A few months ago I wrote this article: My worst investment-ever. The short version is that I invested in a company (Premier Exhibitions: PRXI) which owned the titanic artifacts, figuring that the artifacts were worth much more than the entire company. I could go on, but it’s really better that you just read the article!
I Was Right
So it turns out, the warning signs that I had feared turned out to be really accurate. On June 14th Premiere Exhibitions declared bankruptcy (so the stock symbol is now PRXIQ). Glad I got out when I did, right? In between when I sold them and the present they had done a 10:1 reverse share split. So while, I had sold between $0.50 and $0.22, those numbers would be equivalent to $5, and $2.20.
When the declared bankruptcy the stock was at $0.20, 90% lower than what I had last sold it at. At this point, I had felt pretty good about my decision to sell. After all I had avoided turning a 90% loss into a 99% loss. How great is that?
What Happened Next
I submit the price chart of Premier Exhibitions without comment:
So…yeah. At this point it’s hit $3.86 after hitting an intraday peak north of $4. Why is this happening after Premier declared bankruptcy? Aren’t bankrupt companies supposed to be worthless?
In a bankruptcy everyone gets represented in the order of their claim on the company. The important thing here is that people the company owes money, like suppliers or creditors, get paid before any preferred stock, and the preferred stock gets its liquidation value before the common stock gets anything. Basically in a bankruptcy the company is liquidated in an orderly fashion and whatever is left goes to the common shareholders.
So What’s Going On?
The important issue here is still that Premier Exhibitions owns the Titanic artifacts and salvage rights. A few years ago they had an agreement with a museum to sell the Titanic artifacts for $189 million (about $24 per share). If premier is able to sell the Titanic artifacts for this much they will be able to pay creditors quite easily, and after all debtors are paid the common stock will receive a payment of $156 million or about $20 per share. This seems like a good deal when PRXIQ is trading for $3.86 per share.
It seems really unlikely to me that Premier exhibitions will be able to sell the titanic artifacts for that much. What seems reasonable? Perhaps $50 million? This would leave about $18 million for shareholders or about $2.26 per share. I don’t have any particular reason to believe the $50 million. Frankly valuing these artifacts can kind of feel like throwing darts at a board. Basically your breakeven today is a sale of the titanic assets for $62 million, assuming the rest of the company is worthless (and man do I ever assume that the rest of this company is worthless).
My (Further) Mistakes
So what happened to me here? Well, it appears that I shouldn’t have sold the stock in Premier that I had. While I was right that Premier was likely to go bankrupt I hadn’t considered that the stock could still be valuable even if they were bankrupt. Nothing I bought with the proceeds from my Premier stock managed to double over the period, and I would have been better off had I not sold it. Increasingly, I’m coming to the conclusion that I want to own assets. Why am I trying to sell them? It’s easy to get lured into too much activity if you’re willing to sell the stocks you own, and while I may have just gotten unlucky with the Premier sale, sales in general just seem to be a bad idea.
Putting 10% of my portfolio into Premier was a mistake, my worst mistake. It appears that the opposite of a bad decision at one price can be another bad decision if done at a different price. If I’d have stayed invested in Premier I’d still probably be down 80% or so, but I’d be better off than I am today.
Will I get back into Premier? Well, it depends on the price offered, and it depends if I can confirm that the Titanic artifacts will be sold, and it depends on whether or not I can figure out what price they are likely to be sold at. For now the answer is no.
Disclaimer: I have no positions in any stocks mentioned, and I have no plans to buy or sell any of the mentioned stocks within then next 72 hours. I wrote this article myself, and it expresses my own opinions. This is not a recommendation to buy or sell any stock. I am not receiving compensation for it (other than from the owner of the blog District Media Corp). I have no business relationship with any company whose stock is mentioned in this article. Always do your own research before making any trade, buying or selling any stock mentioned.
