Dropout Allure

Recently came across a web startup at which, the founders dropped out of college to pursue developing the company.  Maybe, it's because we've been fed so much Bill Gates/Michael Dell mythology over the years that people love to tout this about a company.  Big deal.  Don't most colleges allow you to take a few semesters off?  It's probably not like they can't go back once the thing fails.  I don't know which is worse, when a company touts their dropout credentials, or when they say how many PhDs helped develop the algorithm.  I guess the ideal startup would have a founder who dropped out, with 100 PhDs working beneath them.  Maybe there's some sort of ideal ratio that can be worked out.

Comments

[Barry G]

They say a person who goes to college earns an average of $1 million more in their lifetime then a person who doesn't.

With a good college education costing $40,000 a yr, thats $160,000 for a degree. If the average person graduates at 21 and works untill 65, thats a working lifetime of 44 years. Well if you could invest every year at the rate of 4.5%, then the present value of that $1 million is $144,172.76, or put another way, $144,172.76 invested at 4.5% a yr would become $1 million. So it could be said that a college education costing $160,000 is fairly valued.

But what if you can invest at a rate greater then 4.5%?

At 6% the present value is $77,000 which is the returns of the average bond investor
At 9% the present value is $22,554 which is the returns of the average buy & hold stock investor
At 12% the present value is $6,829 which is the returns of a good mutual fund
At 15% the present value is $2,134 which is the returns of a good investor
At 20% the present value is $328 which is the returns of a great investor
At 30% the present value is $9.69 which is the returns of legends like Buffet & Gates (maybe this is why he dropped out of college)

Suddenly $160,000 for a degree is not looking so hot.

[Patrick]

Nice calculation Barry, but I think you made a couple of errors in your assumptions:
1. The $1 million dollars isn't present as a lump sum at the age of 65. It's distributed throughout the lifetime. So you'd be better off calculating the present value of say $22 000 per year for 45 years. At 4.5% that is over $400 000.
2. You've used the AVERAGE college increase in lifetime pay($1m), but the price of a GOOD college ($40 000/year). If you could find the increased value of a GOOD college degree, or the cost of an AVERAGE college you'd have a better comparison.
3. If you go to college for financial reasons, you'll do a professional degree like medicine or law rather than art history or Old Church Slavonian. You should then earn a fair bit more than the average $1m premium.

The last comment is less mathematical in nature, Warren Buffett learned his investing in college, what is his expected return without education?

[meep]

Lastly, it doesn't cost $40K/year for a good college education.

Of course, I went to college in the 90s, so the $5K/yr for tuition, fees, and dorm I was charged for my stay at a big state university has undoubtably grown, I'm betting it's nowhere near $40K now. The brand-name schools that cost $40K/yr are pretty competitive in their admissions, but most of those who are admitted can do just as well at much cheaper institutions. Some of my friends at big state U. (and its close relative, U. of state) were part of the start-up of Red Hat Linux and did pretty nicely for themselves. So, I see no particular allure in having gone to a specific brand-name university, being a college dropout, or having a PhD (having gone through grad school in math and seeing how useless particular profs would be in biz).

[anonymous]

well patrick i was reading wikipedia and it says that warren buffet is the son of a stock broker and he made his first stock purchase at the age of 11, and when he was just 14 he bought 40 acres of land with money he saved up and then he rented his land to tenant farmers, so im sure that he already knew how to make money before he had ever set foot on a prestigous college campus