Condo or College?

For most of my life I have made my good living by buying and selling physical things.  My line of credit with my bank is still directly related to the financial institution’s belief in the value of inventory, machines, and cash on hand in relation to money owed to them.

This is the traditional bible of finance.  Our statistical yardsticks of wealth, both individually and as a country, are based on measurable, identifiable things.  But increasingly I am doubting a lot of these old rubrics which the college Economics texts are based on.

I am not the only one who is questioning the ancient axioms.

About a week ago I heard one of the chief decision makers at BlackRock, one of Wall Street’s largest money managers, announce that he and BlackRock have been wrong in predicting that interest rates and inflation had to go up because unemployment was at a record low and wages were rising.  He said the old playbook was wrong, and they were throwing it away.

The chief investment guru of PIMCO, who has had an awful time betting on higher interest rates, took the blame for his terrible year a couple of days ago, but he is staying with the strategy that placed him in the lowest 7% of money managers.  He bet on rising mortgage rates.

This is not an idle academic argument.  I think it is important for the machining world for several reasons.

The people in our world make stuff for people who want stuff.  We use machines and steel and oil.  We employ people and use physical space and ship goods to customers.

What if stuff, things, physically measurable items are gradually becoming less important each day?

Mortgage rates are dropping like a stone, currently, as the 10-year U.S. Treasury interest rate hovers around 1.5%.  Yet there is no rush by young people to buy homes or condos.  Renting is popular today, not buying.  One big reason for that is that young people have big college debts they are paying off monthly.  They have consciously, or unconsciously, made the deduction that education is more important to them than home ownership.  Whether this will prove to be a good or bad economic gamble, long term, is an unknown, but it is affecting the purchase of real estate, and I expect this trend to continue.

I think we are seeing the same choices in vehicles.  Young people are investing in day care and gym memberships and restaurants rather than a Harley or a convertible.  For city people, Uber, a bicycle, or the subway are limiting car buying.  This doesn’t mean that people are poorer today because they do not own a car.  They are making different choices.

People are also veering into different spending choices in food and vacations.  We are seeing more folks opt for restaurant food or delivered menus.  People are spending on travel experiences rather than buying a cabin at a lake in Northern Michigan or Wisconsin.

Warren Buffett recently admitted he made one of his worst mistakes by buying Heinz and its tired old brands.  Same with Kraft and Campbell’s.  Tired old brands are not selling.  Panera and plant-based meat are working.

I’ve been bouncing around in this article, but the theme running through it is that the bankers and investors who have followed the ancient rules are losing.  The manufacturers who have done well making parts for home faucets and sedans are beginning to fade.  Real value lies in intellectual capital, but it can also evaporate quickly.  The numbers that bounce the markets around like yo-yos are obsolete.  GDP does not measure air quality, creativity, or life expectancy.  Employment does not measure automation improvements.  The markets are volatile because people look at conflicting numbers.  And the numbers they look at are yesterday’s.

Question: Is college a better investment than a house?

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14 thoughts on “Condo or College?

  1. Jeff

    College is a better investment than a house (providing its a degree that has solid merit and a need base in the coming years). Trade school, associates degrees and other training give the earner a chance to make a better living throughout the rest of their life.

  2. John Bressoud

    Real Estate, another good example of old rules don’t apply. I sold my first house in 1985 for 50% more than I bought it for in 1982. But that was then. I sold my second house in 1991 for less than I bought it for in 1985, even with substantial improvements that enlarged the finished space by 30%.
    If you use your education dollars for something that will increase your earning potential (like an engineering degree) you will reap a lifetime of returns.

  3. miles

    Buckminster Fuller coined the term ‘ephemeralization’ to describe how designs were eliminating mass. I remember having a ‘portable’ color TV , Made here in the USA by Zenith. It took two college boys to move it, the cabinet and chassis were heavy gage stamped steel. I learned to drive in my grandfather’s 1956 Buick Special. The bumpers and chrome trim on that car weighed about as much as a SMART car tips the scales at today…

    Ephemeralization is too intellectual a word for these times, I saw Daniel Burrus use the word ‘dematerialization’ to describe this same phenomenon just the other day.
    There is a lot of cash sloshing around in markets now, and it is doing some twisted things- like this Danish bank offering a negative interest rate mortgage. We will see even more wierdness I am sure.

