I Went Back to School

I went back to school this week. But no, I’m not going back for an advanced degree, and I’m certainly not pivoting careers to become a teacher. But this past Wednesday, I did find myself walking the halls of my old high school, a place I graduated from 21 years ago (which is somewhat hard to believe). I was there as a guest speaker for a financial literacy class, a course that is now mandatory for all students.

It was a bit surreal, as I never thought I’d be back in those classrooms, but it was an enjoyable experience. Walking past the lockers and into the classroom felt like stepping into a time machine. And regarding the audience? Well, I’ll admit that plenty of students were completely zoned out, staring at ceiling tiles, just waiting for the bell, or full-on sleeping. But in each class, a handful of students were locked in. They were engaged, asking sharp questions, and genuinely interested in how money works in the real world. Those interactions alone made the time well worth it.

Since I can’t fit everyone into a high school classroom (and I doubt you want to sit in those desks again), I thought I’d share the “Cliff’s Notes” version of what we covered. We moved past the basics of balancing a checkbook and dove into the math, the psychology, and the often-harsh reality of building wealth.

Hooking Them With AI

To grab the attention of a room full of teenagers, I didn’t start with Roth IRAs or life insurance; I started with what they know. We talked about the AI revolution and the tools they use daily, like ChatGPT. This naturally led us to NVIDIA, a company many of them knew (although a surprising number hadn’t), but none realized had recently morphed into the $5 trillion backbone of the global AI economy.

We used NVIDIA as a live case study to explain one critical concept: valuation. I explained that a stock price alone tells you nothing. Yes, there is an incredibly powerful qualitative story around NVIDIA and the AI supercycle. However, you have to go beyond the initial “story” and find the quantitative details. We then looked at the Price-to-Earnings ratio as an introduction to valuation. With a P/E ratio hovering around 52, I asked them, “Does this seem expensive to pay $52 for every dollar of earnings?” The overwhelming consensus was yes.

But it was then important to explain “why” someone might be willing to pay a premium. And that is future growth. NVIDIA is expected to grow rapidly over the next decade. This is when we finally introduced the idea of a Discounted Cash Flow model to arrive at an actual price per share that might make the stock a good investment. In summary, the combination of the two ideas was a fun way to introduce the concept that even if you are investing in a great company, you still need to make sure you’re paying a reasonable price.

The Elon Musk Perspective

From there, we pivoted to the richest man in the world, Elon Musk. Everyone knows he is rich, but it is nearly impossible for the human brain to comprehend just how rich ~$480 billion actually is. To put it in perspective, we played the “Seconds Game.” I asked them to guess how long one million seconds is. The answers varied, but the correct answer is roughly 11.5 days. Then I asked them how long one billion seconds is. The room went quiet when I told them the answer: 31.5 years. It gave perspective on the relative magnitude of billions versus millions very quickly.

But why was this relevant? Elon has hundreds of billions. It’s a staggering amount of wealth. I used this as an intro to ask, “If you had the chance to be an early investor in an Elon Musk-led company, would you do it?” Naturally, most of the students said yes. But this led to a crucial lesson about knowing what you’re buying. We looked at the Destiny Tech100 (DXYZ) fund, a vehicle that allows retail investors to invest in private companies such as SpaceX and OpenAI. I showed them that at the end of June, the fund was trading at a massive premium, 5x above its Net Asset Value (NAV). The lesson was simple but vital: Never pay $5 for $1 worth of assets just because a famous name is attached to it. Hype is expensive.

How to 75x Your Money (Without a Lucky Stock Pick)

This was probably the most important concept of the day: Compounding. I presented three scenarios involving three friends who each make a one-time investment of $1,000 and earn a 9% annual return.

• Friend 1 invests their $1,000 at age 30. By age 68, they have about $27,000.
• Friend 2 invests their $1,000 at age 24. By age 68, they have about $45,000.
• Friend 3 invests their $1,000 at age 18. By age 68, they have about $75,000.

The room visibly reacted to this. Friend 3 didn’t pick better stocks. They didn’t have more money. They simply started 12 years earlier than Friend 1, and they ended up with nearly triple the money. The takeaway for a room of 17-year-olds was clear. The most powerful tool in investing isn’t your IQ or your stock-picking prowess; it is time.

And this is also where I received the most encouraging question from a young man seated near the front of the classroom. He asked, “If I start saving $50 from each of my paychecks, how much money would I have in 45 years?” So I stopped to do the calculation, and much to his delight, when I told him about $1.5 million, it seemed like a light went off in his head.

