The Mexican Fisherman and Investment Banker Parable

This is a short parable I first read in MoneySense many years ago. I recently thought about it again and searched for it and I want to share it with you.

I do think it is such a fantastic parable, especially during these crazy times of higher inflation, higher interest rates to fight inflation, excessive government spending, employer-employee battle for work-life balance, and too much social media.

The reason I want to share this parable is because during these crazy times, we need to rethink what we really need and what we can afford. We need to think again about “keeping up with the Joneses”, or maybe more recently “keeping up with the Kardashians”, and I’m thinking even that’s a bit dated.

Either one is bad, in my opinion.

The low interest rates and irresponsible spending the government did to us over the last decade has fueled terrible consequences in our economy.

The government response to the pandemic put us over the top and we’re now setup for major trouble in due time.

In the short term, things can look fine or terrible. But, at some point, it’s going to look bad for most people. The government has made sure of this.

The first step is to have a new outlook on life as it relates to money and material things. And I think this parable outlines it very well.

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An American investment banker was taking a much-needed vacation in a small coastal Mexican village when a small boat with just one fisherman docked. The boat had several large, fresh fish in it.

The investment banker was impressed by the quality of the fish and asked the Mexican how long it took to catch them.

The fisherman replied, “Only a little while.”

The banker then asked why he didn’t stay out longer and catch more fish?

The fisherman replied he had enough to support his family’s immediate needs.

The banker then asked: “But what do you do with the rest of your time?”

The fisherman replied,

“I sleep late, fish a little, play with my children, take siesta with my wife, stroll into the village each evening where I sip tequila and play guitar with my amigos: I have a full and busy life, señor.”

The investment banker scoffed:

“I am an Ivy League MBA graduate, and I could help you. You could spend more time fishing and with the proceeds buy a bigger boat, and with the proceeds from the bigger boat you could buy several boats until eventually, you would have a whole fleet of fishing boats. Instead of selling your catch to the middleman, you could sell directly to the processor, eventually opening your own cannery. You could control the product, processing and distribution.”

Then he added: “Of course, you would need to leave this small coastal fishing village and move to a large city port where you would run your growing enterprise.”

The fisherman asked, “But señor, how long will this all take?”

To which the banker replied: “20–25 years.”

“But what then?” asked the fisherman.

The banker laughed and said,

“That’s the best part. When the time is right you would announce an IPO and sell your company stock to the public and become very rich. You could make millions.”

“Millions, señor? Then what?”

To which the investment banker replied:

“Then you would retire. You could move to a small coastal fishing village where you would sleep late, fish a little, play with your kids, take siesta with your wife, stroll to the village in the evenings where you could sip tequila and play your guitar with your amigos.”

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How does this relate to mortgages?

As you may have noticed, the Mexican fisherman already has what he wanted, but, if he did what the MBA graduate suggested, he also would have gotten what he wanted, but, it would have taken him another 20 to 25 years out of his life.

For me, it makes me think about what size of house (and conversely your mortgage) you want or need to buy.

I never thought I would be living in a townhouse at this stage of my life. I thought I would have a fully detached home with backyard and frontyard. Here I am in a townhome with no front or back yard.

The fact is, I could have bought a fully detached home, but, I didn’t want to take on a massive mortgage. In the end, did it payoff? Sort of. I believe I would have paid it off in time before this rate hike increases after the pandemic. So, I did give up having a fully detached home.

But, what if I didn’t? Look at the headlines because of people who haven’t paid it off and have taken oversized mortgages:

Posthaste: Canadians’ high mortgage debt a ‘ticking time bomb’ as renewals loom

Higher interest rates have already pushed around three-quarters of variable-rate mortgages to their trigger rate, or the point when payments only cover the interest and not the principal of a loan, Desjardins economists Royce Mendes and Tiago Figueiredo said in a recent note. Usually, banks and other mortgage holders would ask people to make more payments right away to pay down that principal. But that isn’t happening this time, which could be setting up borrowers and the Canadian economy for some rocky times ahead once renewals come due.

When your life is no longer affordable, what can you do?

With credit card balances at all time-highs, and the debt facing Canadian households reaching levels not seen in any other G7 country, people are looking for solutions, and for some giving up on a ballooning mortgage is the answer.

They bought their home in March 2022. Why this Ontario couple calls the purchase a nightmare

Mortgage on London home of Fernanda Santos and Gustavo Pereira went from $2,800 to $4,400 a month

Posthaste: Canada’s mortgage crunch is already hitting the economy — and it’s going to get worse

Canadians now putting more of their income to debt than Americans just before the great financial crisis

From contacts of my own, I hear of people saying how they don’t see themselves retiring early because it’ll take them so long to pay off their mortgage.

