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Chris DeMuth Jr.
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"It's not given to human beings to have such talent that they can just know everything about everything all the time. But it is given to human beings who work hard at it - who look and sift the world for a misplaced bet - that they can occasionally find one." - Charlie Munger I look... More
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  • Free Books For Life 25 comments
    Dec 17, 2012 11:57 AM

    I love reading but I don't love paying for books. Over time the cost adds up. However, in the course of an unrelated project, I found a way to have free books for life (also free clothes, air fare, and IRA contributions up to the legal contribution limit). This has required zero capital, zero risk, and incurs zero taxes. It robotically follows policies set out by each of the counterparties. I am writing about my discovery so that you can replicate it or find others like it. I welcome any feedback about your own experiences. I've enjoyed looking for and finding such lucrative and interesting opportunities.

    I have always been fascinated with the mechanics of credit cards and their benefits, especially "cash back" or cash substitutes that are good at retailers where I would otherwise be paying with cash. My first efforts at this endeavor was to accept and use credit cards that offered 0% APR for 1-year. I accepted all of these cards that I could in order to purchase I-bonds from the US Treasury. At the end of each year, I sold the bonds, paid the penalty of 3-months of interest, and kept the other 9-months of interest. I used the principal to pay off the credit cards. And then I did it again. And again.

    After hitting the maximum allowable purchases of I-bonds, I turned to purchasing coins from the US Mint. From time to time, there are gold coins worth buying as well as $1 rolls sold at face value, which are convenient for the kids' allowances and for petty cash. I bought "Forever" stamps from the post office at face. I got credit cards from my favorite clothes store, favorite airlines, and favorite online bookstore. I also got cards with cash back that could directly fund IRAs with up to 2% cash back. I knew that I wanted to get more cash back, but I was running out of anything that I wanted to spend money on.

    This proved to be a solvable problem. I sent out about four hundred letters to financial institutions asking if I could purchase certificates of deposit (CDs) or money market shares using my credit cards. About 70% said "no" or ignored the request. Most of the rest said that I could use credit cards, but that they would treat them as cash advances (an epically stupid way to pay for anything). A half dozen said "sure, why not". I got up to about $250,000 per month across five credit cards in purchases of CDs and money market shares.

    The total monthly gain worked out to about $3,200 per month, net of $1,000 in cash back, $2,000 in cash substitutes in the form of clothing, books, and airline miles, and another $200 from interest on the money market accounts. Each month, I would pay off all of my cards from the accounts that I had purchased with the cards. In fact, after a few months, I simply set up an automatic payment plan. My cards paid for my accounts which paid off my cards. The IRS treats credit card rewards as tax-free "rebates", so I paid taxes on only the $200 that I receive on interest on the money market accounts.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Additional disclosure: Chris DeMuth Jr is a portfolio manager at Rangeley Capital, a partnership that invests with a margin of safety by buying securities at deep discounts to their intrinsic value and unlocking that value through corporate events. In order to maximize total returns for our partners, we reserve the right to make investment decisions regarding any security without further notification except where such notification is required by law.

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Comments (25)
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  • Regarded Solutions
    , contributor
    Comments (16666) | Send Message
     
    you are one slick dude! I have enough trouble using my Fidelity AE card to pay all of my bills, on line, and 2% is deposited back into my cash managment account every month. So, I pay all the bills, get the 2%, and pay off the AE bill automatically.

     

    Now here is another deal: If you live in Florida, Publix supermarket offers a 50.00 gas card for 40 bucks with a grocery purchase of 50 bucks or more. They have a coupon every other week that is good for 3 days. That is a 20% discount on gasoline, and of course we buy our groceries when the coupon comes out...but only in 50.00 increments. I buy about 20 gas cards a month this way, so I spend 800 bucks for 1k in gas. We also use the AE card which cuts another 2% off the price of gas.

     

    Currently I have 3k in gas cards that never expire that I paid 2352 for. I save 22% on the price of gas, just for buying groceries.
    16 Jan 2013, 10:58 PM Reply Like
  • steppppo
    , contributor
    Comments (219) | Send Message
     
    Love it. I just checked at my Publix here in Georgia and we have the same deal. Can't wait to load up on gas. Only downside is that Publix grocery prices are typically a bit higher than Kroger or Wal-mart.
    14 Apr 2013, 07:15 PM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (4339) | Send Message
     
    Author’s reply » Wow. I love it. Terrific deal.
    16 Jan 2013, 11:23 PM Reply Like
  • George Spritzer, CFA
    , contributor
    Comments (838) | Send Message
     
    Is there any place you can buy shares of stock using a credit card? If this were possible, credit card usage would boom. Maybe V or MA can offer such a program :>)
    30 Mar 2013, 11:18 PM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (4339) | Send Message
     
    Author’s reply » Great question. Not that I've found thus far. I've bought CDs linked to the S&P 500 with credit cards; that is as close as I've found. If anyone discovers such an opportunity, please let us know.
    30 Mar 2013, 11:20 PM Reply Like
  • Scooter-Pop
    , contributor
    Comments (2095) | Send Message
     
    At one time you could buy IBonds (Savings Bonds) utilizing Credit Cards, back in the day $30K was the limit, now $3K. Where would we be without our Credit Cards?
    31 Mar 2013, 03:54 AM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (4339) | Send Message
     
    Author’s reply » Yep, that was a great one.
    31 Mar 2013, 07:03 AM Reply Like
  • crb222
    , contributor
    Comment (1) | Send Message
     
    I love your articles, blog and posts. Based on your ideas, after doing my own research, I am long GKK, AUTO and PRXI. Thanks very much for sharing, and please keep it up.

