Robin has a hot stock tip. Really hot! Can’t miss! Red hot! Unbelievable! Gonna go from one dollar a share to over a hundred dollars! Robin knows a guy who knows a guy! And this guy knows stocks! Practically insider trading! A sure thing! Robin’s life is about to change! For the better! Forever!
Except Robin doesn’t have much cash. Need money to make money. With only a thousand dollars available to invest, Robin figures the bank account will soon swell to a hundred thousand dollars. A hundred thousand dollars would be awesome, no doubt about it. But a hundred thousand dollars doesn’t allow Robin to retire. Now, three million dollars. Three million dollars is a different story. Three million dollars makes all the difference. Three million dollars means saying goodbye to their job, traveling to warm places, and drinks with those little umbrellas for the rest of their days. Three million dollars is the number. To get three to million dollars all Robin needs is a lousy $30,000.
Robin has some equity in their condominium that they bought just before the pandemic and some savings in a retirement account. If Robin cashes out her retirement there will be a penalty, but who cares. And Robin has some friends from whom borrowing money will be as easy as explaining the hundred to one return. Rather than waiting decades to retire, this one wager on this amazing investment will change everything. Robin sells her condo and moves in with friends, sleeping on a couch in their living room. Robin cashes in her 401k, cheerfully accepting the lost interest. Robin invests every dollar she has earned, saved, and borrowed; she buys 30,000 shares of the can’t miss stock.
Long time readers will not be surprised that there is a college admissions analogy imminent.
Sandy is a junior in high school. Although Sandy is passionate about art, music, drama, and philosophy, Sandy signs up for courses in pre-calculus, chemistry, and Advanced Placement Thumb-Hanging. Sandy’s counselor feels strongly that the only way to be admitted to Stanford University is to sign up for and be successful in academically rigorous courses. Although Sandy loves sailing and playing guitar, Sandy joins the lacrosse team, Sandy’s counselor having mentioned that Stanford favors athletes. Sandy participates in the Head Banging Club—bring your own piece of wood!—and rises to a position of leadership. Next year, as a senior, Sandy will be the vice president of the HBC and will recruit younger students to smack their heads against a thick piece of mahogany. (Less exclusive high schools allow their students to use pine and other commonplace kindling.)
Could it be argued that there are some similarities between Robin and Sandy? Could a mutual fund and a mortgage be said to be a series of baskets into which Robin could distribute some eggs? Has Sandy, similarly, invested all their emotional capital with little chance of diversity or return?
I am not competent to evaluate whether Robin’s stock tip is advisable. Some are, most aren’t. After 39 years of professional practice, however, I am well placed to determine whether Sandy’s sacrifice and single-minded focus on Stanford is sensible. It’s not. Stanford routinely rejects valedictorians. Every admissions cycle Stanford denies 19 out of 20 supremely, well-qualified applicants, many of whom have perfect SAT scores, are presidents of their senior classes, editors of their yearbook, division one athletic prospects. These students did nothing wrong. Indeed, in the classroom, on the athletic field, and in their extracurriculars, they did everything right.
If these wonderful students did make a mistake, it was putting all their eggs in one proverbial basket.
Stanford is undeniably awesome. Check out English 5A in Palo Alto, Anti-Social Heroes in the Nineteenth Century where students study Jane Austen. But note that at St. Mary’s College, also in Northern California, students can take ENGlL 321 and read–you guessed it–Jane Austen.
Stanford is great. But so are hundreds of other colleges, most of which admit pretty much all of their qualified applicants.
I’m hoping Robin will not mortgage her future by investing all her samoleans in that one stock, no matter how hot the tip. I’m also rooting for Sandy, that their hopes and dreams will extend beyond Stanford and that she will find contentment and fulfillment wherever she studies.
