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The Dark Side of Student Loans
Issue #528, June 25, 2018

The Cost of Out-sourcing Convenience
Issue #527, June 18, 2018

Social Security: 66 or 70?
Issue #526, June 11, 2018

Student Loans: There’s (Unfortunately) a Lot More!
Issue #525, June 04, 2018

Co-signing a Note
Issue #524A, May 31, 2018

The Knight Frank Luxury Index and Collectables
Issue #524, May 28, 2018

The Importance of Diversification: The Myth of Diversification
Issue #523, May 21, 2018

How to Save Thousands on Your Food Bill
Issue #522, May 14, 2018

MoviePass and Other Things
Issue #521A, May 10, 2018

Degree Inflation, Long Training Periods, and “Certification”  Part III
Issue #521, May 07, 2018

Degree Inflation, Long Training Periods, and Certification” Part II of III
Issue #520, April 30, 2018

Follow-up on Several Things
Issue #519A, April 25, 2018

Degree Inflation, Long Training Periods, and “Certification”: Part I of II
Issue #519, April 23, 2018

The Kids Birthday Party Hustle
Issue #518A, April 18, 2018

A Pension Question: Part II of II
Issue #518, April 16, 2018

A Physician is an Executive
Issue #517A, April 11, 2018

A Pension Question: Part I of II
Issue #517, April 09, 2018

Is the Correction Over?
Issue #516A, April 05, 2018

Used Car Dealers, Student Loans, the Chinese, and Uncle George’s Rule
Issue #516, April 02, 2018

Starter Homes
Issue #515, March 26, 2018

Redecorating: Beware!
Issue #514, March 19, 2018

NASDAQ Closes at Record High
Issue #513, March 12, 2018

A 40% Chance
Issue #512, March 05, 2018

Several Things
Issue #511, February 27, 2018

Human Capital, Education and Wealth
Issue #510, February 19, 2018

Another Stock Market Update
Issue #509A, February 18, 2018

Some Thoughts on Savings
Issue #509, February 12, 2018

A Stock Market Upfate
Issue #508S, February 10, 2018

Who Can You Trust? Part II of II
Issue #508, February 05, 2018

The Christmas Decoration Pre-worn Jeans Hustle
Issue #Interim Bulletin #507A, February 03, 2018

2018 Outlook for Financial Markets
Issue #507, January 29, 2018

Who Can You Trust? Part I of II
Issue #506, January 22, 2018

Life Insurance Settlements
Issue #505, January 15, 2018

Commodities and Buying the Breakout
Issue #504, January 08, 2018

Buffett Wins His Bet
Issue #503A, January 04, 2018

Practice Real Estate and Free Agency
Issue #503, January 01, 2018

Outlook for 2018: Part III: Stocks and Bonds
Issue #502, December 25, 2017

My Outlook for 2018: Part Ii: Precious Metals
Issue #501A, December 21, 2017

Outlook for 2018: Hard Assets: Part I of III
Issue #501, December 18, 2017

More Thoughts on Bitcoin
Issue #500A, December 14, 2017

Fees and Good Relations with Bankers
Issue #500, December 11, 2017

Salvator Mundi
Issue #499A, December 07, 2017

Should You Rent or Own a Home?
Issue #499, December 04, 2017

A Gift Subscription
Issue #Interim Bulletin #498A, December 02, 2017

Stocks vs Real Estate: Asset Allocation: Part II of II
Issue #498, November 27, 2017

When Good Enough is Fine
Issue #497A, November 22, 2017

Stocks vs Real Estate: Asset Allocation. Part I of II
Issue #497, November 20, 2017

The Saudi Arrests and the Perils of Foreign Investing
Issue #496, November 13, 2017

Gambling and Las Vegas
Issue #495, November 06, 2017

Some Tips on Auto Insurance
Issue #494, October 31, 2017

Bitcoin and the Digital (Crypto) Currencies
Issue #493, October 23, 2017

The Coming Bear Market: Part II How to Prepare
Issue #492, October 16, 2017

Some Observations on Cemeteries
Issue #Interim Bulletin #491A, October 12, 2017

The Coming Bear Market: Part I: The Myth of Buy and Hold Forever
Issue #491, October 09, 2017

The Market makes New Highs
Issue #490, October 02, 2017

The Importance of a New High
Issue #489, September 25, 2017

A Little Insurance: Wealth, War and Wisdom
Issue #488, September 18, 2017

Some Observations
Issue #487, September 11, 2017

How to be Successful in Your Career
Issue #486A, September 07, 2017

How NOT to Buy a Home
Issue #486, September 04, 2017

This Week in the Market
Issue #485, August 28, 2017

Is the “Trump Bump” Running Out of Gas?
Issue #484, August 21, 2017

Gold is on the Move
Issue #483, August 14, 2017

The Importance of Estimation
Issue #482, August 07, 2017

Buying Art and Collecting: Part II of II
Issue #481, July 31, 2017

Buying Art and Collecting in General, Part I of II
Issue #480, July 24, 2017

Physicians need to be More Forceful: Follow-up
Issue #479, July 17, 2017

Physicians need to be More Forceful
Issue #478, July 10, 2017

Your First “Real” Investment
Issue #477, July 03, 2017

Leasing a Watch: Don’t
Issue #476, June 26, 2017

The Importance of Your Children having a Job
Issue #475, June 16, 2017

The Problem with Medical Student Debt is—the Med Schools
Issue #474, June 12, 2017