Advant-e corporation is a tiny company. There was a time when it was a tiny public company but it is now private and non-reporting. The main attraction for Advant-e tech is that it makes a lot of money compared to it’s market cap. In 2015 it earned $2.6 million, or 45 cents per share. The market cap of the company was $23.5 million and individual shares last traded for $4. The earnings yield of the company is currently 11%. It generally pays out an annual dividend of 20 or 30 cents per share. The dividend typically gets paid sometime in spring or summer and this past year it was $0.20, or about 5% on the last trade.
So What Does Advant-e Do?
Advant-e corporation provides an Electronic Data Interchange (EDI) for grocery stores, auto dealerships, and more recently, healthcare providers. If that doesn’t mean anything to you, I’m unsurprised. It didn’t mean anything to me either. The definition from wikipedia is unhelpful as well,
Electronic Data Interchange (EDI) is an electronic communication method that provides standards for exchanging data via any electronic means. By adhering to the same standard, two different companies or organizations, even in two different countries, can electronically exchange documents (such as purchase orders, invoices, shipping notices, and many others)
So what? Well, this allows grocery stores and grocery store suppliers to do business with each other using a common format. This doesn’t sound super important but grocery stores are typically only interested in working with suppliers which can support the EDI that they use. The model here, then, is for Advant-e to give grocery stores access for free. They then act as a toll booth for suppliers to get access to the grocery stores.
There isn’t really any point for a supplier to use an EDI that doesn’t give them access to the most stores, so the fact that Advant-e has access to a lot of small grocery stores makes it harder for a startup EDI supplier to compete.
This generally only matters for small grocery stores and suppliers as larger chains have their own systems.
So, how has this model been working out?
Pretty well, up and to the right is what you want to see with revenue and income. Here’s something more concrete (all dollar values in thousands):
|Year||Revenue||gross profit||net income|
While we do see a little dip in gross profit in 2015, and revenue has clearly slowed, I chalk that up to the shuttering of Merkur in late 2014 early 2015. Merkur was a division of Advant-e that also did EDI but was software-based rather than internet-based, it helped companies by sending faxes of their paper documents. . The division never performed all that well and was written off in 2014 (you can see a dip in net income there.) The company was then reorganized integrating Merkur’s assets with the rest of the company. My best guess is that there was some loss of Merkur revenue which hid more growth in the company, as the internet-based branch (called Edict systems) did $10.3 million of revenue, in 2014. Even a small drop in the revenue from the Merkur end after the reorganization, could have hidden a significant amount of growth.
Oh man, where do I even start? There’s so much hair on this, it could replace Trump’s piece.
- It’s only recently not a penny stock due to a reverse split (more on that later).
- It’s an internet company, who even knows if it’ll be around in 5-10 years.
- It’s not a reporting public company so you don’t get the same amount of information, and they simply do not have to disclose as much. For example, how much does the CEO make? No idea. This is compounded by the fact that the CEO owns more than half the shares. Really, a lot of money could go out the side door if the CEO just started giving himself raises.
- The stock is extremely illiquid. It has traded between $4 and $5.50 in the past week, some days it doesn’t trade at all.
- If you were a small shareholder you probably had some trouble with this recently for reasons I’ll get into in a future post (a recent reverse split may have cashed you out at market price, the horror). Suffice to say small shareholders in the past haven’t been treated in a way I would consider fair.
- Even past all that, there’s just a basic business risk of working with small grocery stores. I don’t have any reason to believe small grocery stores are even going to be around in 10-20 years.
- The company rents its location from a company wholly owned by the CEO for about $400,000 per year. I’m not sure if this is a fair rent or not, but this sort of thing just generally smells bad.
Even given all the hair, I can’t help myself but love this stock. It’s got basically everything I want. Priced low, management pays the profits out in dividends, it grows. Management owns a bunch of the company and, hopefully, their interests are therefore aligned with mine. It’s illiquid, it’s tiny. My fervent desire is to simply sit on these shares forever.
