The many flavors of negative-interest-rate loans

A negative-interest-rate loan is one which, over the course of the loan, requires the borrower to repay less than they originally borrowed. Such loans have received a lot of attention in the business press lately since countries like Germany and Switzerland began issuing bonds with negative yields.

But negative-interest-rate loans aren't just for industrial and financial superpowers anymore! Here are three flavors of negative-interest-rate loans available to the enterprising travel hacker (and one bonus flavor), sorted by the duration of the loan, and suggestions for how to maximize their value.

25-55 days: manufactured spend

Most people think of the profit from manufactured spending as coming from the rewards earned on their spend, and that's true if you liquidate your spend directly back into the cards used to manufacture it.

But when you manufacture spend on a rewards-earning credit card, you're also borrowing money that can be used for other purposes. If you manufacture and liquidate spend on the day your credit card statement closes, you may be able to use the funds for up to 55 days, depending on how long your statement cycle is and how many days your bank gives you to pay.

Possible uses: Besides short-term liquidity, you can get even more value from these short-term negative-interest-rate loans by funding bank accounts that require large deposits in order to trigger signup bonuses. For example, Citi is currently offering a $400 signup bonus for opening a checking account with $15,000 in new money, which has to be kept with Citi for 30 days. $15,000 manufactured on a 2% cash back card and 1% "all-in" cost will net $150 in credit card rewards and $400 from Citi. Since the money was borrowed, that's the equivalent of a negative 44% APR loan.

6-12 months: interest rate arbitrage

If you're anything like me, you're constantly getting balance transfer and cash advance checks in the mail from your credit card companies. For the last year it felt like I was getting two or three offers from Discover every week! The offers can take many forms, but usually include a promotional interest rate on the amount you write the check for, while charging a balance transfer or cash advance fee in the range of 2-5%.

These offers are very bad for short-term liquidity because those fees act as an up-front interest charge which can't be avoided by paying off the balance early, as is the case with manufactured spend.

Possible uses: for medium-term needs, these offers can give you the opportunity to swap out higher-interest-rate debt for lower-rate debt, while generating valuable liquidity. For example, if you have 12 months remaining on a car loan at 5% APR, and are sent a 12-month 0% APR cash advance offer with a 3% cash advance fee, you will not just save money on the total interest you'll pay, but also have the option to swap equal-installment car loan payments for 11 minimum credit card payments and a "balloon" credit card balance pay-off in the 12th month. That added liquidity can be plowed back into manufactured spend, reselling, or any other high-value investment you have available.

12-21 months: savings and investment

There are a range of cards available that offer 0% APR on purchases and/or balance transfers. When those cards are also rewards-earning credit cards, these act as longer-term negative-interest-rate loans. For example, a new application for a Chase Freedom Unlimited will earn 1.5 Ultimate Rewards points per dollar spent and charge no interest on purchases for 15 months. $10,000 manufactured with that card will earn 15,000 Ultimate Rewards points. If you redeem 10,000 points to cover your manufactured spend costs, the 5,000 remaining points are the negative interest on your 15-month loan.

Possible uses: Depositing the same $10,000 in a 4.59% APY checking account will produce another $459 or so per year, driving the APR on your borrowed funds even further below 0%.

This technique may also be useful if you don't have the funds to maximize your annual contribution to an IRA or other tax-advantaged savings vehicle: using negative interest rate loans to cover your expenses while deducting retirement contributions from earned income can generate valuable savings on federal and state income taxes.

Up to 20 years: federal student loans

Whether or not you think college students should have to borrow to pay for higher education, for many students there is in fact a stark choice between borrowing or not attending college at all. The good news is that as long as long as students borrow exclusively from the federal government's Direct Loan program, they're eligible for the income-based repayment plan, or IBR. Under an IBR plan, any principal and interest balances that aren't repaid after 20 years are forgiven.

This too meets our definition of a negative-interest-rate loan: for borrowers whose repayments after 20 years don't add up to the amount they borrowed, the difference between the amount repaid and amount borrowed will constitute the negative interest they earned during the repayment period.

Possible uses: I don't know if there are actually any ways to leverage these negative-interest-rate loans, so just consider this an advertisement for the income-based repayment program and Federal Direct Loans.

On the other hand, no one should ever take out private student loans, which can be almost impossible to discharge in bankruptcy and offer few or none of the alternative repayment options the federal government makes available.

Conclusion

For now, we live in a low-interest-rate, low-yield world. Juicing your investment returns and reducing your interest payments with negative-interest-rate loans is one way to squeeze higher yield from a market that has run out of low-hanging fruit.

What's the return on a diversified portfolio of hip alternative investments?

There's a healthy overlap between people with an outside-the-box attitude towards funding travel and those interested in alternative approaches to savings and investment:

• Kiva has long been a (controversial) tool used by travel hackers and outside-the-box thinkers to earn miles, points, and cash back by making short-term loans funded with rewards-earning credit cards.
• More recently, Greg the Frequent Miler has been doing yeoman's work (followup here) reporting out the similar, albeit much riskier, possibility of funding Kickfurther (my personal referral link) "Consignment Opportunities" with credit cards to earn both credit card rewards and investment returns.
• At some point I must have signed up for a Fundrise account, and they've been badgering me to invest in their "Income" and "Growth" eREIT's for weeks now.
• Finally, if you listen to any popular ad-supported podcasts you've likely heard about Wunder Capital and their solar power investment funds.

