Categories
Frugal

Cheapest Grocery Store Comparison

I’ve heard from many people that certain grocery stores are much cheaper than other ones. Loblaws in particular is usually named as one of the more expensive ones whereas No Frills is considered one of the cheapest. I’ve always been doubtful that there is a huge difference between stores but since I’ve never compared prices before I didn’t really know. Our average grocery bill for this year is $591 per month so it’s worth seeing if we can save a bit. We shop exclusively at Loblaws because it’s the most convenient store from my house although there is a Price Choppers which is almost as convenient. Food Basics and No Frills are not too far but much less convenient.

Which grocery store is the cheapest?

After reading about various other bloggers reducing their food bill,I decided to carry out some research of my own. I planned to do a price comparison of the four nearby grocery stores using a basket of goods made of up items which our family buys regularly. What I want to see is if there really is a big difference between Loblaws and the other stores and also to see where the best prices are for various items since the cheapest goods probably won’t all be at the same store.

Cheapest grocery store experiment

To perform the experiment I found an old notebook which I could use to write down the data and then set off to the various grocery stores with wife & son in tow. First stop was Price Choppers – since I didn’t have a list of items yet I wandered around and just wrote down items and prices of goods that I know we buy frequently since I figured they should make up a significant part of the food bill. I only wanted to make a sample list, it would be too much work to compare every item we buy over the course of several months. I ended up with a list of 24 items including all the normal staples. Next stop was Loblaws, followed by Food Basics and then No Frills.

You’ll notice in the spreadsheet below that I’ve used a multiplier on all the items to try to estimate how many of that particular item we use in a month. This was done to try to create a proportional basket of goods, based on market capitalization if you will.

Cheapest groceries result

The results were quite interesting. Loblaws was indeed the most expensive but not by a whole lot. Food Basics was 5% cheaper than Loblaws and Price Choppers was 10% cheaper than Loblaws, No Frills was the cheapest at 16% less. Some of the items had huge discrepancies in price while other items were priced similarly at all the stores.

The other basket of goods I created was to add up all the cheapest prices for each item. This basket which would require a lot more effort since it would involve shopping at all four stores, priced in at 20% cheaper than Loblaws which is a significant savings.

Now that we’ve seen the results from this experiment we will definitely make the effort to buy items where they are the cheapest. It’s unlikely that we’ll be able to save the full 20% saving that we could achieve by only buying the cheapest item at all four stores, but I’m hoping that we can save somewhere between 5-10% off our bill without having to go through a lot of extra effort. The spreadsheet with all the data is linked below.

Other ways to save money on groceries are:

  1. Cut down on wastage. This is hard to do but by keeping the fridge clean and looking around in it once in a while you should be able to keep wastage to a minimum.
  2. Buy cheese blocks instead of slices. I love cheese slices but I compared the prices of some recent purchases and it was $1.29 per 100g of block cheese vs $2.09/100g of sliced – 62% more! I think if we can buy a block then slice it up and store in tupperware in the fridge it will still be pretty convenient to use.
  3. Watch the packaging – those squeeze bottles of ketchup, mustard and mayo are apparently more expensive than the regular containers.

If you have any other suggestions for me then I’d love to hear them!

Shopping Experiment Spreadsheet

Categories
Investing

Is The Stock Market Efficient?

Everything I’ve read about the stock markets being efficient makes sense to me. Tons of people spend lots of time, money and energy trying to make money buying and selling stocks. This would naturally lead towards the belief that arbitrage (the chance to make money through a price discrepancy) is impossible, or would only be present for very small amounts.

Efficient market hypothesis

Some people take the perspective that you can rely on this to always buy and sell at a fair price. If a stock drops 25% the day after you bought it, there’s nothing you can do, as its new price is what it’s worth. Tomorrow it could go up or down. Same if the stock went up 25%, there’s no reason to “lock in your gains” as the stock doesn’t know that you own it and it’s pretty well impossible for you to know what will happen next (before the price reflects any news or possibilities).

Financial Jungle wrote a very insightful post called “Must All Trades Be Zero-Sum” where he argues that because investors have different circumstances, how could the market efficiently price all stocks for all of us?

As a simple example, Canadian dividends are given a very generous tax consideration for Canadian citizens. As I write this, the market feels that Bank of Montreal (stock ticker symbol BMO) is worth $21.03 / share. How can it be worth the same price to me, with a juicy tax credit credit, and to an American who is going to get taxed differently on it?

For that matter, how can it be worth the same price to someone in the lowest tax bracket in Canada vs. someone in the highest tax bracket (who would obviously place more value on the credit)?