Disclaimer: I am long ADVC, I have no plans to buy or sell any of the stock within then next 72 hours. I wrote this article myself, and it expresses my own opinions. This is not a recommendation to buy or sell any stock. I am not receiving compensation for it (other than from the owner of the blog District Media Corp). I have no business relationship with any company whose stock is mentioned in this article. Always do your own research before making any trade, buying or selling any stock mentioned.
It should also be noted that you can get crushed by the S&P 500 Index return as well. It is basically an article of faith in the personal finance community that one ought to invest in index funds, perhaps particularly the S&P 500 index fund. There are a couple advantages to doing so. It’s easy. It’s cheap. You get the average result.
Most of my money is in index funds. That’s the case because most of my money is in a 401k type plan. Index funds are the only reasonable choice that I have from my plan sponsor. This is a good thing, I suggest you keep most of your money in an index fund. For example, here is the S&P 500 index return over the last 100 or so years
What the S&P 500 is
The S&P 500 is a collection of the 500 large companies selected by the S&P 500 committee to be representative of the US stock market. The major requirement is that the market capitalization (this is the combined value of all the shares of a company at the market price) is greater than $5.3 billion. The stocks in the index are then weighted by their market capitalization. This is convenient for index funds because they don’t have to buy or sell a little bit of a stock just because its price changes.
What the S&P 500 misses
In my view the S&P 500 leaves out two major types of company. Foreign companies (though 27 are currently included in the index), as well as small companies (in this case we’ll consider sub-billion dollar market caps to be small).
Large foreign companies can generally be invested in by choosing an international index fund like the Vanguard Total International Stock Index Fund.
To get exposure to smaller companies you could buy a small-cap index fund. You might want to do this because small capitalization stocks on average return more than larger capitalization stocks (about 3% more since 1930). Over long timescales that extra 3% really adds up. Think of it this way, if you expect to earn $700 after inflation from investing $10,000 in the S&P 500, you expect to earn $1000 from small cap stocks. Obviously returns are not that smooth, but that extra 3% is a very hefty amount.
The Problem With Small Cap Index Funds
My biggest gripe with small cap index funds is that they are still huge! The median market cap in the Vanguard small-cap index fund is $3.3 billion. There’s a lot of room below that. The problem is, if you get much smaller it’s very hard for an index fund to build a position. The bid-ask spread on tiny stocks can be very large, some days tiny stocks don’t even trade. If you manage an index fund and you have mandate to buy all of the stocks, how do you deal with this?
Often, you just don’t. You either hit the ask on these stocks and pay a huge spread, or simply do not invest in stocks with low liquidity. These frictional costs aren’t included in the expense ratio of the fund. These costs can be as much as 1% annually. Additionally, forced selling from these funds during market panics can push down the prices of illiquid stocks substantially.
How to beat these index funds
My investment philosophy is stems from a few simple ideas.
- The market is mostly efficient. Therefore most of the time buy and forgetting index funds is a great way to go.
- This efficiency comes from highly informed, highly skilled professionals who work against each other in the markets resulting in prices that very closely reflect true value.
- Areas of the market where highly informed, highly skilled professionals do not exist, or are severely constrained probably have significant mispricings.
- It is possible for an amateur to spend enough time and do enough research to identify these mispricings and exploit them for profit.
So I seek to invest in areas where professionals cannot or will not go. The most obvious area is nano-cap and micro-cap stocks. A mutual fund manager, no matter how intelligent generally just can’t invest in a company with a two million dollar market cap. If they manage $100,000,000, why are they going to spend years trying to build up a $100,000 position in a tiny illiquid company? The answer is that they simply will not attempt it.
This also means that they don’t bother trying to calculate the fair value of that company, and many companies like this can languish in obscurity for years with market prices far below fair value.
What if you’re wrong?
