Dear Mr. Berko:
My first question isn’t about stocks. Why have college costs nearly tripled since 2000? My brother, a chemistry professor, earned $71,000 in 2010, and last year he made $74,000. Even though more students are attending classes, salaries are not increasing because so many college courses are now online.
As far as investing goes, I own 200 shares of Netflix, an investment I bought at $126 a share last August. Should I sell it or buy another 200 shares, which now trade at $98?
– JK, Minneapolis
Dear JK: Online courses are like taking a shower with your clothes on – a cheap, pathetic substitute for live classes that shortchanges students and debases the education process.
One example of where college dollars are going is sports. Since 2010, according to The Huffington Post, over $10.3 billion has been spent by public universities to boost and goose failing sports programs.
The American Association of University Professors released a study in 2014 demonstrating that athletic spending between 2004 and 2011 increased by 25 percent at public colleges. And several weeks ago, a participant in that AAUP study told me that percentage would rise to 47 if the years 2012 through 2015 were included.
The study also showed that NCAA Division I schools increased football head coaches’ salaries by 93 percent between 2006 and 2012. There are 1,066 schools in the NCAA, and 345 are Division I schools. In those years, median pay for professors rose a niggardly 3.7 percent, which speaks volumes about America’s perception of education.
Football and basketball are indubitably and incontrovertibly more important to schools than academics. The University of Illinois recently hired a new football coach with a $21 million contract. The state of Illinois is close to bankruptcy because of its $85 billion unfunded pension liability.
In most states, the highest-paid employee is a head coach. The University of Alabama’s Nick Saban makes $6.9 million, while endorsements and speaking engagements add $4 million to his income. Last year, Saban’s Crimson Tide returned $33 million to the university. However, if Alabama’s accountants applied the same accounting principles used by corporate America, that $33 million amount would be in the minus column.
In 2014, only 20 of the 130 NCAA football programs in the top subdivision had “a positive operating margin.” The average loss was $17.6 million per school – and perhaps higher because operating margins refer only to variable costs and don’t include fixed costs. The profligacy continues because universities hijack funds from other departments when athletic coaches exceed their budgets. According to USA Today, student fees at Old Dominion University fund 65 percent of the school’s athletic budget. Meanwhile, Colorado State University borrowed $240 million to build a football stadium. CSU has 24,000 students, so that’s $10,000 per student. Then the interest and amortization of that debt cost each student about $1,100 every year, just for a stadium.
If other athletic programs are included (curling, track, volleyball, golf, shuffleboard, gymnastics, etc.), then the Pacific-12, the Big 12, the SEC et al. spend about $136,000 per athlete, while academic spending is less than $14,000 per student. In many colleges, it’s easier for students to win letters than to learn to write them. Universities care more about getting bigger and less about getting better, and the students get shafted in the job market.
Netflix (NFLX: $98) is not an “investment”; it’s a bloody rank speculation. In 2015, NFLX earned 28 cents a share, and no company on earth is worth 375 times earnings. That’s insane.
NFLX may earn $1 a share in 2016, but even that would be 102 times earnings. The mean the target price from Thomson First Call (consensus of 41 stockbrokers) is $125, or only 1 point below your basis, but NFLX’s 1.8 percent profit margins stink.
Earnings growth, year over year, was down 48 percent for the most recent quarter, and trailing operating cash flow was minus $749 million. Last July, institutions reduced their positions by 9 percent, and NFLX’s board member Jay Hoag sold 2 million shares. I believe we’re looking at a more conservatively valued market, and high-flying issues with high price-earnings ratios have less appeal than they have in years past. NFLX may move higher, but the downside risk is greater than the upside gain. Sell!
Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at [email protected]. To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.
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