Now, the last thing you want to do is put all your speculative eggs in one basket, so I got to wondering, what kind of return might you get from an equally weighted portfolio of all these investments?

Annualizing "target" returns

The first thing to take into account is that the investment horizon for each of these vehicles is different, so we need to adjust the various returns appropriately. I'll use $1,000 investments in each example for ease of comparison.

• Kiva loans funded with a 5% cash back credit card might earn more or less than 5% because of the varying term of Kiva loans. A recent search for short-term, high-quality Kiva loans returned 15 loans, all of which had a duration of 8 months. Assuming you wait to reinvest your Kiva repayments until all your loans have been repaid, and you suffer no defaults or delinquencies, you could invest $1,000 1.5 times per year, for a total annualized return of 7.5%.
• Kickfurther consignment opportunities funded with a 2% cash back credit card will yield 2% cash back, plus your total Kickfurther principal and interest payments, minus 1.5% of your Kickfurther principal and interest payments. In other words, a 12-month consignment opportunity offering a 16% return on a $1,000 investment will pay $20 in cash back plus 98.5% of $1,160 ($1,142.60), for a total annual return of 16.26%. Assuming the four currently available consignment opportunities are typical in both length and rate of return, we can mechanically compute an average annualized return of 14.65%.
• Fundrise works a little bit differently since you're investing in eREIT's which are designed to be held for the long term and which pay out throughout the life of the investment and then return remaining (potentially appreciated) principal at the end. Under the "accountability" tab for each eREIT, you can see the returns Fundrise seeks from each investment fund. For the Income eREIT they will charge no management fee if the annualized return is less than 15%, and for the Growth eREIT they'll pay a penalty if the annual return is below 20%, so we can use those as the "target" returns for each fund.
• Finally, Wunder Capital is currently offering a "Term Fund" with a target return of 8.5% and an "Income Fund" with a target return of 6%.

Building a diversified hip alternative investment portfolio

If I were interested in building a portfolio of these alternatives, my model would be diversifying across the four platforms somewhat like this: by putting $1,000 in as many suitable Kiva loans as possible, $1,000 across as many Kickfurther consignment opportunities as possible, $1,000 in each of the two Fundrise eREIT's, and $1,000 in each of the Wunder Capital funds.

That would produce a $6,000 investment with a target annualized return of 11.94%.

This would be a very stupid thing to do

There are at least two questions worth asking about such a diversified portfolio of hip alternatives:

• How likely am I to make more money with this portfolio than I would with conventional investments?
• How likely am I to make any money at all, versus losing some or all of my principal?

The first question speaks to the question of whether the higher target return you're seeking will adequately compensate you for the added risk you're taking with these bizarre, untested investment vehicles. After all, Vanguard will sell you a low-cost mutual fund invested in corporate junk bonds any day of the week. Why buy untradable junk from strangers when Jack Bogle will sell you relatively liquid junk?

The second question is whether you'll be compensated at all, or whether an economic downturn, poor management, and/or fraud will wipe out your investment completely with little or no warning.

But, gambling is fun

There's a painful irony to the fact that these alternative investment vehicles have been legalized and are being aggressively promoted at a time of low interest rates and pessimism about future returns in the stock market, because those conditions have retail investors desperately fishing around for investment opportunities with a higher return than their passively managed index funds. Frantically taking bigger and bigger risks makes the problem of low returns worse for all the investors who pick the wrong alternatives to invest in (and there are a lot of wrong alternatives).

On the other hand, for the dwindling number of investors with a secure path to retirement and enough money left over to gamble with, these alternatives seem like they'd be fund to play with. And who knows? You might even make some money.

How to think about the "single best" rewards currency

Last week I joined Joe Cheung for a recording of the Saverocity Observation Deck [edit: now available for listening!] and among the many subjects we touched on was the idea of the "most valuable" loyalty currency. I pointed out that affiliate bloggers are forced by their business model to argue that Starwood Preferred Guest Starpoints are worth at least 2 cents each because Starpoints can only be earned in any volume through the Starwood Preferred Guest American Express cards, which earn 1 Starpoint per dollar spent.

If Starpoints were worth any less than 2 cents each, it would be impossible to promote the card to unsuspecting customers, since there are no-annual-fee cards that offer 2% cash back on all purchases.

A few illustrative examples of this Starpoint value game:

• Bankrate Employee Brian Kelly: 2.5 cents
• Rich Weirdo Ben Schlappig: 2.2 cents
• Thought Leader from Behind Gary Leff: 2.3 cents

If you're curious, Hotel Hustle pegs the median value of Starpoints redeemed for hotel stays at 1.849 cents each.

The fact is, the impulse to identify a "single best" or "most valuable" rewards currency is fundamentally misguided: the most valuable rewards currency may not be the single best rewards currency — and vice versa!

Three "single best" rewards currencies

Knowing everything you know about loyalty programs and travel hacking, what credit card would you sign up for if it you had to pick just one? I think these are three reasonable choices (feel free to suggest others in the comments):

• If you have access to unlimited grocery store or gas station manufactured spend, the US Bank Flexperks Travel Rewards Visa earns "up to" 4% on airfare and up to 3% on hotel stays, and charitable spend earns "up to" 6% and 4.5%.
• If you have access to unlimited unbonused manufactured spend, the Amex EveryDay Preferred offers 1.5 flexible Membership Rewards points per dollar spent everywhere.
• And if you have access to unlimited unbonused manufactured spend, the Starwood Preferred Guest American Express cards earn 1 Starpoint per dollar spent everywhere.