     

    Are you aware of any financial institutions where you can buy CDs or money maker funds today using credit cards? If so, and you are willing to share their names, I would greatly appreciate it.
    8 Apr 2013, 01:15 AM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (4339) | Send Message
     
    Author’s reply » Thanks. As for credit cards for buying cash equivalents, it has changed over time. A decent number accept them for opening accounts and a small, but shrinking handful accept them consistently over time. The key is to double check that they accept them as "purchases" and not "cash advances".
    8 Apr 2013, 06:55 AM Reply Like
  • steppppo
    , contributor
    Comments (219) | Send Message
     
    Hi Chris,

     

    Once you got up to $250,000 across five cards, what was the minimum monthly payment?
    9 Apr 2013, 09:28 AM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (4339) | Send Message
     
    Author’s reply » Once I was up to $250k/month, I paid them off in full and don't recall the minimum monthly payments.
    9 Apr 2013, 06:53 PM Reply Like
  • Omer Altay
    , contributor
    Comments (413) | Send Message
     
    Love reading your clever posts about slick ways to earn some extra cash. Some credit card companies are insane with their promotions. I signed up to a Chase card last year and the sign up bonus was $600 in free amazon gift cards. $600 for signing up. I only had to pay $90 annual fee. Cancelled after the first year, but net'd $510. I shop on amazon anyway too.

     

    I used to purchase the $1 coins for face value too and just deposit them into the bank. The CD thing is genius though.
    10 Apr 2013, 03:22 PM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (4339) | Send Message
     
    Author’s reply » Thanks. Glad you liked it.
    11 Apr 2013, 12:47 PM Reply Like
  • kadison
    , contributor
    Comments (170) | Send Message
     
    I do not get the concept of buying coins at face value. Can you please explain? Thanks.
    14 Apr 2013, 07:28 AM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (4339) | Send Message
     
    Author’s reply » The concept was that credit cards offer rewards in the form of cash or airline miles or gift certificates. These are tax-free benefits that can be gained. However, one typically needs to make purchases. So, I buy coins or stamps or -- best yet -- money market deposits or CDs in order to get the credit card benefits without making more conventional purchases.
    14 Apr 2013, 09:07 AM Reply Like
  • kadison
    , contributor
    Comments (170) | Send Message
     
    OK, I get it now. I know two more ways (limited) how to make these purchases and buy "cash at the face value". 1) funding a brokage account via a credit card, do not use the funds and have them refunded back to your card (the question is, how many times would one be allowed to do that back and forht); 2) funding an online betting account.
    15 Apr 2013, 06:01 AM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (4339) | Send Message
     
    Author’s reply » Great ideas.
    15 Apr 2013, 07:01 AM Reply Like
  • steppppo
    , contributor
    Comments (219) | Send Message
     
    What brokerage lets you do that?
    15 Apr 2013, 09:37 AM Reply Like
  • kadison
    , contributor
    Comments (170) | Send Message
     
    Oanda
    30 Nov 2013, 11:47 AM Reply Like
  • elys
    , contributor
    Comments (27) | Send Message
     
    What is your 'take' on IEP? This MLP just saved my account in a large way.
    Of course, I'm into energy stocks, and waiting, waiting.
    Thanks!
    13 Apr 2013, 09:04 AM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (4339) | Send Message
     
    Author’s reply » IEP is probably fine at the current price. We were large shareholders of CVI before and after Icahn's purchase and we still are CVR owners.
    13 Apr 2013, 09:16 AM Reply Like
  • byslkwd
    , contributor
    Comments (114) | Send Message
     
    Why are the financial institutions willing to give you cash for credit card- don't they have to give the cc company a cut? I thought it was only worth it for them if they are making a sale.
    I have good credit...but 250k a month? I wunder.....
    14 Apr 2013, 01:27 AM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (4339) | Send Message
     
    Author’s reply » Yes, there were a lot of interchange fees that the financial institutions paid. The point of the opportunity is that they accounted for this as a sale. Incidentally, there was a single website developer that had set up each of their websites in this manner. It was designed as a convenience and probably not contemplated that it would be used in this way.

     

    As for accumulating credit for this project, it wasn't too hard or novel; I just stuck to banks where I had depository relationships anyways and they were happy to give a lot of flexibility.
    14 Apr 2013, 07:17 AM Reply Like
  • elys
    , contributor
    Comments (27) | Send Message
     
    I see IEP met a large resistance at $68, and is now at $67 comfortably.
    Thank you for your reply. Will look into CVR today.
    14 Apr 2013, 07:18 AM Reply Like
  • kadison
    , contributor
    Comments (170) | Send Message
     
    Have you kept your IEP? :)
    30 Nov 2013, 11:49 AM Reply Like
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