GUEST POST: Take (One Of The) Two And Call Me In The Morning

March 13, 2013
NOTE: Last week we received the following post, unsolicited, from a physician and avid reader who asked to remain anonymous. We agreed that it was so far beyond fantastic, we weren’t sure how to react.
You need to understand: people submit multiple guest posts to us every week, almost all of them garbage. This one was beautifully written, concise, loaded with practical if uncomfortable advice, and he even annotated it. Finally, someone who took our guest post guidelines to heart. With no further introduction, here it is:

 

empty lab coat

 

My father-in-law is a brilliant farmer with no post-secondary education. I always wondered why he didn’t blink when I told him 4 years ago how much medical school was going to cost. He finances $350,000 tractors and $500,000 combines with debt, and I never understood why. Now I do. $150,000 in student debt at 3% to finance an M.D. is a leveraged investment made to acquire an asset. As such, it’s not a liability.

Wait a second, guest poster/avid CYC reader/slow-learning doctor. I thought guest posts on CYC are rare, and I thought guest authors had to be adamant about avoiding student debt.

You’re right; they are rare. And no, you don’t have to shun student debt before you can author a guest post on CYC. You must, however, understand its role in creating wealth. The CYC principals do. So do most wealthy people who own educational assets. This makes CYC unique in a sea of debt-hating bloggers who incessantly try to convince you that life’s number one priority is to flog your debt into submission. Remain calm, ignore them, and read on.

If you’re thinking about borrowing money to attend an institution that charges (insert average in-state tuition here) to learn (insert pointless degree here), stop. Especially if you were planning on using a government hand-out under the guise of a loan to get drunk and attend your classes hung-over in the back row. Educational choices are an opportunity to apply CYC’s fundamentals: analyze your options and divide them into distinct categories – assets and liabilities. Buy one of the two, sell the other, and call me in the morning.

Sheeple all over America are being fed the same rotten advice by the graying shepherd: “Nothing is going to have as great an impact on your success in life as your education,” and “the best job qualification you can have is a college degree or advanced training.” This sounds like a government with a pathological urge to over-spend on non-assets. It gets better. Without commenting on what type of college graduates should be trained, Mr. Obama wants to “see America have the highest proportion of college graduates in the world” by the end of the decade. That most government student loans don’t incorporate criteria regarding your proposed field of study exposes the truth that Uncle Sam is in the business of giving away money to students, not lending it. As young Americans are herded towards this 2020 target, we need individuals in political office like this financial stud, who was scorned for his modest choice in vehicle by a journalistic coward. Vote for men (and women) like this. The political momentum behind a federal bailout for over-extended student debtors is gathering steam. You can already hear the shouts across the crowded collegiate bar: “I’ve got this round boys, Obama’s going to pay for it anyway.” It’s funny, because it’s true. And millions of Americans bleat a version of the same thing every day.

Take, for example, the college-educated car-scrubber-turned-paper-runner Landon Crider, or eager-beaver Megan Parker, both interviewed in a recent New York Times article narrating the tragic plight of the overeducated. Instead of reading CYC and heeding Kincaid’s and McFarlane’s pleas, Ms. Parker chose to borrow $100,000 to land a job as – wait for it – a receptionist, commanding an annual salary of $37,000. Working as a receptionist from 9-5 is a perfectly admirable way to put food on the table. However, going into 6-figure debt for the opportunity to answer phones for lawyers indicates that Ms. Parker savors the life of a wage-slave (commonly referred to as “employee” by most 21st-century masters). Her boss understands this, and uses it to his advantage (good for him). In the interview, he said “‘College graduates are just more career-oriented.’” Allow me to translate: “They’ll work for far less money than they should to pursue the noble goal of ‘getting ahead.’ Plus, all my employees have a massive student debt load so they can’t quit.’” Even a journalist picked up on the problem with a degree-only law firm, but she still wrote about her subjects’ poor choices with a tone that suggests the predicament is a human rights violation.¹ Guess who she voted for? Not this guy.

