12yo son's investing class at school driving me nuts
12yo son's investing class at school driving me nuts
My 12-year-old son was placed in a gifted class at school about 3 years ago, and so far, I've felt everything they've done has benefited him.
The problem is, last fall they spent a few months talking about budgeting, saving money, proper use of credit, living within one's means, and investing. (I know, definitely what I want him learning.) He came home every afternoon last fall talking about stocks, and I countered with nightly conversations about asset allocation and low-cost index investing.
Here's the rub:
He asked me to invest a small percentage of our money in the company his "gifted" classroom (5 kids, all 12 years old) was following last fall - Green Mountain Coffee Roasters (GMCR).
When I asked for his analysis last fall, he just talked about how Target was carrying it now and Starbucks was so expensive. (And then he pointed out some Green Mountain coffee on the shelf when we were in Target one day. Right next to all the high-end wine glasses Target was selling at the time.)
I pulled up the charts on GMCR last fall, and I showed him how this was just another case of people chasing past returns. And I told him, "Let's look at this in a year or two, and I'll bet you anything GMCR underforms the total stock market."
I just checked GMCR ticker today and ran the 1m, 6m, 1y, 3y, etc. returns. I'm too embarrassed to talk to him about it right now. I'm thinking I'll pull up the ticker in 5-10 years, call him at whatever university or first job he's at, and prove my point then. Good idea, right?
Damn individual stocks. Damn "gifted teachers." I DEMAND to see her personal portfolio and 10 year returns before I talk to my son about the stock market again!
The problem is, last fall they spent a few months talking about budgeting, saving money, proper use of credit, living within one's means, and investing. (I know, definitely what I want him learning.) He came home every afternoon last fall talking about stocks, and I countered with nightly conversations about asset allocation and low-cost index investing.
Here's the rub:
He asked me to invest a small percentage of our money in the company his "gifted" classroom (5 kids, all 12 years old) was following last fall - Green Mountain Coffee Roasters (GMCR).
When I asked for his analysis last fall, he just talked about how Target was carrying it now and Starbucks was so expensive. (And then he pointed out some Green Mountain coffee on the shelf when we were in Target one day. Right next to all the high-end wine glasses Target was selling at the time.)
I pulled up the charts on GMCR last fall, and I showed him how this was just another case of people chasing past returns. And I told him, "Let's look at this in a year or two, and I'll bet you anything GMCR underforms the total stock market."
I just checked GMCR ticker today and ran the 1m, 6m, 1y, 3y, etc. returns. I'm too embarrassed to talk to him about it right now. I'm thinking I'll pull up the ticker in 5-10 years, call him at whatever university or first job he's at, and prove my point then. Good idea, right?
Damn individual stocks. Damn "gifted teachers." I DEMAND to see her personal portfolio and 10 year returns before I talk to my son about the stock market again!
You fell prey to momentum and a small sample size. You should never had said that it would fall down in the first place. The better answer would be "I don't know." Ask your child why a gifted stockpicker would teach a middle school class. If someone could consistently beat the market by 50-100% a year, within a few decades he'd be worth hundreds of billions of dollars ($819,346,572,581.48 for someone starting with $100,000 and earning 70% annualized for 30 years). Warren Buffett's performance? About 20% over forty years or so. Pretty awesome, and gives you a sense of how difficult it is to clock incredible numbers consistently.
I think the moral of the story is.....
At least in my case.... maybe not for everyone......
There will always be "outlier" hot stocks. Stay the course. Asset Allocation. Invest early and often, and rebalance when appropriate. Listen to Jack Bogle and all the other smart men in their 80s. To quote Richard Pryor: "You don't get to be old bein' no fool."
And I'm not sure who's "signature" it is at the end of their posts, but it's definitely my favorite - "Market Timing: Do you seriously think you can predict the future? What else do the voices tell you?"
I have that one printed out and taped to the bottom of my laptop, and taped to the cover of the folder on my desk marked "Vanguard Investments."
At least in my case.... maybe not for everyone......
There will always be "outlier" hot stocks. Stay the course. Asset Allocation. Invest early and often, and rebalance when appropriate. Listen to Jack Bogle and all the other smart men in their 80s. To quote Richard Pryor: "You don't get to be old bein' no fool."
And I'm not sure who's "signature" it is at the end of their posts, but it's definitely my favorite - "Market Timing: Do you seriously think you can predict the future? What else do the voices tell you?"
I have that one printed out and taped to the bottom of my laptop, and taped to the cover of the folder on my desk marked "Vanguard Investments."