The Flexperks Travel Rewards card has obvious advantages: a high earning rate and the ability to redeem your points on any flight and at any hotel means you're unlikely to experience orphaned points or be unexpectedly forced to pay cash for travel.

The Amex EveryDay Preferred isn't of much use when redeeming for paid flights or hotels, since Membership Rewards points can be redeemed for just one cent each towards those reservations. On the other hand, British Airways Avios transfers (1000 Membership Rewards point for 800 Avios, for an earning rate of 1.2 Avios per dollar spend everywhere) give access to high-value American Airlines and oneworld reservations, and both Delta SkyMiles (Skyteam) and Air Canada Aeroplan (Star Alliance) are Membership Rewards transfer partners at a 1000:1000 transfer ratio. Even transfers to Hilton HHonors would be worthwhile at redemption values above 0.44 cents, after taxes, thanks to the 1000:1500 transfer ratio, since at that rate you'll be better off booking with transferred Hilton points than directly with Membership Rewards points.

The Starwood Preferred Guest American Express cards allow you to earn Starpoints, which can be valuable for hotel stays if you frequently stay in cities with Starwood Preferred Guest properties. They also give you access to American Airlines AAdvantage miles, Air Canada Aeroplan miles, and Delta SkyMiles at a 1:1.25 transfer ratio when you transfer Starpoints in multiples of 20,000. Finally, the SPG Flights award allows you to book paid flights at valuations of between 1 and 1.4 cents per Starpoint.

"Single" is doing all the work in this analysis

At this point the game I'm playing should be clear: no travel hacker should have just one of the three cards described above, because having just one credit card makes travel hacking nearly impossible!

• A Starwood Preferred Guest credit card is great for Starwood stays, but it's a lousy way to pay for flights, leaving you to pay cash for all of your non-award flights and all of your non-Starwood hotel stays.
• An Amex EveryDay Preferred card is great for earning 27,000 Membership Rewards points per calendar year at grocery stores, but it's a lousy way to build up the balances you need to book a whole year's worth of travel with unbonused spend.
• A Flexperks Travel Rewards card is great for booking paid domestic flights, but lousy for booking premium-cabin international flights or expensive hotel stays.

Earn the "best" currency for the job

In the above analysis I completely excluded my favorite travel hacking tool, the Chase Ink Plus. Why? Because it's almost useless without access to other, complementary tools. It's true that it helps you purchase Ultimate Rewards points at 0.59 cents each, and allows you to redeem them for 1.25 cents each, or a 52.4% discount off retail.

But a 2% cash back card, used to manufacture unbonused spend, generates virtually the same discount off retail, and gives you the flexibility to spend your rebate on things besides travel, as well.

Meanwhile, the vaunted transferability of Ultimate Rewards points means you can book Hyatt stays with ease, but under virtually no circumstances are Marriott Rewards or IHG Rewards points worth 1.25 cents each, leaving you to book full-price stays without even earning rewards or triggering hotel promotions. Long-haul premium-cabin United awards may cost less with Ultimate Rewards transfers, but you'll give it all back booking full-price domestic economy awards.

Putting together a travel hacking strategy should be as holistic a process as possible, and trying to decide in advance which rewards currencies is "most valuable" is likely to sabotage that process. Over the course of a year you may need to take into account all sorts of conditions:

• if you're trying to qualify or requalify for Hyatt Diamond status, you might want to book Points + Cash awards, which may require a flexible Ultimate Rewards-earning credit card for the points portion, plus a co-payment with cash or a Hyatt gift card;
• if you have access to grocery store manufactured spend, you may be able to pay for your hotel stays more cheaply with a Hilton HHonors Surpass American Express card than with a Flexperks Travel Rewards card (the Hotel Hustle median value of HHonors points is 0.448 cents each);
• if you book deeply-discounted or weekend leisure travel, you may not be able to qualify for airline elite status without triggering an elite-qualifying dollar waiver using a co-branded credit card.

Conclusion

Never lose sight of the ultimate purpose of travel hacking: to pay as little as possible for the trips you want to take. The "most valuable" currency you earn isn't the "best" currency unless it helps you pay for those trips more cheaply than you could otherwise.

A real travel hacking strategy can be mostly indifferent to the supposedly objective "value" of any given currency. Ultimate Rewards points are "worth" 1.25 cents each when redeemed for paid flights with an Ink Plus or Sapphire Preferred, and 1.5 cents each with a Sapphire Reserve, but can be worth two or three times that when redeemed for Hyatt stays, Southwest flights with a companion pass, or United or Flying Blue award tickets. Delta SkyMiles are "worth" 1 cent each when redeemed for "Pay with Miles" tickets, but far more when deployed strategically for high-value redemptions.

When you are just getting started in the game, it really does make sense to pick one card to focus on — a 2% cash back card! That's not because 2% cash back is the most you can hope to earn in this game, but because until you thoroughly understand the parameters of the game, any "single best" credit card is virtually guaranteed to leave you worse off than that 2% cash back card will.

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This weekend I’m off to my ancestral homeland for a family reunion up in the Rocky Mountains, and I assume I’ll be mostly out of communication until Monday night.

While I’m gone, you have the chance to reflect on the gaping hole left in your blog reading routine by my absence! You see, this site only exists because of the support of readers, just like you, who sign up for a monthly blog subscription.