Contrary to what you’ve been told, education is not an asset as a stand-alone entity. Shares of a whale-oil company ceased to be assets when light-bulbs began illuminating streets and homes. For an education to be an asset (and thus an attractive investment), it must exist in a market that gives it tangible value. This guarantees a stream of cash flows related to the initial investment. All other measures of educational value are in terms of personal fulfillment. If you’re searching for answers to ultimate questions in a class called Big Questions² with 127 other budding debt-slaves, stop calling it an “investment” and don’t borrow money to do it. Besides, you’ll only find true fulfillment in other, more Messianic sources. In your undergraduate years, for example, major in Biochemistry and Biomedical Sciences³ or something else useful. You remain free to minor in Music Cognition, Communications Studies, or whatever else you want. Heck, pull out all the stops and take an elective in Personal Finance instead of Philosophies of War and Peace.

To really go against the grain, try the seemingly foreign concepts of working and saving for things. If Steve Boedefeld and Zack Tolmie did it, you can too. According to the author of the article, not borrowing money to acquire liabilities is enough of an accomplishment to be distinguished as a “rare species.” Congratulations, you two. Be like Steve and Zack. Buck the trend and complete your undergraduate studies debt-free.

That sounds like a lot of work.

Right. Most things worth having are.

Every course offering in your college’s academic calendar is not a ticket to prosperity. Search for a program that satisfies this basic investment criterion before you borrow to pay for it: it must result in a positive return on investment for the useful life of the asset. In other words, find out if there are jobs in your field of interest that will pay off your debt before you retire (or default). Such analysis is mandatory before leveraging debt. Make time to read and understand the difference between an intelligent choice in higher education and a wasteful one by digesting what CYC thinks about my fellow Canadian or about this money pit.

Based on data collected by the American Association of Medical Colleges, U.S. medical school graduates carry an average of $166,750 in student debt. Following 4 years of medical school, Graduate Medical Education prepares residents for independent practice and lasts 3-7 years, depending on specialty choice. The GME training salaries are far less than most people think: resident physicians earn a median salary of $49,651 in their first year of residency. For the customary (and recently-capped) 80-hour work week, it works out to approximately $12.67 per hour ($49,651 per year/[80 hours per week × 49 weeks per work year]). Remember that, the next time you decide to spit on, swear at, and berate us for being part of the 1%.⁴ After residency, most physicians typically earn well over $150,000 per year for the remainder of their careers doing what they went to school to do. Plus, it’s a rewarding job that contributes to humanity and advances civilization.

You’re just fortunate that you’ve found a job you like that pays well.

You’re right, I am extremely fortunate. But I don’t like my job; I love my job. You’re indignant, I understand. That’s because you’re currently pursuing a Women’s Studies major to work beside Ms. Parker. It’s not too late to identify a different field with an attractive return, and switch. Don’t drown in sunk costs. If you’re weighing your options, your job before borrowing to finance an education is to discern an asset from a liability. Don’t avoid debt as a matter of principle.

If this sounds like the same advice CYC gives on regarding all prospective investments, it is. Why should your education be any different?

Keep reading this blog. Buy the book.

—————————————

¹ The author of the article even challenges her readers to “consider” in the second paragraph. For long-time CYC readers, you know why this is a no-no. For new CYC readers, don’t consider reading about this weak word, read all about this weak word here.

² The courses of study referenced in this post are actually current undergraduate courses listed by my college in the academic calendar.

³ Your guest author’s course of undergraduate study. This serves as an example, not as a template. Market conditions change and vary regionally. Please decipher the basic premise.

⁴ Common on the floors of academic teaching hospitals. We usually respond with “Thank you.” Less often, we respond with an order to switch from orally to rectally administered medication, because, well, the pen is mightier than the sword.

Filed Under: Education, Guest Posts, Healthy Living Tagged With: , , , , ,

How Do You Guys Do It? Part I

January 18, 2013
We're so rich, we can hire people to portray us in our featured photos.

We’re so rich, we can hire people to portray us in our featured photos.