Critters and Varmints in your Home and Yard
Issue #473A, June 07, 2017

Leveraged ETFs
Issue #472, May 29, 2017

Leasing a Vehicle: Don’t!
Issue #471, May 22, 2017

Issue #470, May 15, 2017

More on Buying Jewelry
Issue #469, May 08, 2017

Buying Jewelry: Gold, Diamonds and Pearls
Issue #468, April 30, 2017

Thomas Sowell: Part III of III
Issue #467, April 24, 2017

Thomas Sowell: Pat II of III
Issue #466, April 17, 2017

Live Close to Where You Work
Issue #465, April 10, 2017

Medtronic in Hospital Management
Issue #Interim Bulletin #464A, April 07, 2017

Thomas Sowell: Part I of II
Issue #464, April 03, 2017

A Political Contribution a an Investment: Part II of II
Issue #463, March 27, 2017

A Political Contribution as an Investment: Part I of II
Issue #462, March 20, 2017

Buffett Selling Vacation Home
Issue #461, March 13, 2017

Advanced Placement (AP) ourses
Issue #460, March 06, 2017

The Importance of a Credit History
Issue #459A, March 02, 2017

A Credit Card Scam
Issue #459, February 27, 2017

The Electronic Health Reord
Issue #458, February 20, 2017

Issue #457, February 13, 2017

Platinum and Palladium
Issue #456, February 06, 2017

Economic Outlook for 2017: Part II of II
Issue #455A, February 02, 2017

Economic Outlook for 2017: Part I of II
Issue #455, January 30, 2017

A Story From Vegas
Issue #454A, January 25, 2017

Land Donation Deals and the IRS
Issue #454, January 23, 2017

The Theory of Gambler’s Ruin
Issue #453, January 16, 2017

Student Loans: But Wait, There’s More!
Issue #452, January 13, 2017

A Second Home
Issue #Interim Bulletin #451A, January 04, 2017

The Consumer Confidence Index
Issue #451, January 02, 2017


By Robert M. Doroghazi, M.D., F.A.C.C.

How NOT to Buy a Home

Issue #486, September 04, 2017

    Before getting to the main topic, I know you all want to help your fellow man suffering so terribly in the Houston area. I suggest:
    1) Do not go down. We’ve had presentations by emergency teams to our Rotary after Katrina and the tornado in Joplin. No matter how well intentioned, people who just show up are in the way.
    2) Don’t give material goods to your local charity. You give a case of pork & beans to the Catholic charities of Chicago. What are they supposed to do with it? Give money.
    3) From personal experience, I have not been happy with the Red Cross.
    4) Unfortunately, catastrophes are fertile ground for scamsters. Only contribute to well-established charities you personally know. Beware esp. of hucksters over social media and the Internet. If you have any questions, call your city, county or state emergency responders. They should have good advice. All else being equal, I recommend giving money to the Salvation Army. 
    Now for the main topic.
    I was in Vegas at a restaurant bar in the Wynn having supper. A young man, about 28-30, who knew all the employees and a few other customers, was sitting next to me telling everyone how he and his wife had just purchased a home. He was lamenting all of the paperwork.
    RMD comment: There is always a lot of paperwork in buying a home, but you’ll see shortly why he was complaining.
    The home was $279,000.
    RMD comment: A modest proposal (see below). The average price of an existing home in the US is $263K, so one might think he’s not living beyond his means, especially in a city like Las Vegas. Considering how everyone knew him, I presumed he worked there, so probably had a reasonable income. I don’t know what his wife did or if they had children.
    They didn’t have enough for a 20% down payment, so Private Mortgage Insurance (PMI) was required.
    RMD comment: In my opinion, if you don’t have a 20% down payment—that you have saved—you can’t afford the home. However, that is the mindset of old fogies like me, who consider themselves “First Generation Depression”. We were taught to abhor debt. The younger generation(s), unfortunately, seems to have a more casual attitude to that financial 4-letter word.
    PMI is a disaster, one of those financially-engineered products created just to generate fees for the financial community. He was paying $240 a month, and will receive nothing for it. There is no accumulation of equity. Also note that PMI doesn’t just drop off when you have 20% equity. You must refinance, with lots of paperwork and fees.
    As of last year, PMI was deductible, but that law has expired, and Congress has yet to re-up. Note also that PMI had income-based phase-outs. So even with the tax break, you got back at most 30-35% of the cost. A 65% loss is not astute investing. With the tax break phased out, this guy gets nothing. 
    The man’s father-in-law, a firefighter who retired 20 years ago and apparently lives off his pension, had to co-sign the note.
    RMD comment: Oh no!! What a disaster. This poor kid has no idea what position he has just put himself in. He is now completely at the mercy, beholden is the perfect word, to his father-in-law. His wife’s family have their hooks in him. After cousin Tony and friend Diane, the list of angels on earth gets very short very fast. Human nature being what it is, the family can put pressure on him whenever they want. Although he and his father-in-law own the house, the vote on all family issues of importance will be 2 to 1.
    And here’s the clincher. 50% of first marriages end in divorce. At that sorry time, he will find out, in spades, his naiveté.
    A modest proposal is an allusion to Jonathan Swift’s 1729 work A Modest Proposal For preventing the Children of Poor People from being a Burthen to Their Parents or Country, and For making them Beneficial to the Publick. From Wikipedia: “Swift suggests that the impoverished Irish might ease their economic troubles by selling their children as food for rich gentlemen and ladies. This satirical hyperbole mocked heartless attitudes towards the poor, as well as British policy toward the Irish in general.
    Last week Otonomy (OTIC) announced that their drug for Meniere’s disease didn’t work. On Wednesday it was down 80%+.
    RMD comment: Avoid investments with a binary outcome, either yes or no, and nothing in between. Ex: you take $100 to the casino and bet it all on one hand of black jack. You win: good. You lose: bad. And that’s it.