And as I read about people having mortgage issues, I feel like I made the right decision even though I gave up owning a fully detached home. It’s a conflicting thought, but, many times things aren’t perfect in life.

You just don’t know what can happen in the future. You don’t want to be paralyzed by the unknown, but, at the same time, you have to manage the risks.

My wife could have lost her job. And, in fact, she did, but, found another one. I could have had trouble finding new contracts, or I could have become disabled. Anything could happen. The risk is huge when you have so much debt from a large mortgage.

What is the payoff? Some will say it’s the fully detached home. But, it’s only that if you had your mind set on it. Otherwise, the payoff isn’t that much if you didn’t care for a fully detached home or a townhouse. Look at Elon Musk. He lives in some container type home. A big house isn’t a priority for him.

This is why I say that your mindset has to change. You only think it’s a nice payoff because you’ve predetermined that a detached home is so great.

I’m not saying that a detached home is not in actuality a good thing to have. I still want one. I want a garden to grow my own food and let my daughter play there and invite friends over.

And I’m working hard to earn enough to get one in my neighbourhood, but, you have to keep things in perspective. You have to understand your mindset and not let it make you take bad decisions.

I’m delaying buying a home right now because I want to have the cash to buy it and not take on a mortgage. I could buy one right now and just take on maybe a one to three hundred thousand dollar mortgage but I’m “sacrificing” that to make sure my family doesn’t have debt when we buy our new home.

We don’t deserve high rates?

I haven’t read the full stories above. I just grabbed some for this post. But, I have read comments on X and on YouTube and I read people blaming the government and saying that we don’t deserve these high rates and that housing should be affordable and people shouldn’t have to move out or downsize.

I agree that the government did set the environment for higher and crazy home prices.

Still, you have to contemplate two things related to risk when buying a home: Probability of it happening and the magnitude of the consequence should the risk happen.

So, even if the probability is low, is the consequence so big that you wouldn’t be able to handle it?

With respect to buying a home with a mortgage, the risk is the payments you need to make, which is affected by your downpayment and prevailing interest rates. You control your downpayment. So, the remaining risk is the interest rates, which you cannot control. You need to understand what happens if interest rates don’t go your way.

Helping Canadians with high home prices

I recently saw this headline:

Finance Minister Chrystia Freeland expects banks will follow a new series of rules and guidelines designed to protect Canadian homeowners, millions of whom are set to renegotiate loans at potentially higher rates.

With millions of mortgages coming due, finance minister expects banks ‘to work with’ Canadians

She didn’t make it law, but, she nudging the banks to help people with their oversized mortgages.

I totally disagree with the government intervening.

Why should the banks be “directed” to help people who took on crazy risk with an oversized mortgage?

Just because everybody wants their dream home? I want one too. But, I refrained and I’m still refraining from buying a fully detached home, even though I’m so close.

My house was paid off over a decade ago and I could swap mine for a home right now. I’d have to move to cheaper neighbourhood, but, it could be done. The main reason I’m refraining is that I want to stay in my neighbourhood and I don’t want to pay the governemnt an abnormal amount of taxes that would amount to about $80,000 in land transfer taxes. Is that absolutely absurd or what???

It should be about $20,000, which is still crazy, but, the City of Toronto charges a tax equal to the provincial land transfer tax. And we’re the only city in North America that does this (possibly on the planet), and we’re still about $1.8 billion in deficit even though the city doubles the tax on it’s residents.

I recently saw a good quote by Bruce Lee, supposedly.

The more we value things, the less we value ourselves.

I think this quote highlights the excessive greed and consumerism we have in society. We put too much value on someone based on their car, home, clothes, and other material things.

I do think that helping people is important. We don’t have to be grinches. But, this is at the expense of responsible and prudent individuals who held back from buying oversized mortgages. Is this what we want to convey to society? Reward people who made a poor choice and do nothing for people who avoided the mistake?

If the government is really ready to fight inflation so that prices can come down, they need to stop spending absurdly and they would let people make the hard choice of either hunkering down to pay for their oversized mortgage or make them downsize. That would put us in deflation and put an end to our inflation fight. But, we know, government talk is garbage. They just want votes.

The other issue that I recently read was about international students. Last year the government allowed over 800,000 international students! At the same time, immigration was at it’s highest level ever. We’re bringing in people at a rate way too high when we already have a housing crisis.

I think bringing in foreign students is a good idea and better than immigration since the students may want to stay in the country and their integration and transition into society should be smoother than immigrant families.

But, to have both at the highest levels ever doesn’t make sense in our current situation. We have to make sure we have the right environment and resources for the increased population.

I wanted to relate this parable to the issues with inflation and housing. And I’m not saying it’s only the people’s problem with wanting too much, it was first the government that set the environment up for higher inflation and a housing crisis. But, now we have to pay for it the hard way.