Re: 12yo son's investing class at school driving me nuts
DougK wrote: And I told him, "Let's look at this in a year or two, and I'll bet you anything GMCR underforms the total stock market."
A foolish prediction. Small individual stocks might have slight tendency to trail the market average (see the Dell Effect), but not enough to make such a wager. The point is individual stocks are unpredictable, not that they are predictably bad.
- Whiggish Boffin
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Or you could let him try it and see...
Samuel Clemens (or Will Rogers, or Mullah Rasmudin...) said:
Sometimes you should let them do something futile and doomed, so they experience life's tragic nature. One function of a pet is to die, and let the kid experience grief. Maybe one function of a speculative stock, bought early, is to break his heart when he's young and the lesson is cheap.
When he's 22 and starting his own nest egg, he'll know what a bubble looks, sounds, feels and smells like. Maybe then he'll say "This time I do it like Dad said."
Having no kids myself, I still daresay --Good judgement comes from experience -- and experience comes from bad judgement.
Sometimes you should let them do something futile and doomed, so they experience life's tragic nature. One function of a pet is to die, and let the kid experience grief. Maybe one function of a speculative stock, bought early, is to break his heart when he's young and the lesson is cheap.
When he's 22 and starting his own nest egg, he'll know what a bubble looks, sounds, feels and smells like. Maybe then he'll say "This time I do it like Dad said."
The operative phrase may be "it's still just one stock". Perhaps he means "nobody can pick a bunch of these".DougK wrote:His response: "Ha, ha. We could be rich, Dad! But it's still just one stock."
If your child learns to invest in index funds for the most part and use a little fun money for "the one stock", it's a lesson well learned.
Link to Asking Portfolio Questions
Re:
That's interesting...tms wrote:Last time I checked, GMCR was being investigated for possible accounting shenanigans.
http://www.bloomberg.com/news/2011-10-1 ... osure.html
Another thing with individual stocks is you don't know when to get out. It's possible to be right once in a while, but the longer you play the game by continuing to make the bet (which is what long-term investing is about), the closer you get to "average" anyway.The company has a “looming patent issue” on its single-serve K-Cups, he said.
The company has a “litany of accounting questions,” Einhorn said, adding that its latest earnings were “perhaps too good to be true.”
Re: 12yo son's investing class at school driving me nuts
Are you kidding me?
If you would have listened to her and started a hedge fund based upon her analysis of the technicals ans the fundamentals, you both could have retired by now.
If you would have listened to her and started a hedge fund based upon her analysis of the technicals ans the fundamentals, you both could have retired by now.
Re: 12yo son's investing class at school driving me nuts
http://www.businessinsider.com/gaap-ucc ... 2011-10#-1
Here is a presentation David Einhorn did on Green Mountain Coffee. If you have any idea who David Einhorn is, you would know why I wouldn't want to be on the other side of that trade.
Here is a presentation David Einhorn did on Green Mountain Coffee. If you have any idea who David Einhorn is, you would know why I wouldn't want to be on the other side of that trade.
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Re: 12yo son's investing class at school driving me nuts
GMCR is down 37% in the last month. Did you show that to your son yet?
Re: 12yo son's investing class at school driving me nuts
[bolding added]DougK wrote:I pulled up the charts on GMCR last fall, and I showed him how this was just another case of people chasing past returns. And I told him, "Let's look at this in a year or two, and I'll bet you anything GMCR underforms the total stock market."
This was a terrible overstatement made by you, and suggests that your own grasp of investing is limited.
Yes, it is generally better for an investor to invest in a low-cost basket of stocks (i.e. an index fund) than in one individual stock.
But that's mainly about risk control.
It's close to a coin flip as to whether a randomly chosen well-known stock will outperform the market over some relatively short period like a year or two.
Re: 12yo son's investing class at school driving me nuts
Unfortunately I think the "stock market game" and other similar games teach some bad lessons along with the good ones.
You won't believe it....but I still remember the details of playing it when I was in middle school. The winning team put all of their money on Nike and happened to catch a big run. If you ask me, that's the wrong lesson to teach kids about the stock market.
You won't believe it....but I still remember the details of playing it when I was in middle school. The winning team put all of their money on Nike and happened to catch a big run. If you ask me, that's the wrong lesson to teach kids about the stock market.
Re: Or you could let him try it and see...
Everyone has to learn about risk the hard way, the only question is how much it costs you. It has to feel like a big loss to you to work, but luckily when you're 12 a big loss can be $50.Whiggish Boffin wrote:Maybe one function of a speculative stock, bought early, is to break his heart when he's young and the lesson is cheap.
When he's 22 and starting his own nest egg, he'll know what a bubble looks, sounds, feels and smells like. Maybe then he'll say "This time I do it like Dad said."