 

We try to keep things nice and impersonal on here, for several reasons. The primary one is that it’s 2013, and a resourceful person with patience and a vendetta can find out more about you than you might be comfortable disclosing, so why make it easier for them?

But without sharing too much with you, we’ve managed to position ourselves so that we don’t have to work. And believe us, we don’t. At least not at conventional jobs with a boss, and a workplace, and a regular schedule, and a break room (“This yogurt is Michelle’s. Please do not touch”), and a sexual harassment policy and an annual employee picnic. We can live off our passive income, and have no desire to go back to the real world. Those of you who have regular jobs and enjoy them, we might not understand you, but we salute you. Thanks for keeping our gross domestic product high.

We wouldn’t give up this lifestyle for anything. We get to travel extensively, live in a nice house, drive serviceable if not ostentatious cars, and never have to worry about creditors taking any of it away. So how do we do it?

That’s easy: we sponge off the government!

Kidding. Sure, there was some serendipity along the way, but the vast majority of our success can be credited to not doing stupid things. We could write a book (heck, we did) about all the stupid things you could build wealth by avoiding. Here are a few of the biggest culprits in this, the inaugural post in an irregular series:

Tobacco, alcohol, drugs. As best we can tell, the median price of a deck of smokes is around $7. We’re not going to do the math for you, as any idiot can multiply $7 by 365, but the good news for those of you who are scarfing down a pack a day is that you’re probably keeping the weight off. No wait, on further examination a lot of you are fat. Also, any weight you’re failing to gain is that of healthy pink lung tissue, and why would you want to cultivate that?

A “gram” of pot costs $15 to $20, given that your dealer probably isn’t arranging it on a scale calibrated in grams, nor operating under the purview of your state’s Bureau of Weights and Measures. That’ll get you one or two joints, but hey, none of you are serious pot smokers, right? Just once in a while, just to get a good buzz, I hardly ever smoke, only when there’s no beer around, it’s better for you than alcohol you know, etc.

So yeah. If you can put it in your mouth and emits smoke, it’s keeping you from being as rich as you’d otherwise be. Pointing that out hardly counts as thought.

Okay, fine. But you expect me to give up alcohol, too? That’s crazy talk.

We don’t “expect” you to give up anything. We wrote about this on Money Funk a couple years back and the commenters told us we were being judgmental, which is ludicrous. As if pointing out that alcohol purveyors expect money in exchange for their sweet brown liquids is somehow heresy.

The major booze trade organization’s own estimates say it’s close to a $400 billion industry. Divide that into the number of people who live in the United States (subtracting the kids and the people on dialysis, of course) and then try to determine which side of average your own alcohol expenses are on.

The catcalls are starting already, we can hear them. Fine, you need it to relax. Some of us don’t. You can’t imagine being in a social setting and not drinking. We don’t dispute that, but some of us have broader imaginations.

You know what’s funny? Even The Cheapest Man on the Planet, the guy who would rather do indoor craft projects 30 nights in a row with construction paper he dug out of his neighbor’s garbage than go to a movie once a month, can’t bring himself to say that drinking is about as unnecessary as expenses get. And it’s not as if our hero is some socially well-adjusted extrovert, either.

Education. “The Greatest Investment You Can Make”. An utter lie, and maybe the more we repeat this the faster it’ll sink in. Why is it a lie? Because formal college education is not uniform. Here’s where people love to cite studies showing that people with bachelor’s degrees earn more than high school dropouts, and people with advanced degrees earn more still.

Amassing college credits, without respect to what subject they’re in, is like consuming calories without respect to what food they’re coming from. That Bachelor of Arts in comparative literature will benefit you even less than eating a diet consisting exclusively of chocolate will. At least the chocolate doesn’t have to be financed to the tune of tens of thousands of dollars, nor does it take 4 years to eat.

The arts in general: bad, at least financially speaking. (Last we checked, while several universities promise significant non-financial rewards, their admissions offices still expect payment in legal tender.) Math and science: good. Marvel at the works of Degas and Milton all you want, but if you must, don’t spend years and (borrowed) money for the privilege. Because it’s not a privilege, it’s an expense.