Beyond this, institutions should have their own set of considerations for what to buy.

Different investment goals should affect the price, but obviously don’t. I’m a buy-and-hold, long-term, dividend-income investor. I’m going to value a stock for different reasons than a day trader would.

I’m certain there is a way to figure out what you value, then determine where the market undervalues this.

Great food for thought Financial Jungle, thanks for your post!

Categories
Book Review

Winning the Loser’s Game – Book Review

Winning the Loser’s Game is written by Charles D. Ellis and is based on a ground breaking 1975 article he wrote for the Financial Analyst’s Journal on passive investing.

This book is similar to Bernstein’s Four Pillars of Investing and Malkiel’s Random Walk Down Wall Street in that the main theme is active investing can’t beat the market so investors are better off using low cost index funds. Ellis doesn’t go into the detail that Bernstein and Malkiel do and he also tends to stick to his main message and doesn’t get into portfolio advice such as asset allocation. I found the book well written and quite entertaining. Although the indexing message has been written about in many other books, he finds interesting ways to explain why indexing is the best investment method.

The title of the book comes from his explanation of how amateur tennis is an analogy for the investment game. According to Ellis, professional tennis is a winner’s game because the ultimate outcome is determined by the action of the winner. Amateur tennis is very different because the outcome if determined by the loser. In amateur tennis, the skill levels are so low that neither player is capable of a “winning” play very often. In fact the the winner of this game gets a higher score because his opponent is losing even more points.

Ellis says that the investment field used to be a winner’s game because prior to the 1970’s, 90% of the trades on the NYSE were by individual investors so the professionals could realistically beat the “amateurs” if they were good enough. By the 1970’s however most of the trades on the NYSE were by institutions so investment professionals were now competing against themselves (other professionals). They couldn’t beat the market anymore because they were the market.

Part of the book is about investment policy which I found quite interesting. Ellis suggests that investors should write down their investment policy and by referring to it periodically it will help determine if the policy is being followed. For example if you want a conservative portfolio and it goes up 30% in one year then your portfolio doesn’t match your policy.

I did get a laugh at his comment on leveraged investing since I just started doing some leveraging myself.

“The saddest chapters in the long history of investing are tales about investors who suffered serious losses they brought on themselves by trying too hard or by succumbing to greed. Leverage is all too often the instrument of self-destruction.”

Categories
Personal Finance

Financial Advice for the Young

While digging through Larry MacDonald’s archives, I came across a post where he talks a bit about young investors. He eloquently articulates what I am trying to do right now to accomplish an early retirement.

His advice is to live WELL below your means (he suggests 40-75% of income) instead of the typical 5-15% for a few years when starting out. You won’t miss the lifestyle (since you’ll keep living the way you were before), and by delaying starting a high-consumption lifestyle, you’ll build a nest-egg that will give you many options down the road.

I’ve basically been living this way since I graduated from university. Instead of rapidly building up a nest-egg, I’ve used the low-cost lifestyle to have periods of travel, school and not working (and not working on my own steam, not by using welfare or social assistance or anything like that – I’ve always stood on my own two feet).

I’m hopeful that I might be able to spend a few years, build up the nest egg, then do whatever I want with the rest of my life.

Its always nice to come across someone who seems thoughtful and intelligent who thinks the same way you do :-).

Categories
Frugal

A New Week In The Life

After a lively discussion broke out in my “About” section where Money Gardener and Four Pillars were shocked at how cheap Mr. Cheap really is, I figured it might be time to update my cost of living calculations.

My monthly fixed costs are the same:
Rent – $440 (half of $880 rent paid by gf on 1 bedroom apt)
Cable – $40
VOIP – $22.45
locker – $12.50
phone+internet – $40.25
transit pass – $99.25
Cleaning – $45
Total: $699.45

I’ve been carrying around a notebook with me and writing down every time I buy something. I enter this into an Excel spreadsheet at night and track my average daily spending (and multiply this out to estimate my variable spending on a monthly basis). I’ve severely tightened up my food spending (I bring my lunches to work now, have started shopping at No Frills, and am taking my girlfriend out for dinner a lot less). I’m spending around $14 / day on food (~$420 / month). Additional spending accounted for about $6 / day ($180 / month).

Added together, my monthly cost of living seems to be around $1300.

These are obviously estimates, not a hard and fast budget. I purchased my ticket to NY before I changed my eating habits, so this level of spending basically assumes no travel (I expect my “daily spending” will shoot up after the NY trip). With a little work I think I *may* be able to get my food spending down a bit (I’m hoping to hit the $60 / week that the “average” single male supposedly spends).