There are lots of revenue models used by different kinds of websites. Some travel hacking websites are ad-supported, and require a huge number of page views in order to make money. Unfortunately, my peculiar brand of no-nonsense, hard-headed analysis and advice doesn’t attract that number of visitors, so my monthly ad revenue remains humbly in the 2 digits. By the way, thanks to all my readers who whitelist my site in their adblocker, and to those who don’t know that adblockers exist.

Other websites accept money from banks and credit card affiliate networks to promote their products. Long-time readers may remember that I actually briefly tried that model, but when you enter into those kinds of relationships, you turn over editorial control of your content to the people cutting the checks. For obvious reasons, that wasn’t going to work for me, and I was soon cut loose. I never even got paid, not that I’m sore about it.

Because I know I have a core group of dedicated and loyal readers, I finally decided to go a different direction, and allow readers to support the site directly by signing up for a blog subscription. This way, my readers always know exactly who I’m working for (hint: it’s you).

Today, I’m lucky enough to have over 100 monthly subscribers, some of whom have been supporters for over 2 years. I’m incredibly honored to have the lasting support of so many travel hackers for what started as a side project to promote an ebook. The ebook never took off, while the website and blog have become my full-time gig.

Unfortunately, the model is starting to show signs of strain. Earlier this month I moved from an affordable Midwestern city to a gentrifying East Coast metropolis, and my rent went up correspondingly. While the plan was never for this site to make me rich, grinding poverty doesn’t have much appeal to me either.

Fortunately, there’s an easy solution: readers just like you can sign up for a monthly blog subscription. You see, if everybody who appreciates this site thinks somebody else is going to pay for it, then the site won't get paid for at all. If that happens, it means I'll go get a job doing something else: a classic lose-lose situation. On the other hand, if readers just like you individually decide that this site is worth keeping around, together your blog subscriptions will make sure the lights stay on around here.

Additionally, it’s always a good time to sign up for a monthly blog subscription, because the sooner you sign up, the sooner you lock in your price. Since the price of a monthly blog subscription goes up every 6 months (the next increase will be November 1), the longer you wait to subscribe, the more you’ll pay in the long run, or even in the not-so-long run.

Besides the fresh, honest takes on the world of travel hacking that you already enjoy here on the blog, as my small way of expressing thanks for the support of my beloved readers, subscribers also receive my occasional subscribers-only newsletters, access to the entire archive of past newsletters, and invitations to subscribers-only meetups around the country. So far I’ve met up with readers in Chicago and New York City, and additional meetups are always in the works — hopefully coming soon to a city near you!

As always, thanks for reading, and for your support.

—The Free-quent Flyer

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Hacking business travel: the good, the bad, the ugly

Last night I was chatting with a friend who's going to be in town next month for a work conference. Even in my spare time I'm always trying to help people save money, so I quickly checked whether I could offer him a better rate than what he'd paid for the conference hotel. I offered to book the stay for about half of what he had reserved the same room for, and then he asked the fateful question: "will the hotel still give me a receipt?"

Most people travel mostly for business, and business travel is expensive

Loyalty programs have a fundamental genius in their core value proposition: direct your company's travel business to us during the week, when hotels and airlines are engaged in a cutthroat competition, and we'll give you free flights and rooms on the weekends, when we're empty.

Credit cards directed at business travelers have a similar premise: use our product, instead of our competitor's, for your reimbursed business expenses and we'll share our cut of the transaction fees with you.

The travel hacker would ideally like to complete this circle by redeeming loyalty currencies for his reimbursed business expenses, thereby monetizing his points balances precisely when those points are most valuable.

Taxes make hacking business travel difficult

The core problem with hacking business travel is taxes: taxes make business travel cheap.

The marginal federal tax rate on a self-employed person is between 14.13% and 50.93%. That means a self-employed person who pays for travel in cash already gets a huge discount off retail simply by excluding the cost from her self-employment income. A nominal 3 cent-per-point redemption therefore becomes a 2.58 cent-per-point redemption for someone in the lowest tax bracket, and a mere 1.47 cent-per-point redemption for a self-employed person in the highest federal income tax bracket. Accounting for state income taxes would make the situation correspondingly worse.

For employees, the situation is similar. Even if you were able to negotiate with your employer for higher pay in exchange for making your own travel reservations (I'm not even sure this arrangement would be legal), the increase would have to be higher than the retail value of your travel expenses to account for federal and state income taxes.

But we think outside the box around here, so here are three approaches to hacking your business travel: the right way, the wrong way, and the illegal way.

The right way: just ask

If you work at a company where travelers book their own travel and are later reimbursed, then you could simply ask your supervisor or boss whether you could redeem miles and points for your travel and be reimbursed with cash. The human resources and accounting departments would probably have to sign off on the idea, but at a small company those might be the same person, and they might agree.

They also might not, so you have to be willing to risk flat-out rejection (and potential followup questions about your sanity) to go this route.

The wrong way: spoof reservations

Another option I consider moderately unethical would be to in fact book paid reservations, print off your receipts and, if necessary, your credit card statements, then cancel the reservations and rebook the same reservations with points.

Naturally, this would only work if the travel department doesn't require, or doesn't check, that hotel folios and boarding pass ticket numbers match the supporting documentation.