Your Brain on Money

We then spent a small portion of the class discussing behavioral finance. I told them that while personal finance looks like math, it is also largely a matter of psychology. To prove it, we played a game to demonstrate loss aversion.

Game 1: As you leave the classroom, I’ll give you $800, guaranteed. Or, you can spin a wheel with an 80% chance of $1,000 or a 20% chance of nothing.

• The Result: the vast majority of the class takes the guaranteed $800.

Game 2: As you leave the classroom, you pay me $800 (for such a lovely presentation). Or, you can spin a wheel with an 80% chance of paying me $1,000 or a 20% chance of paying nothing.

• The Result: the vast majority of the class spins the wheel.

Mathematically, the “expected value” is the same in both scenarios. But emotionally, they are worlds apart. We are wired to be terrified of losses; we feel the pain of a loss more intensely than the pleasure of a gain. This wiring makes us risk-averse when considering potential gains and risk-seeking when trying to avoid a loss. This can show up as investors selling at the bottom (to stop the pain) and holding onto losers too long (to avoid realizing the loss). Recognizing that your brain is actively working against your financial interests is the first step to overcoming it.

The Amazon & Intel Reality Check

I brought up the Amazon chart we discussed in this newsletter a few weeks ago, the one showing how a $10,000 investment at the IPO would be worth millions today. It’s a fun story, but then I showed them a slide titled “What They Don’t Show You.”

We looked at the drawdown chart, the 90% crash after the Dot Com bubble burst, and the 50% drops that followed. I explained that volatility is the price of admission for investing. You cannot experience gains without some stomach-churning drops along the way. But then I added a new layer. I pulled up a chart of Intel from the late 90s. Like Amazon, it was a tech titan. Like Amazon, it soared. And like Amazon, it crashed. But unlike Amazon, Intel never recovered to those highs.

This was the critical lesson on diversification. In 1999, you didn’t know if you were holding an Amazon (which would eventually make you rich) or an Intel (which would trade sideways for two decades). Betting on a single stock is a gamble; owning a well-structured, diversified portfolio is an investment.

The Financial Rules of the Road

When I initially agreed to teach the class, I thought a 30 to 45-minute presentation sounded like a long time. However, with just five small topic areas, I found myself running up to the bell each period. Even so, as I wrapped up each class, I made sure to cover a few hard-and-fast financial rules they should take with them into adulthood. Here is the list I left them with:

1. Always get the match. If an employer offers a 401(k) match, contribute enough to get it. It is the only free money you will ever find in this life.
2. Live below your means. It sounds boring, but it is the easiest way to build wealth. If you spend everything you make, you’re unlikely to get ahead, no matter how much you earn.
3. Acknowledge your biases. Build a plan that protects you from your own emotions.
4. Buy insurance to cover catastrophic risks (house fire, car accident, early death), not to make money. Keep your investing and your insurance separate.
5. There is no free lunch in investing. Risk and reward are joined at the hip. If it’s too good to be true, it probably is.
6. Pay off your credit cards. Compounding is a miracle when it works for you (savings), but it is a disaster when it works against you (credit card debt).

Walking out of the school, I felt good. Sure, some students were more interested in catching up on sleep than compound interest. But for those who were listening, understanding these concepts at 16 or 17 is a massive head start. If they can master their behavior, respect the power of time, and avoid the trap of “easy money,” they’ll be just fine.

Markets / Economy

• It was another wild week in markets, as exuberance over NVIDIA’s earnings turned sour amid fears of a hawkish Fed. The S&P finished the week down -1.9%, the Nasdaq was down -2.7%, and the small-cap Russell 2000 was down -0.8%.
• The BLS dumped a backlog of jobs data now that the government shutdown has been resolved. The September Nonfarm payrolls number was better than expected, showing an increase of 119K jobs, better than the 50K expected.
• However, unemployment rose to 4.4%, above expectations and the highest reading since October 2021.

Stocks

• U.S. equities were in negative territory. Technology and Energy led the decline, while Healthcare and Consumer Staples outperformed. Value stocks led growth stocks, and small caps beat large caps.
• International equities closed lower for the week. Developed markets fared better than emerging markets.

Bonds

• The 10-year Treasury bond yield decreased eight basis points to 4.06% during the week.
• U.S. bond markets were in positive territory this week while International bond markets were negative.
• Government bonds led for the week, followed by corporate bonds and high-yield bonds.