• On averages: “What’s the average number of feet? No, not two. The answer is slightly less. Think about it.”
• On percentages: “A 100% increase from one in a million becomes two in a million. So what?”
• On causation: “As more economists are recruited to the Treasury, inflation rises (economists cause inflation?)”

Enjoy!

• Lesson One: Our survey says
• Lesson Two: Myth of counting
• Lesson Three: Percentages
• Lesson Four: Averages
• Lesson Five: Causation (The website shows it as being lesson four, a bit embarrasing to get it wrong considering the articles are about numbers)

Downbranding can save you lots of money! I first started really considering it while reading “The Undercover Economist” by Tim Harford. The author of that book pointed out, that selling more or less the same thing, but in different packaging and at different prices is the way any supplier gets as much money out of their customers as it possibly can. He also pointed out, that almost all products exist in at least two versions. One example he makes is his own book (and obviously almost any other book available). It is first released as a hardback, and then later as a paperback. The only difference is the packaging and the price. The content is the same.

Nowadays most supermarkets have products from the known brands as well as selling own-branded products. Tesco, the leading supermarket chain here in the UK usually has three different “versions” of their products, the well-known brand (Kellogg’s or Nestle for example), the “Tesco” brand and the “Tesco Value” brand. The latter brand is usually packaged in really ugly packaging, but is also very in-expensive.

Other examples I can think of are cars. The Volkswagen group manufactures the Audi A3, the VW Golf and the Skoda Octavia. I’m not an expert on cars, but my understanding is that the basic technology of the cars is the same, but the price certainly isn’t. I know, there ARE differences between the three mentioned cars (the design is different, the interior is different, the engine tuning and suspension are probably different), and there are differences between the well-known brand, the own-brand and the value brand. And some times the more exclusive brand is worth the additional money. I have for several years bought shirts from a well known and semi-exclusive company; occasionally I have bought shirts from other companies, but let me tell you, the more expensive shirts are simply impossible to wear out. They are definitely worth the additional money they cost. The little logo doesn’t look bad either, but it is primarily for their quality I buy them. I’m quite happy to admit, that I occasionally buy a particular brand for the life-style implication it delivers, and that gives me a value that isn’t downright measurable in product quality, but in how I feel about myself, and that is ok too. Occasionally, for example, I prefer to have the hardback version of a book, it looks much better in the bookshelf than the paperback version. I would definitely go for the organic deluxe chicken instead of the value chicken if I had to choose between those two options. But I don’t really care if the sparkling water in my squash came from the value brand bottle rather than from some other more expensive brand.

What my family and I have done, is experiment a bit more with the different products especially with regards to groceries. In some cases we have always bought a particular brand for no other reason than that is what we always did. Now we occasionally question ourselves: Why are we buying that particular product? On several occasions we have bought the value brand on a trial basis instead. On some occasions we found that it was good enough, on some occasions it wasn’t, but the own-branded (but not value-branded) version was. And on some very few occasions, the well-known brand has ended up back on our shopping list. But our monthly shopping expenditure has decreased measurably as we have downbranded.

Here are some product examples from Tesco.com today, showing a branded product, an own-brand and a value-brand substitution with the percentage saving you get over the branded product:

As can be seen from these randomly chosen product examples, buying the value brand saves anything between 57% - 90%. If you enjoy seeing the branded products in your cupboard, this is not for you. If on the other hand you are a bit like me, you will enjoy looking at that ugly value brand package and thinking about the money you saved!

I have only been in the UK for 1½ years (this time around) so the various price comparison websites where new to me. I wanted to be certain I really was getting the best deal around (with a family of 6 and lots of gadgets around the house, our gas and electricity usage is quite high). So I entered our address and usage details on several comparison websites at the same time. I needn’t have bothered as they all came up with the exact same results. When I was recently involved in an IT project at an insurance comparison website, I discovered that this one company had several differently named comparison websites, each looking different from the others. I don’t have the exact numbers, but there are way fewer companies involved in this business than the comparison websites out there seem to suggest. So it is almost definitely don’t bother trying to find the comparison website that finds the absolutely cheapest deal, just use the one that appeals the most to you because of the colour scheme, the logo or whatever takes your fancy.

I personally prefer Moneysupermarket.com as I find it slightly easier to use than others. I would also recommend that you visit whichever one you fancy using regularly. When I once used one of the comparison websites it showed a particular product as being cheaper than the one I was on even though both where from the same gas and electricity supplier. I went online at my supplier and tried switching plans there, but couldn’t find the product that had come up at the comparison website. I called customer support who told me that it wasn’t available for another week, but they would switch me over automatically. Excellent I thought, so 6 months later when the comparison website showed a new product from my supplier even cheaper again I thought I would be switched over automatically again. Silly me, why would the supplier do something as simple as that just to keep me happy? So a couple of months later I called customer support and asked why I had not been switched over this time when they had done it the previous time? Well, I’ve learnt my lesson, and I now check at least once a quarter whether I am on the cheapest plan.

I have also tried switching from one supplier to another, and it really is completely painless. It does however take some time, so if you find that you are on an uncompetitive plan compared to other plans; make the switch as quickly as you can. Having not been in the UK for longer than I have, I can’t say for certain what I have saved, but several of the comparison websites claim that you can save up to £ 325, but apparently an average of £140 is more likely. That is not bad for maybe 1 hours work, and remember thats after you have paid taxes on it!