That doesn’t mean you’ll be ready to take on the world with a high school diploma. You probably won’t. But you can learn a marketable, worthwhile trade without committing huge money nor huge time to the endeavor. Those studies referenced above? For some reason, they never specifically compare liberal arts graduates to steelworkers or machinists. To some effete people, there’s a stigma to working with your hands. To us, there’s a stigma to incurring pointless debt that you’ll take decades to pay off. Ceteris paribus, the $52,000-a-year electrician with a contractor’s license is a better human being than the $30,000-a-year retail clerk who can parse Noam Chomsky’s theory of universal grammar.

That wasn’t so hard, was it? None of that stuff is painful, or even inconvenient. It’s not like we’re telling you to go without sleeping or shaving. But it’s a start. More next time.

Filed Under: Education, Entrepreneurship, Estate Planning, Finance Tagged With:

An Experiment Gone Awry

January 16, 2013

 

Yeah, the sun is at the center of the electric tower. It's not symbolism, it's just a cool photograph.

Yeah, the sun is at the center of the electric tower. It’s not symbolism, it’s just a cool pic.

Last week we broke down the Dow Jones Transportation Average, which is the older and less excitable sister of the famed Dow Jones Industrial Average. There’s also a younger and similarly low-key sibling, the Dow Jones Utility Average. It was founded in 1929 – for multiple reasons, a notable year for stocks – when all the major utility stocks were removed from the Industrial Average and left to create their own index.

Thus the DJUA consists of the prices of the shares of 15 power companies and their ilk, summed and multiplied by a constant. You probably haven’t heard of more than 5 of them, yet they’re far more important to the progression of the economy and your day-to-day comfort than Google or Facebook will ever be.

The utilities include

  • 11 electric companies
  • 2 multiutilities
  • 1 pipeline company
  • 1 gas distributor.

Applied Energy Services, based in suburban Washington, D.C. Founded by a couple of federal bureaucrats, AES operates all over the world – with 12 million customers not just in the U.S. but Mexico, the Dominican Republic, Colombia, Brazil, Argentina, Chile, the U.K., Spain, France, Belgium, the Czech Republic, Ukraine, Hungary, Bulgaria, Turkey, Nigeria, Cameroon, Jordan, Oman, the United Arab Emirates, India, Pakistan, Sri Lanka, Kazakhstan, China, the Philippines and we might have missed a couple. AES does coal, hydro, diesel, gas, oil – all the usual suspects, plus a wind project that they’re very proud of.

American Electric Power is headquartered in Columbus, and fires up 11 states. (Ohio, Texas, and much of the Illiteracy Belt.) AEP’s transmission system is bigger than all the others in the United States combined. 2/3 of their power comes from coal, 2/3 of the rest from natural gas and oil.

Con Ed – Consolidated Edison – is New York City’s major electricity and gas supplier. It also operates in New Jersey and northeastern Pennsylvania. In addition to the juice and the gas, Con Ed also supplies a peculiar 19th century relic form of energy – steam. Yes, they move simple water vapor through tunnels that manage to heat swaths of Manhattan. Cogeneration, they call it: the steam is a byproduct of electricity generation, and with a little ingenuity Con Ed does something beneficial with it instead of just letting it rise into the atmosphere.

Dominion, based in Richmond, electrifies much of Virginia and North Carolina. It also supplies natural gas to several neighboring states.

Edison International, not to be confused with Con Ed – is based in suburban Los Angeles and is the parent of Southern California’s biggest electric company. There’s another subsidiary that owns fossil fuel plants as far away as Turkey, or did until the subsidiary filed for Chapter 11 bankruptcy last month.

Chicago’s Exelon also sells electricity and natural gas, specifically in Illinois, Pennsylvania and Maryland. Many of Exelon’s assets derive from last year’s merger with Constellation Energy. Exelon also owns all or most of 17 of America’s static supply of nuclear plants.