What does welfare pay a single man in Ontario? My girlfriend and I guessed around $800 (we were both wondering how my level of spending would compare to people on social assistance 🙂 )

Categories
Real Estate

Getting Started With Investment Real Estate – Part 8

To start at the beginning – please see part 1 of this series.

As detailed in the previous posts of this series, I bought a condo in late 2006, fixed it up (new floors, new electrical sockets and a heavy paint job) and found tenants. All the gurus and real estate TV shows use funny math to show how “you can’t lose at real estate”, so here I’d like to lay out, as close to the penny as possible, what my investment has looked like over the last 6 months.

In retrospect I wish I’d kept a journal of how much time I spent, as that’s obviously a consideration. I’d give a rough estimate that I’ve put 40-80 hours of work into finding the condo, supervising the contractors, showing it to tenants and doing repairs. This is a VERY rough guess. The hours weren’t in discrete blocks (1.5 hours here, 3 hours there), so don’t consider it work “equivalent to a work week or two”.

I purchased the condo for $126,000. I made a down-payment of $34,160.57 which includes a 25% down-payment, and closing costs, which were $2,308.19 (legal fees mostly). $34,160.57 is more then 25% down plus the legal fees, which I’m not 100% where the extra $352.38 went (maybe mortgage fees, I’m not 100% sure right now – I know I got a small check back from the lawyer, the SOB made me pre-pay his fees, but it was certainly less than $352.38). Renovations (including labour, materials, condo fees during rehab and mortgage interest) were $10,551.41. As percentages, closing costs were 1.66% of the total purchase, and rehab costs were 7.6%. Ignoring the cost of selling (5% agent commission plus legal fees), my break even sale price would have been $138,859.60. Given that comparable units have been ASKING for $155-165K over the last few months (the rule of thumb supposedly is that condos in Toronto sell for 96% of asking), I’m quite pleased with the cost of purchasing/fixing this unit.

In case you’re wondering how I got such a deal, the place looked REALLY bad when I first saw it. There wasn’t any floor (bare concrete), the walls were an electric blue colour, and had gashes in them. The seller took the perspective “why put more money into something I’m trying to sell”. While I understand that perspective, the condo had sat on the market for over 6 months (and he’d moved, so he was losing $500 / month in condo fees), and everyone who looked at it just viewed it as buying a problem they’d have to fix. He had to drop the price far more then repairs would have cost in order to sell it to me, and he shelled out quite a bit of money over the time period when it wasn’t selling. I’m not a “flipper” at all (I’ll probably post more about this in the future, but I basically think its a suckers game where people convince themselves they’re making more then they actually are), but if you can accurately estimate the cost of repairs (not as easy as it sounds unfortunately), there are certainly deals to be had on run-down properties.

I saw another condo recently that was in even WORSE shape, and I put in a low offer, hoping to pick up another “fixer-upper”. The seller kept insisting on wanting market value for the unit (even though it would have cost $15K to get it into “market value” condition), so I obviously walked away from that deal. So the other factor to keep in mind is that not all run down properties are a good deal. You’re a sucker if you pay market price for a property that needs extensive work. You’re a sucker if you pay market rate – cost of repairs for a property that needs work (you’re accepting the risk of repairs being more expensive then expected and doing the supervision of the repair work without compensation).

I tried to rent it at higher amounts, but in the end rented it for $1300 / month. My condo fees, insurance, mortgage INTEREST and property taxes come out to $1,042.87 / month, so I have a positive cash flow of $257.13.

When I calculated JUST the down-payment and reno costs, I came up with a cost of $43,811.68 over the first 6 months. Using the $257.13 monthly profit (which already accounts for the mortgage interest, condo fees and other ongoing expenses), this gives me a ROI of 3.51%, which would work out as an annualized ROI of 7.03%. This assumes I was making the $257.13 since purchase, which I obviously wasn’t, and also assumes there will never be any unexpected costs in the future (which is equally absurd).

This may not seem so great, but firstly this was a learning project for me (so part of the costs/benefit is my “tuition”). Secondly, this ROI is JUST based on the monthly cash flow, if I bought at a bargain price (which I believe that I did), I should also get a satisfactory return on the sale price. Thirdly, if real estate appreciates, this will increase the difference between my purchase price and the sale price. Fourthly, there will be positive tax implications (I can depreciate the property in order to defer taxation). Fifthly, inflation should increase rent, which will increase the monthly cash flow (and decrease the cost of my mortgage). And finally, as my mortgage gets paid down, less of each payment goes to interest (which also increases the monthly cash flow).