Now, to be fair, it could be that the market for nano-cap and micro-cap stocks is efficient. Maybe I can’t exploit mispricings for profit because maybe there are no mispricings. That could be true, but I would still argue that my practice of buying tiny stocks and sitting on them would still be a good strategy. There are a couple reasons for this:
- The small cap premium. Smaller capitalization companies are more risky, and therefore return more. As we saw earlier, this is about 3%. I would expect it to be higher for even smaller companies, if I’m wrong and the market is efficient. If two assets returned the same, but had different levels of risk, why would anyone invest in the riskier asset?
- Illiquidity premium. If your money is illiquid your investment is less useful to you. If two assets returned the same, but one was very liquid and the other you required you to sit with a limit order for 6 months to get your money out, why would you invest in the illiquid asset? Therefore, if the market is effecient there is some premium for investing in illiquid assets.
Heads I win, tails I win. I love situations were I can be totally incorrect and still win. Now, obviously investing in very small and illiquid companies comes with risk. It is totally inappropriate if you expect to need the money you’re investing at some point in the next 20 or 30 years. But if you’re investing for the long, long run I expect that analyzing tiny companies, buying good ones, and waiting until you’re very old will be more profitable than investing in the S&P 500.
I have no positions in any index funds mentioned. I wrote this article myself, and it expresses my own opinions. This is not a investment recommendation. I am not receiving compensation for it (other than from the owner of the blog District Media Corp). I have no business relationship with any company whose stock is mentioned in this article. Always do your own research before making any trade, buying or selling any stock mentioned.
Here’s the second part of the Sitestar story as promised. For those of you who missed it, here is part 1. Since our story left off a great deal has happened. First off, a group of shareholders sent a demand letter to the company. The demand letter basically says that the company needs to provide this shareholder group access to the books as well as the shareholder record. This was the warning shot in a fight that would eventually topple the CEO.
The Shareholder Group
The shareholder group at the beginning of this episode is comprised of an independent director on Sitestar’s board, Jeffery Moore, and two hedge funds, Arquitos Capital Partners, run by Steven Kiel, and the Aleisa Value Fund, run by Jeremy Gold and Christopher Olin.
The company at this time (2014) was run by Frank Erhartic, and the CFO is Daniel Judd. Frank Erhartic started essentially another dial-up company called “Lynchburg.net”, it was acquired by Sitestar back in 2000. He evidently worked his way up and became CEO in 2002. The company has largely been winding down since then. Interestingly, the salary that Mr. Erhartic was taking between 2010 and 2014 was actually quite small, less than $50,000 per year. Considering that at the time Mr. Erhartic was really running the whole show at the company, this actually seems like a relatively small salary. This wasn’t the only money that Mr. Erhartic made from the company however, there were many related party transactions over the years, and there is some question as to whether Erhartic used these to extract money from the company. That question is central to the drama that unfolded over then next two years.
Related Party Transactions
A related party transaction is basically when the company has a transaction with someone who has decision making power or the implication of decision making power related to the transaction within the company. For example, if the company rents office space from a major shareholder. In this case, Erhartic loaned the company a relatively small amount of money (about 50,000) at a 10% interest rate.
Formation of the shareholder group
As far as I can tell Mr. Moore (a board member of sitestar) became concerned when board meetings were not held, and his name was signed to SEC filings that he hadn’t seen. These SEC filings had all kinds of errors, for example adding 20-30 years to Mr. Moore’s age. Furthermore, Moore was concerned with the lack of progress in the company’s real-estate portfolio. Shut out of board meetings, he formed a shareholder group with two value funds hoping the agitate the company to be more transparent, and improve returns.
A proxy battle?
At this point the shareholder group initiates a proxy battle in order to force management to start holding an annual meeting, turn over the books, and improve operations. A proxy battle reminds me of an old fashioned circa 1800’s US election. Two groups (parties) are trying to get a hold of the company (country) so they print their own ballots (yeah, that was totally a thing) and mail them to shareholders (hand them out to voters), along with advertising material explaining why their group is really the best for the company (country). This is serious business for management, as often proxy-battles can result in management losing their jobs. A problem with small companies is that this process can often take long enough that management can sometimes drain the money from the company before the outside shareholders can obtain control. Often the threat of a proxy battle can convince management to accommodate the outside shareholder, assuming that the shareholder isn’t simply out to get rid of management.