Yeah, this is a laundry list and kind of dull. But we’re almost done and besides, we committed to this in last week’s post on the Transportation Average and now we have to finish it. And if you think this is boring you should check out how our muse Trent at The Simple Dollar spent the first couple weeks of the new year.

FirstEnergy, headquartered in Akron, has 10 operating companies that among them provide power to 6 million souls who live in the more refined parts and outskirts of Appalachia. Much of the infamous 2003 blackout that affected almost the entire Northeast and much of central Canada occurred thanks to FirstEnergy’s failure to, if you can believe this, trim some trees around a few of its high-voltage lines in Ohio. Almost 2/3 of FirstEnergy’s power derives from coal, and half the rest from nuclear.

NextEra, with offices north of Miami, generates power in 28 states and 3 provinces. Like most of its cohorts on the DJUA, it has several divisions that it operates under (Florida Power & Light, etc.) NextEra is America’s biggest distributor of solar and wind energy, which still makes up a trivial portion of the nation’s energy generation. As you might be discerning by now, the biggest differences among most of these companies is geography.

Pacific Gas and Electric, based in San Francisco, provides natural gas and electricity to customers in northern and central California. 2 years ago one of their gas pipelines burst, killing 8 people, or infinity times more than the number of people killed in nuclear accidents since the first commercial application of critical fission.

Alright, maybe this wasn’t our best idea. For those of you who’ve made it this far, we’re pretty impressed. Send your requests for future 2-part Control Your Cash pieces to info at this site’s URL. Public Service Enterprise Group of Newark gives ¾ of New Jerseyites their electricity and natural gas fix. Here’s their boring Twitter feed, and they’re still riding that solar train, too.

Atlanta’s Southern Company deals exclusively in electricity (hydro, coal etc.), not gas, and is building the first nuclear plant this country has seen in the last 30 years (near Augusta, Georgia.)

Duke Energy, headquartered in Charlotte, is a holding company. Like Southern, Duke is strictly electric, with 8 nuclear plants, 17 coal-fired plants, a dozen oil-and-gas fired plants, and 30 hydro stations among its assets. Last summer Duke merged with Progress Energy, the new combined board named Progress’s CEO to run the company, and 20 minutes later that guy resigned to spend more time with his family and pursue other opportunities. Seriously. For his tenure at the helm he received $45 million. Duke’s erstwhile CEO replaced him, and more than a few board members think they’d been duped.

CenterPoint Energy, based in Houston, sells electricity and natural gas to customers in Texas, 4 surrounding states, and Minnesota. CenterPoint is the successor company to Reliant Energy, the company that a) plastered its name on Houston’s NFL stadium and b) still exists, but as a different entity. In fact, it’s one of CenterPoint’s biggest customers. CenterPoint doesn’t sell directly to households and businesses, but rather to retail electric providers – the middlemen in the chain.

NiSource is headquartered in Merrillville, Indiana, not too far from Chicago. Its natural gas and electricity customers range everywhere from New England to the Heartland to the Florida Gulf Coast. They have an “unwavering commitment to top-tier safety and reliability, collaborative stakeholder relationships, inclusive and engaging work environments, strong governance and transparency, and forward-looking environmental practices and stewardship”, and again, if you think today’s post is dull try reading a few corporate mission statements.

One more, and let us never break down another Dow Jones index as long as we live. Williams Companies, based in Tulsa, does primarily natural gas and oil with a smattering of electric. Ten years ago Warren Buffett floated the company an emergency loan so it could hold off bankruptcy. No word on what interest he charged. Interestingly, to the extent that anything in today’s post is interesting, Williams inadvertently helped modern telecommunications flourish. The company ran fiberoptic cable through defunct pipelines.

We’re so sorry. A better post Friday, as God is our witness. Still, now you know a little about 15 enormous companies that collective employ tens of thousands, serve hundreds of millions, and pay next to nothing in tax while literally keeping the lights on.

Filed Under: Economy, Education Tagged With: ,
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