There are two reasons I believe this approach to be at least moderately unethical, even though at face value the outcome is identical to the "proper" method of paying cash and being reimbursed for travel expenses. The first is that I regard any technique that requires you to obscure your activity is inherently suspect. Now, we all may hem and haw and come up with circular explanations for carrying around thousands of dollars in gift cards, but the fact is that money orders are, in fact, perfectly legal to buy and use in the United States — if pressed, no one would feel the need to deliberately conceal their use of gift cards to manufacture spend.

The second reason I'm wary of this technique is the potential consequences for the travel hacker's employer in case of audit. While the travel or bookkeeping department might not bother to compare PNR's, ticket, or reservation numbers, that's precisely the kind of information an audit team might notice, or even look for. If your behavior puts your employer in legal or business jeopardy, I regard that behavior as ethically suspect.

The (il)legal way

While misleading your employer about your travel reservations may be unethical, trying to do the same thing with the IRS is an excruciatingly bad idea. If you're deducting business travel from your Schedule C or other business tax form, you'd better have supporting receipts showing what you actually paid for your travel. Redeeming miles and points, then claiming the cash value of your trips as a deduction, is a recipe for disaster.

On the other hand, it's also true that miles and points are treated as having a cash value in other situations. For example, when you win a stash of miles and points in a sweepstakes, or when they're awarded as a bonus for signing up for a checking account, you're issued a 1099-INT or 1099-MISC for the value of the points.

If you have a large enough business, and travel enough, it may be worth consulting with a tax attorney and getting some formal advice about what values you might assign to the miles and points you redeem for your business travel.

For example, if you could convince a tax attorney to advise you that Hyatt Gold Passport points are worth 1 cent each, then a 15,000-point redemption for a $400 hotel night would yield a $150 deduction, compared to a $400 deduction. Applying the same 14.13% tax rate to both deductions yields $21.20 in tax savings for the point redemption and $56.52 for the cash rate, for a total redemption value of 2.43 cents per Hyatt Gold Passport point (an out of pocket cost of $400 minus $56.52, compared to 15,000 points minus $21.20).

Again, that's an avenue that's only worth pursuing if you have a large enough business that the savings involved comfortably cover any fees you pay to your tax attorneys.

"Common Stocks and Uncommon Profits" is a beautiful, not-very-useful book

This is a review of "Common Stocks and Uncommon Profits" by Philip A. Fisher. You can find all my previous book reviews here. If you're interested in buying a copy, I hope you'll consider using my Amazon Associates referral link.

In my May review of the "Masters in Business" podcast I mentioned that the host asks his guests for book recommendations, and one extremely common recommendation is "Common Stocks and Uncommon Profits," by Philip A. Fisher. In it, the legendary fund manager describes his investment philosophy and, in great depth, his strategy for selecting stocks he believes will dramatically increase in price over a period of many years.

"Common Stocks and Uncommon Profits" is a book about late-1950's America

It is rare to come across a book that is so strongly rooted in a particular time and place. When reading "Pride and Prejudice" you notice some quirks of English law (like perpetual entails) but you basically get the idea that it's a story about a bunch of young people growing up and getting married.

"Common Stocks and Uncommon Profits" is not like that. Here's Fisher writing about labor unions:

"In this day of widespread unionization, those companies that still have no union or a company union probably also have well above average labor and personnel relations. If they did not, the unions would have organized them long ago. The investor can feel rather sure, for example, that Motorola, located in highly unionized Chicago, and Texas Instruments, Inc., in increasingly unionized Dallas, have convinced at least an important part of their work force of the company's genuine desire and ability to threat its employees well. Lack of affiliation with an international union can only be explained by successful personnel policies in instances of this sort."

That is an almost-unrecognizable vision of the American labor movement, but it's listed as one of the most important considerations when deciding whether to invest in a company!

Needless to say, an investor today should not base their decisions on 1958's union environment, which we now know was almost literally the peak of union membership as a percentage of the American workforce.

This is also a book about America as a manufacturing powerhouse. Fisher describes with wonder the almost-miraculous invention of titanium and exciting new uses for aluminum. Even DDT gets a nod as an exciting new insecticide, guaranteed to increase American agricultural production for many years to come (it's now illegal).

Importantly, Fisher is describing a world where the only investment choices for working Americans are actively-managed mutual funds and stock brokers. Because of that, the book can be read in two ways: if you're an active manager of a mutual fund, it's advice on how to do your job. If you're in investor, it's advice on how to select an active fund manager: pick one who agrees with Philip A. Fisher!

"Common Stocks and Uncommon Profits" provides no useful information about picking stocks

If you picked up a book like Michael Covel's "Trend Following," and read it cover to cover, you could start trading stocks using the strategies in that book.

You'd lose a lot of money, perhaps slowly at first, and then all at once, but the book does give you instructions on how to trade according to Covel's theories.

"Common Stocks and Uncommon Profits" isn't really like that. Fisher's strategy requires you to gather information about companies that is not publicly available. I don't mean "insider" information, but simply information that is not knowable without spending a lot of time hunting down employees, customers, vendors, and competitors and communicating with them at length. It's a strategy that could only be followed by a wealthy, well-connected mutual fund manager with a lot of money to invest.

The problem, of course, is that identifying the disciple of Philip A. Fisher (the author died in 2004) who truly and correctly follows his investment principles is impossible in advance. The successful fundamental fund manager will naturally say that he "correctly" applied Fisher's strategy, while his unsuccessful competitors "incorrectly" applied it, and give you all sorts of reasons why. Unfortunately, there's no reason to believe past performance is any indicator of future results.