Fortunately for both sides, management and the shareholders were able to come to an agreement, the shareholder group withdrew its proxy. Basically the deal was that Sitestar increase the number of people on the board from 3 to 6 and that 3 members should come from the shareholder group and 3 members were appointed by management. In the event of a deadlocked board the president (Erhartic) was allowed the tie-breaking vote. This allowed management to retain control of the company, barely. In addition the shareholder group got basically everything it wanted, regular board meetings, reimbursement for its proxy battle, and an agreement to more closely look at the way the real-estate was being handled. If you’re interested you can read about the settlement in detail here.
As a quick aside, the reason board seats are important is because the board members are the representatives of the shareholders (always remember, the shareholders are the people that own the place, it is for their benefit that the company exists). The board basically acts as the boss of the CEO, and it is they that the CEO ultimately needs to answer to.
A Blogger and An Audit
On December 3rd 2015 a blogger, Inelegant Investor, posted information about the $50,000 loan from a related-party transaction. He was told that CEO Erhartic’s mother, had loaned the company $50,000 at a 10% interest rate. This seemed odd because the company didn’t seem to have any need for the money at that time, and On the same day, apparently Sitestar’s board was informed by Sitestar’s auditor that there were several related-party transactions for which the auditor had requested more documentation. Evidently the auditor did not receive this documentation.
At this point Erhartic, who masterminded the strategy for Sitestar’s transition to real-estate, resigned from the board, and then was summarily fired by a majority of the board. At this point the shareholder group of Moore, Kiel, Gold, and Olin had effectively taken over the company. Moore replaced Erhartic as chairman of the board and Kiel ended up replacing Erhartic as CEO of the company. The company investigated Erhartic’s transactions and later sent a demand letter for restitution based on the results of that investigation.
Looking Toward the Future
Sitestar’s future at this point is a little uncertain. There haven’t been any financials released since the change of control, and the financials are quite late at this point. That could mean any number of things. Many reasonable investors do not invest in any company with late financials, figuring that no one waits to release good news. Also, the company has issued a statement of non-reliance on previous financials. These related party transactions apparently cost the company money in ways that weren’t captured in previous financials. Quite frankly it is hypothetically possible that the amount of money the company has is substantially less that they previously claimed. Personally, I think its reasonable that they haven’t released financials yet, and I think when financials are released the news will be basically neutral, so I don’t worry very much about this.
Another important thing to keep in mind is that Erhartic was simply not charging very much for his services, $50,000 per year isn’t very much for a CEO. The book value of Sitestar is roughly 5 million dollars based on previous financials (which the company has stated cannot be relied upon). If Sitestar can earn a 10% return on equity (a dubious prospect), then we’re looking at a company earning $500,000 per year. If the CEO’s salary goes from $50,000 to $150,000 (the median CEO pay), that would represent a very significant portion of sitestar’s earnings. If the board members start to get even token compensation for their work (which would probably be reasonable) it would eat even further into the profit available to shareholders.
There are two updates that one should be aware of as well. First, I mentioned in the previous article that there was roughly a million dollar liability on the books that the company contended that it would not have to pay. This has been settled for about $90,000, so at the very least we should see that go away on the next set of financials. Second, the company has formed an HVAC investment company and seeded it with $1,000,000. This is a good news, bad news.
The good news is that the company had a million dollars, Frank Erhartic didn’t run off with all of the cash. I’m not terribly surprised as he never really struck me as the sort of person who would. The improprieties going on here look a lot more to me like someone being lazy about documentation, and trying to avoid some payroll tax, (essentially compensating himself with company expenses, like rent/loans, rather than through salary, when he could have just had a larger salary) rather than any sort of serious thievery.