In case you read the previous paragraph and are planning to run out and buy all the real estate you can find, the risks in this investment include: future vacancies, difficult tenants (damaging the unit or making demands which will cost lots of time/money), legal liability for any problems resulting from the property, a real estate market crash, and high interest rates when my mortgage comes up for renewal (in 4.5 years).

With my current cost of living estimate, I believe that I could cover my living expenses with 4 more similar properties. If it was possible to get a better deal, or to get a similar deal with less cash invested, I might be able to do it with less. Therefore I am potentially $175,246.72 (4 x $43,811.68) away from retirement.

This concludes the “Getting started with investment real estate series” – feel free to check out the real estate archives for more article on real estate.

Categories
Investing

There’s a fine line between good and evil…

This is the last post in the “Leveraged Investments” series. Check out the previous post entitled “Exit Strategies”.

There’s been a lot of posts on leverage lately in the blogworld so I didn’t think it would hurt to have one more…

Also – I’m in no way advocating anyone use leverage for investments unless they are comfortable with the extra risks.

As Financial Blogger and Tom Bradley pointed out, leverage is an instrument that almost everyone uses when they buy their house. Although most people buy a house to live in, not as an investment, it’s an example of where people are using leverage and they might not even realize it.

If you ask people on the street about how they feel about borrowing to invest they might give you a lot of negative feedback. I suspect this is a holdover from times when margin accounts were the only way to borrow for investing. The problem with margin accounts is that if your investments drop in value enough then you have to come up with cash to pay the difference which is why certain investors were running out of windows in 1929.

My opinion is that leveraged investing can be a useful tool but definitely entails extra risk. However it occurs to me that sometimes the idea of leveraged investments can be a question of semantics.

Consider the following:
Person A gets a $200k mortgage on his house with a 25 year amortization. After five years, his mortgage is $185k and he also has $10k in cash that he has saved. This person decides to invest the $10k into a dividend stock, let’s say…BMO. So now he has a $185k in mortgage and $10k of stock.

Person B also gets a $200k mortgage on his house with a 25 year amortization. After five years, his mortgage is $175k but he has no extra cash to invest because he has been making extra mortgage payments. This person decides to borrow $10k from his secured line of credit and buys $10k of BMO as well and gets the tax rebate on the interest paid.

According to popular wisdom, person A is the epitomy of responsible investing using good old cash to buy his stock. Person B on the other hand has made a deal with the devil and plunged into leveraged investing.

So what’s the difference between the two? The only difference I can see is that Person B can write off his interest on his investments and Person A can’t. Obviously there are interest rate differences but I’m ignoring those since they shouldn’t be too significant.

Moral is – if you don’t make extra payments on debt and use cash to do investments then you would be better off to put that cash into the mortgage and then borrow it out again for those investments and get the tax rebate.

And yes, I realize that this logic was the genesis of the Smith Maneuvre but rest assured that I don’t recommend that particular strategy.

Categories
Opinion

Where Does the Time Go?

Philip Greenspun was one of the founders of ArsDigita Corporation and wrote a very interesting write up about his experience getting rich through the dot-com boom, and some of the dangers of accepting VC funding.

I recently came across some of his thoughts on early retirement and found them quite interesting as this is a subject I spend a fair bit of time thinking about these days. I went through a period of “willing unemployment” (temporary retirement? a prolonged case of laziness?) and some of his insights definitely ring true to my experiences.

My mother always insisted that my brother and I stay busy, so every summer we had to be involved in an activity (or job or whatever). She made it quite clear that lounging around the house playing Atari wasn’t an option. Through childhood, school, university and work I was always busy and developed this idea that if I could free up my 8 hour school/work day then my life would stretch in front of me like an endless vista of time to do and experience everything I might desire.

As Philip discusses in his essay, when you get rid of the work and actually have the time, it disappears in a hurry without a lot to show for it. I always felt guilty when I wasn’t working (and even when I technically was doing something but wasn’t as productive as I felt I should be). It was sometimes disturbing to look back on a couple of months of life lived with nothing to show for it.

The flip side of this, of course, is why do we need to have “something to show for it”?

I always speculated with friends that this was a hold-over from society’s “protestant work ethic” and I just need to become comfortable with the lifestyle I’d created and not let nay-sayers make me feel bad.

Sometimes I wonder if early retirement will feel the same way? Does regular retirement? Most of the people I know who have retired around 65 seem to adapt well to it, but I know not everyone does…