Where does it stop?
The reason companies fail, and empires collapse is simple – they become arrogant. They forget that their success was earned by sweat and paranoia. They start taking it for granted. They become fat, lazy, and happy. Just like companies and empires, the US is not absolved from the laws of economics.
Capital Thinking • Issue #1135 • View online
Some of my colleagues at IMA advised me not to publish the essay you are about to read. They thought it would put me in the middle of political tribal warfare and I’d just frustrate a large group of my readers with it.
However, last December I penned an essay reminiscing about spending 30 years in America. I wrote:
Tribalism in the US has become so strong that it has started to impact our freedom of speech. No, the government is not going to send you to the gulag for your political thoughts. We do it to ourselves by canceling each other. …
How many of us now find ourselves afraid of being cancelled, or just don’t want to get into mindless, vitriolic debates with tribal drones (people who just repeat the talking points of their tribes). The more we self-censor, the less free we become.
Despite my colleagues’ insistence, I decided that I am not going to self-sensor. Some readers may decide to stop reading my essays – well, the unsubscribe button is at the bottom of this email.
What is the point of living in a free country if you are afraid to voice your opinion? Actually, in this case it is not even an opinion, but analysis with investment consequences.
I made a deliberate decision not to belong to a political party. I don’t want to outsource my thinking to a collective. I am innately leery of group think – a useful trait in my day job as an investor.
If you agree, and especially if you disagree with me, please reply to this email. I read every email I receive, though lately I’m not able to respond to each one. I am not afraid to change my mind.
Feel free to forward to your friends, relatives or random strangers. They can sign up to receive my articles here.
A Value Investor’s Analysis of Student Loan Forgiveness
Vitaliy Katsenelson | The Contrarian Investor:
My wife Rachel and I had our son Jonah in 2001. I was 28 and she was 23. Rachel quit her job and became a stay-at-home mom and part-time student at CU Denver, where she was finishing her bachelor’s degree.
Both Rachel and I immigrated to the US ten years earlier, from the USSR. Now, I had a master’s degree in finance and a CFA license but was just a few years into my career as an analyst.
I was working for a small investment firm, IMA, making $40,000 a year. As soon as Jonah was born, we opened a custodial educational account and started saving $2,000 a year for Jonah’s future education.
This $2,000 in 2001 was an enormous amount of money for us; it was around 7% of my after-tax income. We had a very modest lifestyle. We were still paying off our college debt.
This education money could have let us afford to eat out, enjoy a daily trip to Starbucks, or take another vacation or two. We bought used cars, drove them for decades. We made a budget and lived by it (I wrote about it here).
We felt it was our responsibility as parents to make sure that our son went to college and was not burdened by college debt. The value of education had been drummed into our heads by our parents. We wanted to give Jonah every advantage he could get in this country.
We opened similar education accounts for our daughters Hannah and Mia Sarah when they were born in 2005 and 2014. Though my income was growing as my career advanced, funding these accounts was always an effort.
We needed more bedrooms – we bought a house. Also, when storks bring babies, what follows are unending new expenses: diapers, daycares, after-school activities, and the kids keep growing, so they constantly need new clothes.
As I look back at those years, though they were often trying, they were some of the happiest of our lives. This is the behavior I’d want my kids to replicate: Live within your means. Don’t get into credit card debt; pay off debts quickly. Save for a rainy day.
Create a budget – which is basically categorizing and mindfully allocating your spending to things that are important to you. But making sure you take care of your kids’ education is at the top of the list.
In advice to my kids, I’d throw in some Stoic wisdom, in that happiness comes from wanting what you have. Once your basic needs are taken care of, material things bring little happiness.
President Biden, with an executive order (a decision that did not go through Congress) “forgave” $10,000+ of many students’ loans. Aside from the fact that every member of my household, including my 8-year-old daughter Mia Sarah, is now on the hook for about $1,000 for this “forgiveness”, it felt like what Rachel and I were trying to teach our kids is now thrown out the window.
As I promised you, this is not a political essay, so here’s the analysis part.
This loan forgiveness is a very dangerous, slippery slope.