The bad news is, what does Steven Kiel know about running HVAC companies? Presumably whatever HVAC company they acquired would come with its own management team, but I don’t really get the point here. I still have limit orders open in the 4.x cent range and I wouldn’t be surprised if they get filled at some point in the next month. I do check on the company regularly however as any bit of news could certainly mean a big move for the stock in either direction. I’d hate to fill my limit order because terrible news came out the night before and the company traded down to a penny.
Disclaimer: I have no positions in any stocks mentioned, but may initiate a long position in SYTE over the next 72 hours. I have open limit orders between 4 and 5 cents per share. I wrote this article myself, and it expresses my own opinions. This is not a recommendation to buy or sell any stock. I am not receiving compensation for it (other than from the owner of the blog District Media Corp). I have no business relationship with any company whose stock is mentioned in this article. Always do your own research before making any trade, buying or selling any stock mentioned.
Outside of index funds in my 401k I do most of my investing in small microcaps. I’d like to profile one of them today. It’s got a little bit of an interesting story to it, and might be one of the strangest stocks I’ve seen. So strap in.
A word of warning
This stock is traded over-the-counter. It trades for a few cents. It is extremely illiquid. Your BS alarms should be running really loudly right now. This is exactly the type of stock people would use in a pump and dump scam. It is missing one important component for a pump and dump scam however, it just isn’t exciting.
What does Sitestar (OTCBB: SYTE) do?
Welcome to the exciting and fast-paced business that is dial-up internet. You might be like me and be somewhat surprised that anyone still uses dial-up internet. Some of you might be too young to know what dial up internet is.
Basically the idea is that you have a phone for your home, called a land-line. It’s one line for the whole family, though often there are a few phone in the house that connect to this one line. The idea of dial up internet is that you can use this land-line to send data instead of your voice. Unfortunately, because of the way this works only one computer in the house can connect to the internet at a time. Also, if someone is connected to the internet no one can use the phone.
So turns out people actually still pay for this, $10 to $20 per month in fact. At this point Sitestar isn’t expanding their dial up service. They just collect a toll on their existing network.
So why do we care? This is a dial-up company. Might as well invest in a buggy-whip business. Obviously the dial-up portion of the business will eventually be with zero. Why would you invest in a company that’s gonna be worth zero?
Well there is only one reason you invest in a company that’s going to be worth zero, you think that you will get more money out of the company than you paid for it, before it goes to zero. An example of this might be Outerwall (OUTR), they are the owners of Redbox (the dvd rental kiosks). Obviously in 2025 (maybe earlier!) Redbox will be worth zero. Investors are now betting that they will get more in dividends from Outerwall than they paid for the stock before it is worth zero.
Well, Sitestar has never paid a dividend. That’s odd considering that between 2008 and 2014 they took in about 9 million in cash while spending only about 2 million reinvesting in the dial up business.
So where did the rest of the money go?
Well, about a million went to repurchasing shares, reducing the total number of shares outstanding from 91 million to 74 million. Another 3 million went to paying off the debt and other liabilities sitestar had. The last 3 million went to buying real estate.
Real estate, you ask? Yes! During the great recession the CEO Frank Erhartic went on a buying spree, snapping up residential properties that had become substantially discounted due to the bursting of the housing bubble.
So what’s it worth?
Well, the company has about 3.7 million in real estate, and virtually no liabilities to speak of. (Well, there is about a million dollar debt the company has to a former employee that the company contends is not actually owed. It should be eliminated from the books at some point in the future.) That real-estate is held at cost. I figure the company has to be worth at least that much. So, what’s a single share worth? Well, 3.7 million divided by 74 million shares outstanding works out to be 5 cents per share. Sitestar last traded at 5.86 cents per share. (Don’t get that confused with $5.86.) Since January Sitestar has traded between 5 cents per share and 6 cents per share. Sitestar still makes some money from its dial-up operations and these are probably worth another hay-penny to penny per share (I’m just so excited I finally got to use hay-penny in a sentence.) I am a buyer between 4.5 cents and 5 cents.