    This is from a young man with an MBA (with Honors) in Marketing regarding my comments about product “tweaks” as a way to disguise a price increase or a decrease in the amount of the product.
    “After product release, there is a constant downward pressure on price. PRICE CAN NEVER GO UP!!! (Emphasis in the original). Customers just won’t accept it. The only way to prop up the price is to change the product. People will pay more for something new, or at most the same for a change in an existing product. In addition, competition is always evolving, so, even beyond price, there is a need to keep your product from getting stale or seeming old.
    Sometimes these product “refreshes” may be just cosmetic, but it could also be that the product has legitimately improved, perhaps enough to justify a higher price. If the “old” and “new” versions are both available, the “old” versions can be a tremendous bargain. Ex: cars. The 2016 and 2017 may be very similar, and when the 2017 arrives on the lot, the 2016s go on sale. Likewise, if the 2017 is a big redesign (more reliable, lower service costs, better fuel economy) it may be worth it to go with the 2017. Product refreshes are surprisingly effective. People respond well to obtaining the latest and greatest, even if the changes are just cosmetic”.
    RMD comment: This was one of Alfred P. Sloan’s get insights. Henry Ford was relentless in building cars that were less expensive and more reliable. You could buy the Model T, then Model A, in black, and that was it. Sloan at GM introduced 1) yearly changes (refreshes) in the cars, and 2) multiple lines, Chevy, Buick, Oldsmobile, Cadillac, Pontiac, etc., and advertised every one as being the best in their class. 
    Last week I noted that the average American family can no longer afford the average new home. Wall Street Journal (8/28/17). “Tapping Homes for Cash is Back”. The median home price of an existing home rose to $263.8K in June, the highest on record, up 40% from $187.9K at the start of 2014. As a result, home-equity loans and cash-out mortgage refinancing are back in vogue.
    RMD comment: Don’t use your home as a piggy bank. If you use a home equity loan for a home improvement, I argue you can’t afford the improvement. If you us the money for some extravagance, such as a vacation, you are just stupid. If you use the money for debt consolidation, like credit card debt, you must ask yourself why you have the credit card debt in the first place, because it means the money from a home equity loan is not the answer. The problem is that you spend too much.
    Story of the month.
    The Mayweather-McGregor fight was held August 27 at T-Mobile Arena in Vegas. Mayweather will realize about $300M, and McGregor $100M. I asked casino employees if they saw the fight in person (none), or knew the minimum and maximum ticket prices.
    A waiter said that several weeks before the fight, his son received a call from a friend. His friend’s father has a suite for all the events at the T-Mobile Arena for the year and was going out of town, so let his son have the suite for the fight. He invited the waiter’s boy to be his guest, and of course he accepted.
    Several days before the fight, the kid called the waiter’s son. He was going to have to cancel: someone had offered him $200,000—two hundred thousand dollars!!—for the suite that night. The kid took it.
    RMD comment: 1) this kid’s dad clearly has serious money to be able to afford a yearly suite, but the kid respects money (which he probably learned from his dad). 2) $200K is “life-changing” money, enough to buy a starter home in Columbia, or the down-payment on a nice home just about anywhere. 3) I don’t care how much you have, there is no “experience” worth $200K. If Warren Buffett watched the fight (which I seriously doubt), he probably split the $99 pay-per-view charge with friends. 4) Put into perspective, $200,000 could feed and house 1,000 flood victims in Houston for one week.   

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