Fisher has some interesting insights about dividends

Fisher makes two interesting arguments in his discussion of whether dividend-paying stocks are better or worse investments than companies that retain most or all of their profit for further investment.

The first is a straightforward mathematical insight that's frequently glossed over: the dividend yield that should matter to you is the yield on the price you purchased a stock at, not its current price. If a company pays the same 2% of its share price in dividends, but its share price quadruples over 15 years, the lucky owner over that time period will be earning an 8% yield on the price she paid for it, despite the stock never paying a "high" dividend at any point in the entire period.

The second point has to do with transaction costs. The high historical stock market yields you frequently see quoted in investing propaganda require the reinvestment of all dividends paid. If you, quite rightly, plan to reinvest all your dividends, you have three problems: first, until very recently, fixed commissions on stock purchases meant it was as expensive to make small purchases as large ones. If you immediately reinvest dividends, purchase commissions eat up a higher percentage of your capital. If you wait to invest a large amount, you suffer from having more time out of the market, losing some of the benefits of compounding.

The second problem is that it can be cumbersome to reinvest dividends because of the need to buy integer values of stocks.

And third, you also have to find a stock to invest in! It may be your current stocks have already gone up too much in value to be good candidates for further investment, which means you have to find something new to buy. That friction imposes another transaction cost. Retained earnings reinvested in a quality business, on the other hand, eliminate all those transaction costs by (hopefully) increasing further the value of your existing shares.

Basically, Fisher is not a big fan of dividends.

Conclusion: read this book for nostalgia, not for advice

This may sound like I'm being harsh on the author: after all, what period was he supposed to write about if not the period he was living in?

On the contrary, I actually found "Common Stocks and Uncommon Profits" to be a beautifully written description of the world our Baby Boomer leaders grew up in. When Donald Trump says he wants to make America great again, this is the America he has in mind: heavily unionized, highly-paid, a manufacturing powerhouse, with exciting research developments that would only years later prove to be toxic to humans and the environment. Men work in labs and factories, women purchase previously-unheard-of consumer goods, and during periods of economic recession the government runs a deficit of "25 to 30 billion dollars."

It sounds like a lovely place to visit, but I'm not sure I'd like to live there, and I definitely wouldn't recommend investing as if you did live there today!

Is this how UberPOOL is supposed to work?

On our return from Germany last month, we stayed overnight in New York City, flying into JFK on airberlin Saturday evening and out of LaGuardia on Delta the next morning. Traveling between the two airports and midtown Manhattan should be easy on public transportation, but when we boarded an E train Saturday evening in Jamaica, we discovered after 30 seconds of panic and 2 minutes of confusion that E trains were running on F tracks in Manhattan.

Unrelated: is there another city in the world that phrases their maintenance-related inconveniences in this way? On every other system I'm familiar with, if such a rerouting were required, they would announce that "this train is an F train between such-and-such stations." Why do New Yorkers insist on saying that it remains an E train while behaving in every way like an F train? Is it for union-related purposes, so E-train drivers can continue to operate what are obviously F trains?

Rather than try to figure out which E trains were E trains and which E trains were F trains, Sunday afternoon we decided to take a car to LaGuardia instead.

UberPOOL was strange, but cheap

This taxi fare guesser suggests a yellow cab would have cost $26.70, plus tip, for our Sunday trip to the airport, and the Uber app estimates an UberX would cost $32-$41. Then, since I'd never seen the UberPOOL icon in my Uber app before, I decided to check how much that would cost, and was offered a fixed price of $26.27.

This ended up feeling like an even better deal than those numbers suggest because Sunday was also the day of the New York City Pride march, and 5th Avenue was tied up with revelers. So instead the driver took what I guess you would call the scenic route under Central Park to avoid the parade. This longer route would have run up a higher UberX or yellow cab fare, so we benefited from locking in our UberPOOL rate in advance.

That's not the strange part. The strange part is that since the driver ignored the directions Uber was feeding him, he was forced to ignore all the other UberPOOL users trying to hail him. For Uber to add people to a pool they have to be able to predict where a driver will be, and when. But since our driver was never where he was supposed to be, he ignored all the additional UberPOOL requests he was given, and we enjoyed a private ride to the airport.

Conclusion

I will definitely use UberPOOL again, if I'm ever in a city where it's offered as an option. Their prices seem extremely competitive, and I consider being able to lock in prices in advance regardless of traffic and route to be a big convenience.

Now, I'm perfectly aware that having a fixed up-front price does not save anyone money, on average, and indeed allows Uber to apply "sneak" surge pricing and quiet rate increases. I'm totally fine with that — if the ride's too expensive, I'll take a different form of transportation. You should too.

This is what Uber's promise should be: identify the most annoying practices of the existing cab monopolies, and eliminate them. Then, some people will be willing to pay higher prices to avoid experiencing those inconveniences and some people won't. I consider the constantly-ticking taximeter and attendant fear that a driver is taking you on the long haul and deliberating missing traffic lights to be one such inconvenience, and I'll happily pay a premium to avoid it.

Microhacking: ATM fee refund edition

Even before most travel hackers' American Express prepaid cards were shut down last year, American Express had restricted Bluebird and Serve cash withdrawals to ATM's in the United States. That was a shame since they had previously worked as fee-free ATM cards around the world, and with reasonable exchange rates.