It’s important to understand that Sitestar is extremely illiquid. What does it mean when a stock is illiquid? In this case, it means most days $SYTE doesn’t trade. It means, that if you put in a market order for Sitestar it might not get filled, or worse it might get filled at a ridiculous price.
Well, up until recently I thought, basically Sitestar was going to be somewhat more than the carrying value of the real-estate and if you wanted exposure to some real estate on the east coast, this seemed like a cheap way of getting it. Naturally, the situation has changed a bunch in the last year or so and tomorrow we’ll go over what these changes are and what difference they make to the stock.
I have no positions in any stocks mentioned, but may initiate a long position in SYTE over the next 72 hours. I have open limit orders between 4 and 5 cents per share. I wrote this article myself, and it expresses my own opinions. This is not a investment recommendation. I am not receiving compensation for it (other than from the owner of the blog District Media Corp). I have no business relationship with any company whose stock is mentioned in this article. Always do your own research before making any trade, buying or selling any stock mentioned.
Every time I have a discussion with someone about an upcoming trip to Europe they ask whether it is better to buy their Euros in advance or to wait. Fortunately this is a question with a very simple answer.
I have no idea.
Neither do you.
Neither does your brother-in-law, or your hairdresser’s friend. Except in some rare situation where you’re friends with a Swiss central banker and he tells you in advance that he is going to surprise the markets with a new policy, you have no idea.
This Isn’t Useless
Turns out that knowing you have no idea and that no one else does either turns out to be a great opportunity. Just because you are ignorant doesn’t mean you can’t create a good strategy.
This strategy is two pronged, minimize fees and reduce volatility!
This is simple. Don’t bring a credit card that charges foreign transaction fees. There are plenty of choices here. Discover, certain American Express cards like the Starwoods Rewards Card, basically all of the Visa cards with the word “travel” in their name, and same for Mastercards.
It is important to bring a few cards. Frankly, I’d bring one of each. Sometimes american credit cards fail for funny reasons.
For cash, never pay at some sort of cash exchange place. Also, probably don’t exchange cash at your bank window. Some banks will allow you to place an order for Euros online, you’ll get a better rate this way.
The absolute best deal I’ve found is to get a high-interest checking account, they will often reimburse your ATM fees.
What you don’t want to do is exchange a big chunk of money at once. Currency markets are sometimes volatile. This means that you could end up paying either a few percent more than average or a few percent less than average if you exchange all of your money at once. This could be worse than any fee you’d pay. Might as well get the average result instead.
In order to get the average result, I suggest paying as you go. If you have to make any especially large cash purchases you might want to get the total sum in pieces (if your fees are zero). If you pay a flat fee for each withdrawal, for example if you don’t get your ATM fees reimbursed, then you’ll want to minimize the total amount of fees you pay and try to get as much as possible with each withdrawal.
Don’t Get Fooled
There are any number of people out there who are willing to tell you that they know what the currency markets are going to do. They’re selling. If someone tells you that Euros will definitely go up in the summer or definitely go down the question you need to ask them is, “What percentage of your net worth are you currently betting on that?”
The bare minimum you can check is that anyone who claims to know what’s happening in currency markets at least has skin in the game. If they’re asking you to risk your money that they might be right, make sure they’re actually risking a much larger percentage of theirs as well.
That all being said, if you can predict the future prices of currencies reliably in a way that people could take advantage of, then you’re probably in the wrong industry. That sort of ability is worth way more money than saving a few hundred dollars in exchange fees.
In fact that’s exactly the way to explain all of this.
Maybe it is possible to predict future foreign exchange values, but you’d have to have a skill worth hundreds of millions of dollars, and if you have that skill, why the heck are you worrying about any of this?