Are you a good investor? then why are you still paying 2.7% more for gas at the pump?

by admin on January 16, 2012

A good investor is an investor willing to squeeze any percentage from his/her investments, a good investor knows that 0.5% may be not worth that much now, but thanks to the power of compounding interest it can make a huge difference in the long run. Warrent Buffett in his 1962 annual report to partners magnificently explained this with an example: “What if”, Buffett mused in his letter, “Spain had decided not to finance Christopher Colombus? The results would be staggering.”

I have it from unreliable sources that the cost of the voyage Isabella originally underwrote for Columbus was approximately $30,000. This has been considered at least a moderately successful utilization of venture capital.

Without attempting to evaluate the psychic income derived from finding a new hemisphere, it must be pointed out that even had squatter’s rights prevailed, the whole deal was not exactly another IBM. Figured very roughly, the $30,000 invested at 4% compounded annually would have amounted to something like $2,000,000,000,000 (that’s $2 trillion for those of you who are not government statisticians) by 1962.

By 2012, 509 years after the 4th voyage of Colombus to the Americas, Isabella’s $30,000 investment could have compounded into $14 trillion. In other words, Spain would be able to pay the entire US national debt today in cash. (which by the way is at the historic highest level equaling the US gross domestic product output). By these standards Spain would be a world economic powerhouse today.

Letting money compound proactively creates an enormous economic benefit, not only to investor, but also to their benefactors and to society at large.

So if you are good investor and realize how important it is to squeeze some additional percentage from your investments why are you paying 2.7% more when you put gas in your car? If you are not sure what I’m talking about, read on:

You’ve probably never noticed it, or perhaps you’ve never paid enough attention to it, but every time you visit a gas station your investment skills are being tested. If you decide to pay with a credit or debit card you are usually paying 2,7% more than you should, because the cash price is different than the credit/debit card price. Gas stations do this in order to subsidize the interchange fee from credit card companies, in other words they are passing that cost on to you. The average credit/debit card price is 10 ¢ more than the cash price per gallon, so if you take the  price today of $3.69, a 10 ¢ overcharge represents 2.7% more than the actual cost.

I drove around my neighborhood in New York City and found that 3 out of 4 gas stations have this policy in place. I visited Sunoco, Shell, Mobil and BP. Below is a table with the prices from each station.

Company Regular Special Super
Mobil (XOM) $3.69 Cash$3.79 Card $3.93 Cash$4.03 Card $3.99 Cash$4.09 Card
Shell (RDS.A) $3.65 Cash$3.75 Card $3.85 Cash$3.95 Card $3.95 Cash$4.05 Card
BP (BP) $3.65 Cash & Card $3.77 Cash & Card $3.89 Cash & Card
Sunoco (SUN) $3.59 Cash$3.69 Card $3.69 Cash$3.79 Card $3,79 Cash$3.89 Card

 

The first thing I noticed is that all of the stations have in common was the “almost invisible” 9/10 fraction equation that appears next to the price. This means the price you just read above are 1/10 closer to the next cent above than the price listed (see image below) the old “price approximation” technique in full use.

So let’s do some math and figure it out how much a two-car family driving each car 15,000 miles per year could save if they get to avoid these fees (cars assumed to get 20MPG and gas cost assumed to be $3.69/gallon).

This family will require 1,500 gallons of gas per year to run their two cars costing them $5,535 total, but if they pay by card they will be paying $5,685 or 2.6% more, if they avoid these fees the savings for this family will be $150 per year. I know what you are thinking… it doesn’t look like that much, and you may be right, but returning to our Warren Buffett example above, if you are able to put these savings to work for 6 years at 4%, at the end of the 6 year period you will have enough money to buy an iPad for you and best friend (assuming 2012 pricing), or better yet you will have $994 dollars to invest in something else, just by pumping gas the right way, nothing else.

The next time you face the pump remember that you are a good investor, combined that with other savings, you will be surprised at how good investor you can become. Here are some tips to maximize your benefits at the pump:

Look for the right gas station
Although it isn’t common these days, you can find gas stations that don’t charge extra for the use of your credit/debit card. As you can see in the table above, BP has one price for the two kinds of transactions and the price per gallon is even cheaper than Mobil and Shell. So it terms of investment decisions, pumping at the right station makes sense. If you must to use your card, at the very least look for the right station.

Use the right card (if you insist)
If you don’t want to use cash, because a card is faster and more convenient, or just because you just hate cash (some people do), at least pay with the right card. By using the right card you can ease your pain at the pump. With rebate cards affiliated with the gas stations, you can save between 2% to 5%. Among the best gas credit cards according to CardHub are:

  • Shell credit card (RDS.A): 5% rebate on gas purchases made at Shell stations
  • BP credit card (BP): 5% rebate on gas purchases made at BP stations;
  • Exxon Mobil credit card (XOM): 15 cents per gallon rebate on gas purchases made at Exxon Mobil stations (amounts to 3.75% off on a $4 gallon).

Pay Attention To The Time Of Day
Not many people think about the fact that large tanks full of gas are underneath the gas pump. These tanks absorb the heat from the ground, which make a big difference in the physical properties of the gas. When gas is warmed up, it is thinner and lighter. If you fill up in the middle of the day, you’re actually getting less gas than if you pump in the morning or late at night when the weather is cooler.

Pump Slowly
Did you know that gas pumps have three different speeds? Most pumps have slow, medium and fast. Most people insert the pump into the car and then set the handle so that they don’t have to hold the pump. Gas stations want you to do this because you are actually getting less gas this way because slow pumping reduces the vaporization of the gas. Make the extra effort to hold the pump at the first setting (slow), and you’ll get fewer vapors and more gas for your dollar.

Avoid Impulse Purchases
A gas station’s profit margin from selling gasoline is very small. Most have turned to selling goods like tobacco, beer, lottery tickets and convenience foods to enhance their profits. Moreover, these retailers have developed expertise in encouraging store visitors to make impulse purchases with strategic product displays and positioning.

It’s a safe bet that a large portion of consumers who walk into the gas station/convenience store simply to pay for the gas they just pumped walk out having bought something else besides gas. Even where you use cash to avoid the card fee, the savings will quickly be eaten up by making an impulse purchase or two.

Finally, always remember that a better than an average investor is in the details, there is no other career in the world where squeezing that extra 0.1% could be that important, remember that even when you are pumping gas on your car.

All my articles are based on value investing advice. If you enjoyed this post, please consider joining my mailing list below. NO SPAM, NO DATA SHARING. You can also follow me at Covestor where you can replicate my trades and track the performance of my model portfolio against the S&P 500.

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