Ed’s Daily Notes for February 21st   3 comments

Bloomberg: Google Borrows $1 Billion With First Bond Sale in Three Years

Google Inc. (GOOG) sold bonds for the first time in three years, borrowing funds to refinance $1 billion of maturing debt even after its cash hoard swelled to a record of more than $60 billion.

The owner of the world’s largest search engine issued 3.375 percent, 10-year notes that yield 62.5 basis points more than similar-maturity Treasuries, according to data compiled by Bloomberg. Proceeds may be used to repay the company’s $1 billion of 1.25 percent notes due May 19, Mountain View, California-based Google said today in a regulatory filing.

Google is choosing to refinance obligations instead of tapping a portion of its $60.7 billion cash and equivalents, according to Bloomberg data, that co-founder Larry Page has used to invest in connected devices, business services and mobile applications. The leader of Internet search has also executed more deals than any company in the world in the three years through January.

“Google has consistently said that it views its large cash balance as a strategic weapon given the pace of innovation around it and the investment options it sees,” Morningstar Inc. said in a report that estimated fair value of the new bonds at about 70 basis points more than Treasuries.

If you are looking for a safe investment, bonds from Google are in the same neighborhood as U.S. treasuries (some might say Google is safer). The only downside is you probably won’t get the full 3.375 percent yield. Just looking at Google’s previous bond offerings on Fidelity, their 3.625% bond which expires in 2021 is currently being bid with a yield of 2.735%, whereas the ask price knocks the yield down to 2.643%. By comparison, U.S. 10-year treasuries are yielding 2.75% in trading this morning.

Bloomberg: Go Ahead, Let Your Kids Fail

Meg McArdle has an important editorial that should be a must-read for all parents:

I’m on the road this week, giving talks on my new book about learning to fail better: that is, first, to give ourselves the permission to take on challenges where we might very well fail; second, to pick ourselves up as quickly as possible and move on when things don’t work out. This is, I argue, vital on a personal level, as well as vital for the economy, because that’s where innovation and growth come from.

The other day, after one of my talks, a 10th-grade girl came up and shyly asked if I had a minute. I always have a minute to talk to shy high school sophomores, having been one myself.

And this is what she asked me:

“I understand what you’re saying about trying new things, and hard things, but I’m in an International Baccalaureate program and only about five percent of us will get 4.0, so how can I try a subject where I might not get an A?”

I was floored. All I could think as I talked to this poor girl is “America, you’re doing it wrong.”

I was 15 in 10th grade. If you can’t try something new in 10th grade, when can you? If you can’t afford to risk anything less than perfection at the age of 15, then for heaven’s sake, when is going to be the right time? When you’re ready to splash out on an edgy assisted-living facility?

McArdle gets an “A”. Innovation doesn’t come from perfection. Thomas Edison said it best:

During all those years of experimentation and research, I never once made a discovery. All my work was deductive, and the results I achieved were those of invention, pure and simple. I would construct a theory and work on its lines until I found it was untenable. Then it would be discarded at once and another theory evolved. This was the only possible way for me to work out the problem. … I speak without exaggeration when I say that I have constructed 3,000 different theories in connection with the electric light, each one of them reasonable and apparently likely to be true. Yet only in two cases did my experiments prove the truth of my theory.

When you look at the list of the world’s richest people, here is the educational attainment:

1. Bill Gates: college drop-out.
2. Carlos Slim: college graduate with a degree in civil engineering.
3. Amancio Ortega Gaona: no college.
4. Warren Buffett: has a masters degree in economics.
5. Charles Koch: has 2 masters degrees, one in chemical engineering and one in mechanical engineering.
6. David Koch: has a masters degree in chemical engineering.
7. Ingvar Kamprad: none of his biographies mention any college education.
8. Larry Ellison: college drop-out.
9. Sheldon Adelson: college drop-out.
10. Christy Walton: daughter of Sam Walton, founder of Wal-Mart. Does her education really matter? However, for the sake of argument, her father had a bachelor’s degree in economics.

I won’t say education doesn’t matter. What I will say is it depends on what you get from it. Being perfect in school won’t make you perfect in life. While it will improve your chances for success, it doesn’t make them. But the most important lesson from the list above is this: Failure in school doesn’t make you a failure in life, as long as you spend your early life learning. Most of the college drop-outs and “no college” billionaires spent their young lives learning skills which would help them become successful later in life. Ultimately, learning is more important than educational attainment.


Posted February 21, 2014 by edmcgon in Editorial/opinion, News

3 responses to “Ed’s Daily Notes for February 21st

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  1. Ed I think there is a bit of a problem with McArdle’s thinking and frankly yours too.

    Let’s start with yours. Pointing out that you can not go, or drop out of college, and still succeed is shaping the data to fit your view point.
    This is why statistics “lie”, or more properly stated, when done wrong or used for a purpose that the data was never meant for they make people believe things that are not true.

    In your case you sampled people you know that did good and then looked for if they went to college, and even when the people had college degrees you pretty much ignore it. I could have gone out found people that a “failures”, and then looked if they had college and then said if a lot of them didn’t have college it proves the point that college is needed to succeed. The truth is that most of us will not be in either the total failure or the total “win” world, and so that is means to make any kind of general statement your data sample has to reflect that, and you can’t just ignore the results.