Fortunately, I have a Consumers Credit Union Free Rewards Checking account, which offers as one of its rewards "No ATM fees - CCU will reimburse all ATM and surcharge fees." I'd never actually made an ATM withdrawal with the card (I bank with a local credit union), so I was eager to see how this benefit works.

My experience withdrawing money in Europe

It works really well!

I made three ATM withdrawals during the two weeks we were in Europe, and incurred ATM fees on each withdrawal:

• 30,000 Hungarian forint ($109.40), $0.87 ATM fee;
• 200 Euro ($226.85), $1.81 ATM fee;
• 200 Euro ($225.96), $2.26 ATM fee.

On the first of July, I received an ATM fee credit of $11.19. Since only $4.94 had been charged to my account in separate ATM fees, that leaves $6.25 in ATM fee refunds unaccounted for.

That $6.25 happens to be the sum of the difference between the first two ATM withdrawals in dollars and the next lowest multiple of $5 ($109.40 minus $105, plus $226.85 minus $225).

Now, maybe that's a coincidence ($6.25 is the sum of a lot of numbers, real and imaginary). But it's my current best hypothesis, although it doesn't explain why the odd $0.96 on my final ATM withdrawal wasn't refunded.

Microhacking ATM fee refunds?

If my hypothesis is correct, that means a simple hack is possible: intentionally make ATM withdrawals that are at least $1 more than a multiple of $5, getting the additional amount refunded the following month.

The only ATM's I've ever seen that allow such odd withdrawals are TD Bank ATM's, which allow you to specify the exact composition of a withdrawal, including $1 and $5 bills.

According to this CNN article, Chase and PNC were rolling out ATM's with this function back in 2013, but some light Googling didn't turn up any more recent information than that.

Have you tried this? Does it work? And do you have a better explanation for my mysterious $6.25 ATM fee refund?

When do you contact the hotel, or, living gratefully

The feeling I most associate with travel hacking is "gratitude." That's because before I discovered the world of miles and points, or at least before I knew just how big and beautiful that world is, I still traveled all the time.

Back then I traveled "on the cheap," the same way many people travel today: booking flights based on the price of a ticket, regardless of the number or inconvenience of the connections, and booking noisy, inconvenient hostels. That wasn't all bad — I once stayed in a trailer park reconfigured as a hostel on the far, far, far outskirts of Amsterdam and had a great time biking around the Dutch countryside. But it also wasn't great (the steel trailer got up to 100 or so degrees in the sun).

Altogether, that means I'm sometimes confused about what conditions rise to the level of a "complaint."

Club Carlson properties are confusing

Last month we stayed in two Club Carlson properties, the Radisson Blu Beke Hotel in Budapest and Radisson Blu Carlton Hotel in Bratislava, and both properties had an ice situation that was confusing (remember, I'm easily confused).

The Radisson Blu Beke Hotel had an ice machine on our floor that appeared to me to be a Soviet relic. After I tweeted about the thing, someone apparently managed to get it working and it was full of ice the next day. Although in all honesty, I'm fairly sure they just filled it with ice from the restaurant to get me to shut up.

The beautiful old Radisson Blu Carlton Hotel in Bratislava upped the weirdness ante: every single floor of the hotel had an ice machine in a specially designed cabinet across from the elevators, and every single ice machine was unplugged, apparently permanently. I called the front desk for an explanation and the young lady working was happy to send up a bucket of ice from the bar. So that was terrific service, on the one hand, but on the other hand what were the ice machines doing there on every floor?

Hyatt Diamond food and beverage amenities are confusing

One of my favorite things I learned last month was the neologism "regranding." It's when, well, it's when this happens.

But that's neither here nor there. What I find confusing is when a Hyatt property has already installed some fruit basket or something in your room, then asks whether you'd like the Diamond points amenity or the food and beverage amenity. As a rule, I always take the food and beverage amenity.

At both the Park Hyatt Vienna and Grand Hyatt Berlin, the property then sent up a bottle of wine, which was much appreciated after a day of travel.

But under those circumstances, does the already-existing bowl of fruit in the room count as the food amenity? If I selected the points, would someone come up and take the fruit away? At the Grand Hyatt Berlin I simply told the agent at checkout that we'd never received a food amenity and he gave me the 1,000 Gold Passport points instead. Was I wrong?

What kind of feedback do hotels appreciate?

The waiters at the Park Hyatt Vienna breakfast buffet are absolutely incompetent (with one marvelous exception). The first day, we got a cup of coffee from our waiter and never saw him again. The second day, I managed to place an order with my waiter from the à la carte menu, and never saw him again. Only on our third morning in Vienna was I able to actually receive eggs Benedict cooked to order from the à la carte menu, once I shanghaied the only competent waitress in the entire restaurant (if you're staying there, e-mail me and I'll let you know which one she is).

Why I started this post by mentioning "gratitude" is that none of these things bother me at all. I tweet about stuff because it amuses me, or because I think my readers will find it amusing, but the fact that I'm able to stay in a hotel with a spa (even if the guy who does massages no longer works there) is a radical improvement over the kind of travel I did before I learned about the game.

But the response on Twitter from the brands themselves is invariably, "did you contact the hotel?" And that's a question I never have a good answer to. The Radisson Blu Carlton Hotel presumably knows that its ice machines don't work, but does the Park Hyatt Vienna know that its service staff is incompetent?