Below is a list of some of the comparison websites, and yes, I get some money if you use one of them to switch plans with, but even then it is still a good idea to use them.

My own investment objective has always been long term and I have so far been good at picking stocks and other investment product that long term have been good. When I say long term, then I mean that there has been time during my ownership where had I stopped my investment I would have lost a fair bit of money.

Back to my experience this week, what happened was that my customers got blinded by other factors and forgot their main reason they came to see me. This blindness will be the reason for making irrational decision. I myself was about to make a similar decision a few weeks ago, when I was about to sell some shares of mine due to underperformance, I got blinded by the short-term performance and forgot the reason I bought them in the first place.

This leads me to the next thing. To have objectives we need to have done some homework/research, without this we will be thrown around at the mercy of others, and just because someone thinks something is a good idea, doesn’t mean it is a good idea for you.

To finish this of it is good to have financial objective for the short, medium and long term. If we have this then we know what to do if a stock does not perform as planned.

With DCA, you regularly invest for a fixed amount of money. If the price of a share goes up, your fixed amount buys fewer shares; if the price goes down your fixed amount buys more shares. If you have a lump sum to invest, DCA says it is better to invest it by buying shares with it at regular intervals for a fixed amount of money rather than investing it in one go.

When my company takes a percentage of my pay and invests in a pension I am dollar-cost-averaging, but it can’t be any other way. The same is true when I take part in the company Employee Stock Purchase Plan (ESPP).

My short research (using Google) showed that a fair amount of academic research has shown DCA to, at best, to fare no better than lump sum investing, and at worst to be a myth.

So my own approach now is: When it can’t be any other way (pension plan, ESPP, DRIP) I am effectively dollar-cost-averaging, but that does not mean I following the DCA system. If I have a lump sum available, I generally invest the lump sum.

The next part of this post may make this look like a link-farm, but rather than take my word for it, I suggest you look at the following links. I must admit that I’ve got an overweight of anti-DCA links, I’m sure you can find some more pro-DCA links if you want to see more of that side of the story.

First, a more or less neutral link:

• Dollar cost averaging (Wikipedia)

Links describing and extolling the virtues of Dollar-Cost-Averaging:

• Dollar Cost Averaging: A Technique that Drastically Reduces Market Risk
• Dollar-Cost Averaging (DCA) (from Investopedia. Investopedia is a Forbes media company; I’m surprised it doesn’t have a short for and against discussion of the subject)
• Dollar Cost Averaging: Slow and steady wins the race (from Motley Fool)

Against:

• Mathematical Illusion: Why Dollar-Cost Averaging Does Not Work (academic discussion, but stiil readable, I recommend it)
• Does Dollar Cost Averaging Work?
• Dollar-cost averaging’s not all it’s cracked up to be (USAToday)
• The costly myth of dollar-cost averaging (MSN Money)
• Dollar Cost Averaging Will Not Protect You

Some blog posts reactions on Dollar-Cost-Averaging, mostly against:

• Dollar Cost Averaging: A Poor Way To Reduce Risk?
• Dollar cost averaging and assumptions
• Does Dollar Cost Averaging Work?

I must admit, I was one of those who thought that buying Google shares around their IPO time was not a sensible thing to do, and as the share price then continued going up, I kept thinking that it was too late to jump on. Back in January 2007, Robert X. Cringely wrote an article “When Being a Verb is Not Enough: Google wants to be YOUR Internet“, and it convinced me that it was not too late to jump on the Google stocks.

In the article he talks about the fact that Google at the time “…controls more network fiber than any other organization.”. They were in the process of building a massive data center not far from where Mr. Cringely lives, and they had been building other large data centers elsewhere in the US, particularly where the data centers could be located next to power plants.

He further makes some guesses at why Google needs so many big data centers around the US. It is probably worth also linking to another Robert X. Cringely article from November 2005, “Google-Mart: Sam Walton Taught Google More About How to Dominate the Internet Than Microsoft Ever Did“, where he tells about the Google data-center-in-a-shipping-container “that can be dropped-off overnight by a tractor-trailer rig”.

Jumping back to the “When being a verb is not enough” article from this year, Cringely says that “Google intends to take over most of the functions of existing fixed networks in our lives, notably telephone and cable television” and “Google will become our phone company, our cable company, our stereo system and our digital video recorder.”

He goes on to say that Google will end up

…assum[ing] most of the market capitalization of all the service providers … about $1 trillion in all — which places today’s $500 Google share price about eight times too low.

It’s a grand plan, but can Google pull it off? Yes they can.”

Even if it doesn’t quite happen that way, I realised, that with the entire infrastructure (servers and network fiber) Google has, they really have the capacity to support almost any internet-based task. Even if a start-up invents a better mouse trap, they would most likely find it difficult if not impossible to roll out necessary infrastructure before Google either buys them or develops a similar mouse trap in-house.

In July 2007, Google released second quarter 2007 financial results that disappointed the market, and the share price dropped. Shortly afterwards I bought Google shares at $520, and I intend to hold them for the long term.

Go to my Covestor profile if you want to see my returns on Google shares so far.