    House or college? College grads are a dime a dozen and except for a few key fields, underemployed at best. The tradesmen in my home town are booked out until the snow flies. I would definitely argue for a skilled trade credential/ apprenticeship. And advise them to put the rest of the ‘ monies not spent’ on tuition and student loan debt into Gold mining shares and Biotech stocks.

    1. Gordo

      Just out of curiosity, are those tradesmen over 50?

      We have 3 guys replacing the wood around our dock doors and painting, and they are all over 50. Not sure if any have a degree of any kind, but they do have skill.

      I recently had a slab poured to put a pole barn over, and the concrete guys were all over 50. The guys who erected the skeleton were all over 50, and the guys for the sheet metal were all over 50, with 2 over 65. The trim, windows, and doors are all nearing completion, and I have yet to see a single person under 30 on the job site.
      These have been a great group of guys to work with, but I have to wonder what would have happened if they weren’t working into their retirement. More importantly, when they do retire, who is going to be able to do the job. There is a skill set required to build a building, just like there is one for machining.

      You don’t just decide that since the job pays 50 bucks an hour you are going to take it when you cant do it. We have spit out quite a few lathe operators, making parts wrong and spending more time on their phones than turning, so the part where you try to hire and grow your own doesn’t work like it used to. Circular math has turned out quite a group of young men, none of which got the class that explains a diameter, radius, or circumference.

      It is going to get interesting for sure. It could very well be more fun to watch than hiring the handicapped, as we used to say before it became politically incorrect.

      1. Miles

        Mostly they are older, But I had an HVAC PM scheduled and the technician was in his 40’s; I had to have a Backflow test performed by an approved plumbing vendor and the tech was probably early thirties. My son is shift leadman/ setup operator in our industry and he is not yet 30. These young tradesmen are going to inherit the world.

  4. Lloyd Graff

    Miles, gold is an interesting idea, as a value hedge, though it has been associated with inflation for a long time. Noah and I were talking investments and insurance against catastrophe and to my own surprise, I suggested owning some physical gold and putting some cash in a sock in case you had to run for some crazy reason. Maybe I have read too many holocaust stories, but today I think it makes a little bit of sense. Perhaps Bitcoin will ultimately replace gold, but I am not quite there yet.

  5. Howard

    After working in a machine shop and then a foundry for a total of 18 years I found myself financially able to attend college. My wife and I packed up and I moved to East Texas so I could attend LeTourneau University. Four years later I had a engineering degree that cost me around 80k. Before I attended school I was earning around 55k a year and the semester I graduated in December of 2010 I had three job offers. The offers had a starting salary of 85k to 105k a year. I ended up landing the 105k job and worked it for two years before I moved on to a better paying job. I have been making over 100k ever since. I believe my return on my investment has more than paid for it’s self. I now own my own shop and love it!

    1. Victor

      Good for you, Howard! I’m very happy to hear that. Congratulations! You’re an inspiration and an example.

  6. r in nyc

    Many of us learned to be frugal and spend within our means from our parents.
    Not so much anymore 🙁

    Here in New York City, I bought a 2 family house, Live in the smaller apartment and let the larger apartment help with the mortgage. If and when I retire the rents will go towards my retirement income. Real-estate is always a great investment!!!
    Condos – not so much – dues, associations etc… more volatile than real Real-estate properties.

    Why do we never speak of apprenticeship programs?

    The “Degree” is but a piece of paper and a ticket to the Ball.

    It is up to the individual, who they dance with, and maybe take home 😉

    IMHO, I think a community college degree is the best value.
    If it is in a marketable field. look up salaries by degree, whats at the bottom? “Liberal Arts” imagine that.

    “I got an degree in Tasmanian Aboriginal basket weaving history, and I don’t know why I can’t find a great paying job. And how am gonna pay off $400K in student loans” Duhhhhh
    “would you like french fries with that?”
    They are not getting a house or condo – It really sux living in your parents’ basement waiting for someone to die and leave you some money. And since you never studied statistics, you don’t even suspect that the lottery is a waste of money!