What helps improve the experience of guests, and what is just another box the property has to check when the chain's social media team tells them a guest is complaining?

Conclusion

I never "contact the hotel" unless my comfort is directly impacted in some way, like the time we had to get a maintenance man to fix the lights in our very strange room at the very weird Grand Hyatt New York. So I'm just throwing this out there: when do you "contact the hotel," and when do you just enjoy the ride?

The travel hacking index card

I popped by the library this week to pick up "The Index Card," the famously slender volume of personal finance advice by personal finance columnist Helaine Olen (author of "Pound Foolish," a previous entry in my pretty good book review series) and University of Chicago professor Harold Pollack.

It's a pretty good book about personal finance, although not spectacular. The authors' "model portfolio" is invested in small-cap and international index funds for reasons that are not made clear, presumably in order to keep the book as simple as possible. But people who don't understand why they're doing the right thing are just as vulnerable to persuasion from hucksters are people who are doing the wrong thing. So while their model portfolio isn't terrible, it also doesn't have a straightforward evidence-based argument presented for it.

Reading "The Index Card" got me to thinking about what would go on a travel hacking index card. There's plenty of information about individual rewards programs and "sweet spots," which makes it easy to get bogged down in specifics — and difficult to tell the difference between real values and credit card sales pitches.

So what kinds of simple rules can keep a travel hacker from making expensive mistakes while developing a travel hacking practice that helps them achieve their financial and travel goals?

Here's what I came up with, with a few words about each.

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1. Start slow

When you're just getting started, there's absolutely no reason to sign up for more than a single new credit card as you get a feel for how credit card rewards programs and travel loyalty programs really work.

This rule also applies to experienced travel hackers testing out new techniques. I'm happy to take a loss by putting $5 on a prepaid debit card with a $5 activation fee, so I can find out whether it's PIN-enabled before I start filling up shopping carts with them.

2. Keep good records, but don't get hung up on a single system

When you're dealing with thousands of dollars in financial products or merchandise, you obviously want to keep good records. But the system you develop when you are just getting started might not serve you well as you scale up or down. A reseller handling $50,000 in merchandise per month has different record-keeping needs than one who just jumps on the biggest deals. When a system starts to get clunky, take a step back and think about how you can improve or simplify it.

Likewise, an envelop in the glove compartment may work great when you're handling a few thousand dollars in money orders, but may start to become unwieldy when you're handling a hundred thousand dollars.

3. Build relationships

The overwhelming majority of travel hackers love this game and love helping people think about the myriad problems we encounter on a daily basis. The rest are ornery bastards, but you'll learn to identify them pretty quickly.

I'm always reminded of the couple that spent a million Starpoints on a paid American Airlines flight using SPG Flights, instead of transferring a small fraction of that number to AAdvantage and booking award tickets. If they'd known to ask anyone in the travel hacking community, they'd have half a million Starpoints left in their account! Don't be them.

4. Every deal dies eventually

I like to joke on Twitter about bloggers killing deals, but the simple fact is, most bloggers of any merit are fairly circumspect about deals they believe are fragile, and most credit card affiliate bloggers either don't know or don't care about real travel hacking deals, since there's no money in it for them.

Bloggers don't kill deals; time kills deals. So when your favorite deal dies, take a moment to mourn, but don't lash out at the blogger you're certain is responsible for its passing.

5. Treat employees calmly and with respect

Let's stipulate that you're always right. You know a store's point-of-sale system better than any of the cashiers there. You know a chain's purchase limits by heart. You have a Christmas card from the CEO clearing you to purchase an unlimited number of cash equivalents using the payment method of your choice.

If you cannot explain yourself briefly, calmly and with respect for the employee you're dealing with, you will fail, you will be remembered, and you will draw attention to techniques that will become harder to implement. Service employees don't work for you: they work for their supervisors, managers and, ultimately, for faceless corporations that they know are completely indifferent to their well-being.

Customer service employees have more to lose than you do.

6. Spend cash last

Once you've dug deep into the travel hacking weeds, you're going to have some unavoidable expenses (or investments, if you prefer): annual fees on your most valuable credit cards, activation fees and liquidation costs, losses on reselling mistakes, postage on 94 envelopes, and so on.

The last thing you want to do is unnecessarily add to those expenses by paying cash for your travel while you hold out for some "ideal" points redemption! You've already paid for the points — now use them. Save your cash for expenses that can only be paid for with cash.

7. Be realistic about your travel goals

In other words, earn the points you redeem and redeem the points you earn. I'm not saying you should think small: if you want to go to the Maldives, travel hacking makes that possible, if not exactly easy. But don't build a travel hacking strategy around something amorphous like "this blogger made the Maldives sound nice."

If you have an ambitious goal, then pick a date (or range of dates, since award availability can be tough), pick a strategy (Hilton or Hyatt?), earn the points you need, then stop. Enjoy your vacation.

If you have less-ambitious goals, then focus on earning the miles and points you find yourself redeeming most often. Consider using fixed-value points currencies like US Bank Flexpoints. Earn points you're likely to be able to use across a range of destinations, like Hilton HHonors.

8. Don't structure transactions

It's against the law, and if you do it the government will ruin your life.

Conclusion

The travel hacking index card isn't a travel hacking strategy: it's a strategy for developing a practice that will achieve your travel and financial goals with mistakes as few and cheap as possible along the way.

So what did I miss — what would my readers add to a travel hacking index card?