale of a “capital asset”, like shares of a publicly traded company, or a house that you sold. Unless you’re a land developer and the house is your stock in trade, that kind of thing. The difference between short- and long-term capital gains is arbitrary but defined: hold on to an asset for a year before selling, that’s long-term.

We’ll spare you the numbers, but regardless of what tax bracket you’re in, long-term capital gains are always taxed at a lower rate than short-term capital gains and ordinary income are. There’s a good reason for this, too. Ordinary income (and to a lesser extent, short-term capital gains) carries little risk. If you punch a clock, you’re legally entitled to wages and can sue if you don’t receive them. If you wait tables, society expects that customers will tip you as part of (if not the bulk of) your income.

Long-term capital gains involve tons of risk. There’s no guarantee that that stock you bought years ago might ever result in a payoff. Contrast that with the biweekly checks you get after entering into a standard work agreement. By taxing long-term capital gains at a lower rate than ordinary income (and short-term capital gains), the IRS encourages people to hold onto their investments. If all income was taxed at the same rate, there’d be no incentive for anyone to defer spending (synonyms for which are “save”, “invest”, and “build wealth”.) We’d only chop trees down, never planting any.

So is this just an accounting curiosity, something for you to pass the time reading about on a boring Wednesday? Heck and no. Control Your Cash don’t play that game. If it didn’t apply to your life, we wouldn’t be spending time on it.

The more of your income you can derive via long-term capital gains, the less you’ll have to fork over to the IRS. We devote an entire chapter of the book to this. Chapter IX, the longest and most detailed one. (By far. Although it’s still easy to read, certainly no more difficult than our posts.)

Unless you want to move to Antigua – and before you do, remember that it’s easy to go stir-crazy on a 109-square mile island – you’re going to have to play the IRS’s arbitrary game. Both Wonderland croquet and Calvinball have more consistent rules. This wasn’t always the way, but America’s descent from beacon of freedom to patchwork of statism is a topic for another day.

Maximizing your long-term capital gains is the inevitable result of buying assets and selling liabilities, our 2-pronged guaranteed way to wealth. It means purchasing vehicles for passive, non-sweat income, no matter how modest or expensive: a $25 mutual fund contribution here, a real estate investment trust there. Anything that creates an income stream for you, or that should appreciate (such as a house). Hold onto it for at least a year, and you’ll pay less in taxes that you would if you’d earned similar income via more direct means. Hold onto it indefinitely, and…

You can defer capital gains, too. Sometimes indefinitely. Methods for doing this include structured sales, charitable trusts and 1031 exchanges, which we touch on in the book and will expand upon in future posts. Really we will.

The point is, don’t go to H&R Block with your W-2s and say, “Fix this for me.” And really don’t get a refund anticipation loan. You’ve got a few months to make this work for 2012, and to figure out how to not get burned in future years. Do it now. (By “do” we mean “buy”, and by “it” we mean click the link above. Which is also this link.)

 

*This is not an exaggeration. To quote P.J. O’Rourke, “If you don’t pay your taxes, you get fined. If you don’t pay the fine, you get thrown in prison. If you try to escape from prison, they shoot you.”

Filed Under: Capitalism, Economics, Making Smart Choices, Taxes Tagged With: , , ,

Biological Kids Are Better Than Adopted Ones, Aren’t They?

November 23, 2012

 

 

Mommy’s favorites

 

Congratulations to the San Francisco Giants, world champions for the 2nd time in 3 years. However, this year’s title comes with an asterisk. The Giants won 94 games during the regular season. Breaking it down by pitchers:

  • 46 of those wins came from guys originally signed by the Giants (Matt Cain, Madison Bumgarner, Tim Lincecum, Sergio Romo.)
  • 24 came from free agents (Barry Zito, Santiago Casilla, Jeremy Affeldt, Shane Loux).
  • 18 from guys who started with the Giants, went to other teams, and eventually returned to San Francisco after being released elsewhere (Ryan Vogelsong, Clay Hensley)
  • 5 from pitchers the Giants traded for (Javier Lopez, George Kontos)
  • and 1 from a guy claimed off waivers (Jose Mijares).

So really, the Giants earned only 46 wins of those wins via their drafting and scouting prowess, 64 if you count the guys who left and came back. Either way, those are hardly playoff-caliber numbers.

What kind of an imbecile are you? Who gives a flying one how the Giants acquired the pitchers, as long as they won those games while wearing Giant uniforms? God, this site is awful. And it used to be good, too.

So you’re saying wins commingle.

Of course.

Money does too, but fewer people seem to grasp that.

One of the dumbest things you can do, not that it stops most people, is mentally segregate funds by their origin. Money from the stuff I sell on eBay goes toward paying down my credit card balances. The Christmas bonus, that always goes toward the kids’ college funds. (See what a responsible parent I am?) The tax refund comes in April or May, depending on when I file: there are no holidays around then, so that’s “fun money”.* And if I win on my first hand of blackjack, then I’m playing on the house’s dime.

Dollars are dollars. It doesn’t matter where they originate from. Understanding this is fundamental to getting out of the wrong mindset, the one that leads to making atrocious decisions.

Let’s assume that you’ve reached the level of awareness where you’re not submerged in credit card debt, but you still think there’s some difference between money you sweated for and money that fell in your lap. This is how the poor and unambitious think.

It’s fine to earmark funds, of course. Doing so is the very purpose of budgeting, and budgeting is the primary way you save for and eventually purchase things that you can’t immediately pay for out of discretionary income. But you earmark money contingent on where it’s going, not where it came from.

Each dollar is an opportunity, or at least that’s how rich and self-determined people seem to think. Every trite rags-to-riches story about the poor European kid coming to America with a $10 bill in one pocket and an onion in the other (to ward off evil spirits, and to eat) has something in common: every stroke of fortune played off the previous ones in the series. Andrew Carnegie spent the first 13 years of his life dirt-poor in Scotland. 5 years later, Carnegie’s mother took out a 2nd mortgage on the family home because his boss at the Pennsylvania Railroad recommended an investment opportunity. Once it paid off Carnegie had a choice, conditional on his mindset about the origins of money:

  • Fly to Vegas and rent a penthouse suite at the Palms, or maybe that one suite that has a basketball court. After all, this was found money, beyond what he was earning as a division superintendent.
  • Reinvest the proceeds, and/or look for the next investment.

Say Carnegie believed that salaries are for investing, and “found money” is for other outlays. He’d have worked until death, going to church every Sunday, and maybe left a few dollars for his kids. Instead he became not just one of the richest men who ever lived, but one of history’s greatest philanthropists, too. This is at least partially because he understood that if he had to wait for his salary to enable him to make investments, he’d still be waiting. By the way, he’d be 176 years old today.

Less insightful people routinely fall into the trap of believing that money differs depending on where it came from. Don’t be like them. Treat the Christmas bonus for what it is. It isn’t $4000 that fell from the sky. It’s $4000 that your boss held onto all year long, enjoying interest payments on (not to mention the similar interest payments he enjoyed from all your co-workers’ bonuses.) What if you’d received the bonus in 26 equal payments throughout the year, added seamlessly to each of your paychecks, increasing the difference between your revenue and expenses and giving you more to invest with, all the more quickly?

If you’re like most people, you’d complain that your miserly boss didn’t give you a bonus this year.

*You should never get a tax refund. See Chapter IX for the reasons.

 

 

Filed Under: Bad Examples, Economics, Making Smart Choices Tagged With: , ,
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