Monday, December 17, 2007

Math Problems

The question that I sometimes ponder is how our deteriorating national rank in math and science will manifest itself in everyday life. What effect will this have on the economy here in the U.S. and in the rest of the world?

Watching the interviews of the many people caught up in the sub-prime mortgage mess may just be that first indicator. These people are stunned to find out what is included in their mortgage. They had no idea that their interest rate would go up so much and what that would mean to their monthly payment. They believed the greedy mortgage lenders and real estate agents because they didn’t know any better and couldn’t figure it out on their own.

Many of these complex mortgages didn’t exist just a few years ago. This is a very interesting case where stagnating in math expertise hurts our overall economy. Twenty years ago, there were only two types of mortgages – standard and adjustable rate. You didn’t have to have advanced math skills to figure out what was going on and what was going to happen to your payments – it was nicely laid out for you. The mortgages available that are causing so much trouble were so complex with so many different options that it couldn’t be simply laid out for you.

The world today is so much more complex that your grasp of numbers and math concepts (in addition to having a grasp that a 1.5% interest rate on a mortgage is not real) has to be much higher than 20 years ago.

Now I understand that there is no hard evidence of a causal relationship between math knowledge and the mortgage mess – but this is a blog allowing me to infer that relationship based upon the anecdotal evidence of those who were put on the news for others to think about.

The skills necessary to succeed today - from home buying to retirement - are so much more involved than 20 years ago that stagnating math scores will continue to adversely affect our economy. The mortgage mess could be just the tip of the iceberg.

Monday, December 10, 2007

The Business of Education

A few weeks ago, AEI held their annual education entrepreneurship presentation where they have the usual suspects (TFA, KIPP, TNTP, Edison, New Leaders etc – it seems they are required for every education panel) present and talk about how difficult it is for entrepreneurs in education. Attending this annual event, you would feel that these are the only companies working in education and that there is no hope for business in education.

You would be wrong. I do some investing in the markets and the conventional wisdom is to invest in what you know. So six months ago I started researching education companies starting mostly in the postsecondary arena. I started following Apollo, Capella, Corinthian and DeVry. They are doing extremely well and I learned some interesting things.

Apollo – which owns Phoenix University now has over 300,000 students. The are now leveraging that knowledge and success and venturing into the K-12 space through the purchase of Insight Schools – an online high school.

DeVry now has close to $1B in revenue and owns a Medical School in the Caribbean. Caribbean med schools attract many US students who can’t get into schools here. As long as they pass their med boards – they become physicians in the US. (hmmm – do some preparation, pass rigorous exams and enter the profession through an alternative route to help solve shortages – seems like a good idea).

American Public Education recently went public – it was supposed to come out at $18 per share the first week of November 2007. It came out at $30 and is now at $42 (disclosure – I did buy some at $30 and still have those shares). And the owners are not even using the proceeds of the offering for expansion – they are using it to pay themselves!!

Kaplan Education is now a $2B company and continues to expand.

The point is that business follows the money – and education is rapidly becoming the place for big money. The owners of the companies listed above are now making huge bucks and took away millions in their stock offerings.

Digging further – check out Knowledge Universe. The Milken brothers have put together a dream team of business management and are creating a PreK through Post Secondary super-company. They own a large slice of K12, KinderCare and a pretty solid mix of other education companies. K12 is going public in the next few weeks which should provide some pretty hefty capital for Knowledge Universe and K12.

Digging even further – Sterling Partners bought out Educate Inc (Sylvan and others) back in June and now have an impressive portfolio of education companies. They have committed to investing even more in education.

The point: when business makes money, more money will flow. Business is starting to make big money in education and that will create the opportunity for more money to flow into education. This will change provide incredible changes in education over the next few years.

Hopefully – AEI will break from the usual suspects and get some of these companies that are taking education entrepreneurship to the absolute highest level.

Tuesday, December 4, 2007

Clock offically cleaned.

A stunning day today. In DC, pretty much on any given day, there is a panel discussion about some study with the usual suspects doing the discussing with alarming regularity. The results of the myriad of panel discussions is not startling and usually have enough error that both sides can still argue their case. And the day after these weekly panel discussion - nothing ever really happens. You could seriously get discussion panel poisoning in this city.

But today was different. The Alliance for Excellent Education sponsored a panel discussion of the 2006 PISA Results. It was sad as it was fascinating and OECD is offering some actual action items based upon observing the nations that are getting results. I strongly encourage people to read this – and act.

The Problem: the United States has slipped further down the ladder of expertise – we are now 25th in math and 21st in science. They were quick to point out that we didn’t really get all that worse, just the rest of the world continues to improve while we stagnate.

When looking at the successful countries and their teachers, Andreas Schleicher from OECD said we need to have clear expectations of our teachers and schools, we need to have teachers that understand the expectations and work towards the goal and we need to have teachers who are motivated to perform at a higher level. Also, the performing nations had a much higher level of selectivity in their teaching profession which elevated the profession.

To recap what we keep saying: you cannot be selective unless you have a group to select from. Using a certification program that screens out over 50% of the candidates BEFORE they get to the classroom sure is a vast improvement over many of the education schools who accept all that apply. Principals cannot be selective in their math and science teachers when they only have one applicant.

We have a long way to go and while we sit around having numerous panel discussions with no activity, the rest of the world is collectively cleaning our clock. If their 15 year olds continue to be that much smarter than ours now, their 25 year olds will be dominating the economic world ten years from now.