    An expert must have three things. Education, training AND Experience! Most so-called experts have only the first one or two…

    Most useful things I learned were from working. Having to solve problems under pressure.
    i.e.: experience!

    All the academics and theoretical BS went out the window as soon as the first problem popped up. That’s when you need common sense, but that too has died a horrific death.

    Most of the trades now require a very technical education as well.

    Most HVAC, cars, appliances “smart homes”, etc… are computer controlled.
    So you have to know and capable with today’s ever changing technology!

    Most people are amazed when they find out I only have a 2 year degree.
    “Where did you learn that?” – “The School of Hard Knocks!”

    In addition to the news, internet , and books, I keep reading and studying trade periodicals from many fields and industries, as well as continuing education programs, to keep myself relevant.

    When you stop learning, get ready to die, or your mind will die…

  7. Steve Adams

    Material things are declining in value, partly due to our expertise in making stuff and doing the labor of stuff. Stuff is cheap.These days we are drowning in our stuff. Stuff doesn’t even have to be a physical thing anymore. My teenage son puts as much value in an app on his computer as any item he can pick up in his hand. The western standard of living for many has gotten to the point of, “I have everything I need for a comfortable life, now I focus on what I want”. And what I want is to skip the dishes and order lunch.Big student loans and mortgages are a choice, not a necessity.

  8. T.B.

    In 1900 40% of population were farmers, using an oxen and plow. Less than 2% now are farmers, but there are lots of people making and servicing farm equipment, and all the ancillary industries that didn’t exist before. Where did all the buggy whips go? Lot’s of autos now and all the related industries. Used to be 50 girls/women sitting in an office pool clacking away on manual typewriters. There are zero now, but a hell of a lot of people working in computer and software industry that didn’t exist then. The world has ALWAYS changed and evolved into new things and people adapt. It’s been that way since the beginning of time, just happens faster now. It’s not different now. It will continue to change and create new opportunities forever more. It’s just not always easy to predict what the future will look like.

  9. Seth Emerson

    In 1965, when I exited High School, College was the safe bet. I should have worked, learned a trade, etc. But many guys who did that, ended up carrying a rifle instead. I went off to college, and didn’t really pay much attention, and ended up carrying that same rifle. but that was several years later, and a bit safer. Anyway, after the service, I decided to do the trade thing, so I went to a Community College and got the AA degree, and my automotive licenses. But I liked the car hobby stuff so much, I didn’t want to do it 8 hours a day, then come home to – what, work on my car? So I went to a Bachelors degree and actually used things learned with that degree in a real job. I feel I made a difference with the companies. And I could come home and play with my cars. I don’t know if the Government programs for student loans can be tied to productive job ($$) areas. That does smack of elitism. But shouldn’t there be some possibility of paying them back. If not, okay. Should society decide what areas of employment are worth subsidizing. They do some of that now. Arts? Music? Are they worth it? I am not a “free college tuition for all” proponent. Jobs will change. (as noted above). How do you train – college or trade school – for the job that won’t even be known for 5-10 more years. Maybe the value is in training people to be able to learn. Then, when the job comes along, they will be ready to learn it. And, 10 years down the road, learn another one.

  10. Bill Badura

    Lloyd, your last paragraph took me back 20 years.
    August 1999, the dot-com bubble had not yet burst, Warren Buffet and his investment style had people doubting his Oracle status, and people talked of the New Economy incessantly. Well, Mr Buffet has done well the last 20 years. We, the people that make things, have for the most part done well also. And the New Economy still needs real pieces.
    As long as people want more for less, there will always be opportunity to provide it.

    Neither a bachelors degree or a personal residence are what I would consider a real
    investment. They are lifestyle choices with a dividend. Graduate school, on the other hand, is a fantastic investment if you have a direction to go and can stick it out. Rental property can be too, if it fits you.

    I live in Kansas, and maybe it’s different here, but the busy gyms and restaurants have
    parking lots full of pretty nice cars and pick-ups. I wonder if the young people that you mentioned will change their spending habits as their lives change. Here, wheels are still important to most young people.


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