    On McArdle’s thinking. For the most part I totally agree that we need a system that doesn’t penalize so much for failure that, they give up, like was seen for example in Japan, were failure might even mean people killing themselves.

    On the other hand the real truth is again most people don’t fall into the “innovator” category, and failure with no consequences for most things is not good. For instance I’m betting that you do have a problem with cost and time over runs by on government projects. Should we just say, “Well things happen, that’s OK”?

    It would be nice if you could just wrap it up in nice bow and say, “Take chances, you will be rewarded”, but in fact most business mostly do it “safe is better than taking chances on anything other than in the R&D departments”. They have to.

    Would you as a manager feel comfortable with having, say your main product depend on one person? Without them the product is toast and you have to explain to your biggest customer that how losing him/her (death, quitting, …) the product they are depending on which costs them thousand if not millions a day it isn’t there, is either going to be really late or not going to happen at all?
    Now change out “one person” for anything like “one unproven idea”, and you see the point.

    Edison made a living by experimenting, it was part of the process. It is not part of the process for everyone’s job, and I don’t think you will find many bosses that would be willing to have you fail 3000 times at what you are doing for them so to get 2 successes, unless you were in fact in the R&D department.

    • Chris,
      You actually point out the failings in big government and big business. Unfortunately, generally speaking, neither of them is very innovative.

      My point, which I think McArdle would agree with, is that an education is about what you can learn from it, and NOT the grades or the degree. And if we assume that the grades or the degree is more important, how do you explain people who have had successful lives like Bill Gates? I’m not saying everyone is built to be like Bill Gates. I am saying that if we assume that everyone must be successful in school to be successful in life, then we overlook the potential in all of us. Everyone may not be innovative in computers, but there are so many areas in our lives that can be innovated, from fast food to retail to government operations to military to astronomy to quantum physics and the list goes on.

      Consider Albert Einstein:

      He wasn’t a “straight A” student, but he excelled in the areas you would expect him to excel in: algebra, geometry, and physics. But because he wasn’t a “perfect” student, does that make him a failure?

      My point is NOT that everyone needs to drop out of school. Einstein had an extensive education, with a doctorate degree. But he LEARNED in school. THAT is the key.

      • Yes Ed I agree the focus is not prefect, and each individual should seek what works for them, but my point is that in fact expecting governments and such to dance to the tune of “everyone learns in a different way” and setting up the system for that, doesn’t work.

        California is a prime example of this. The whole nation is pretty much an example of this.
        For at least two generations now the focus changed from what I grew up with and that is here is the book learn it, you will be tested on it, to “lets discuss what you think you should learn, break up in groups of interest”.

        When I was a kid Kindergarten and preschool were about bring a kid into “socializing” for the the most part.
        First grade was the first year kids actually had to learn something. You had 12 years and then you go to college or trade school.
        In Ukraine the number of “school” years is 11 not even twelve.

        A bit after I got out of high school they started the talk in California about the letting Johnny learn at his own pace and for things he found “interesting”. As time went on the whole nation adopted that idea. The result?
        More dropouts then ever, Kindergarten is now clearly another year of school so you have 13 years, and talk of making preschool yet another required year. On top of that they want to get rid of summer break because “kids forget”. And with all of this, the US pays more money per capita then any other country, but gets the results of a third world country.

        How can Ukraine with 11 years turn out a better educated person then the US can with 13 or even 14 year, (with no breaks)?
        They do it the old fashion way, not the “new age” way.

        No formal education is not absolute indicator of success or failure, but for the majority of people, letting them do “their own thing” is a recipe for social failure. The truth is live is lazy (life always tries to conserve energy), for the majority of people if you let them “work at their or pace” to “their own special needs”, they will do the least they can get away with.

        BTW I feel strongly that college isn’t necessarily the best kind of education for a lot of people, trade school is better, but the point is really more about the fact that a country has to have a formal system and most people have to attend it, and they do have to be judged by if they can pass the grades or not. There has to be a measure of accountability.

        Yes the US/world needs people that innovate, but it needs even more “cogs” of the world, the people that just get the work done.

        In other words I believe for society to work, it has to be setup with a series of “sieves”.
        I had one enlistment in the Air Force and I noticed that almost everyone complained about things (note peace time not war at that time), but when it came to when they came to the end of their enlistment, most sign up again. I thought that was a great “sieve” for the people that found that kind of life “comfortable”, and it meant that the ones that choose to get out were more likely to be the ones you really wanted in careers that weren’t “guaranteed”.

        Well that goes for the education system. You setup one to that turns out the cogs, the people that are truly innovative will find their way through that sieve and go on to do “great things” in spite of the “system”.

        In what you quote you have the 10 year old kid that is faced with a “If I try something hard, and fail, I loose X” situation.
        Why should that be changed?
        That is the choice. Follow the rules and you get Y. Don’t follow the rules and take a different path.
        That path may or may not be a better path. It could lead to the new Einstein or Bill Gates or whatever.
        That is the “sieve” that finds the right people for taking chances.
        If the 10 year old (and her parents) always want to take the “guaranteed” route, do you really believe they are the material for one of the people you have listed for great success?

        I’m a cog, I will always be a cog, I lack the mentality to take those kinds of risks.
        I have not followed the education system “exactly”, I’m in fact a college drop out. But I have paid the price many times for dropping out, and I don’t resent the system for putting a price on me going my own way. We all have to pay the consequences of our choices. It is part of what make us who we are.

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