I always say I have to learn from others' mistakes, because I don't have enough time to make them all myself .
No excuses, no regrets.
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Re: 12yo son's investing class at school driving me nuts
I can see why it's driving you nuts! Your son is coming home wanting to invest in penny stocks that recently hit it big, and are in the middle of a bubble. I hope that you are able to teach your son that it's less risky to invest in a basket of stocks (ie an index fund). I'm glad that I never took any such dodgy investing classes when I was 12.
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Re: 12yo son's investing class at school driving me nuts
Stock picking, in and of itself is not bad, it's just that you shouldn't be doing it with core money. For money that you need to support your lifestyle or retirement funding risk avoidance is more important than any possible gains you could make by trying to beat the market. If you have money above and beyond that (not many people do) then by all means if you feel you can do a good job of it knock yourself out.
Re: 12yo son's investing class at school driving me nuts
Wellll perhaps you should Goggle up Wm. Bernstein's 15 Stock Diversification Myth and then contrast that with the Postscript chapter of the latest version of Ben Graham's The Intelligent Investor including commentary by Jason Zweig.
Do ya feel lucky? Well do ya?
heh heh heh - Sorry couldn't resist. Myself? Guilty as charged here and there over the last forty years. Now I try to stay more indexed and watch more football - for the hormones. Yes sometimes it only takes one. Which one?
Do ya feel lucky? Well do ya?
heh heh heh - Sorry couldn't resist. Myself? Guilty as charged here and there over the last forty years. Now I try to stay more indexed and watch more football - for the hormones. Yes sometimes it only takes one. Which one?
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Re: 12yo son's investing class at school driving me nuts
I think your son is most fortunate to to be in a good school with a good teacher. He's being taught about investing in stocks and he's being taught to do research about his investments. At the ripe old age of 12 he is smarter than most adults!
You can teach him about asset allocation and index investing when he's older. Maybe wait until he's 13...
ps. By any chance do you think your son's teacher would manage my porfolio?
You can teach him about asset allocation and index investing when he's older. Maybe wait until he's 13...
ps. By any chance do you think your son's teacher would manage my porfolio?
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Re: 12yo son's investing class at school driving me nuts
Dougk,
I thought of this topic today as i saw GMCR is currently down ~32% in the after market tonight after releasing earnings.
Just another lesson for your son. All of a sudden -4% in SPY doesn't seem quite as bad.
Staying the course and sleep at night...might miss the GMCR upside once in a while. But you certainly miss the -33% days like today. I know some won't sleep well tonight.
Link incase other are interested in GMCR's earnings: http://seekingalpha.com/currents/post/100446
I thought of this topic today as i saw GMCR is currently down ~32% in the after market tonight after releasing earnings.
Just another lesson for your son. All of a sudden -4% in SPY doesn't seem quite as bad.
Staying the course and sleep at night...might miss the GMCR upside once in a while. But you certainly miss the -33% days like today. I know some won't sleep well tonight.
Link incase other are interested in GMCR's earnings: http://seekingalpha.com/currents/post/100446
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Re: 12yo son's investing class at school driving me nuts
Well, you didn't have to wait until he was in college or at his first job for VTSMX to outperform.DougK wrote: I pulled up the charts on GMCR last fall, and I showed him how this was just another case of people chasing past returns. And I told him, "Let's look at this in a year or two, and I'll bet you anything GMCR underforms the total stock market."
I just checked GMCR ticker today and ran the 1m, 6m, 1y, 3y, etc. returns. I'm too embarrassed to talk to him about it right now. I'm thinking I'll pull up the ticker in 5-10 years, call him at whatever university or first job he's at, and prove my point then. Good idea, right?
Aug 6, 2010-May 9, 2012 returns:
VTSMX +23.6%
GMCR -14.67%
Re: 12yo son's investing class at school driving me nuts
The old man looks like a genius. Or at least better than gifted.
JT
JT
Re: 12yo son's investing class at school driving me nuts
The funny thing is that when I heard about Green Mountain Coffee being down I was remembering this post. . .and here it is!
"I would rather die with money, than live without it...." - Bogleheads member Ron |
|
A time to EVALUATE your jitters https://www.bogleheads.org/forum/viewtopic.php?p=1139732#p1139732
Re: 12yo son's investing class at school driving me nuts
It would've been interesting to know whether the son's class included anything on Warren Buffett. They'd find out what it takes (mainly a rare genius of a mind perfectly suited to the stock market) to successfully and consistently pick stocks and why most people can't do it. And they'd get Buffett's take on index funds.
Last edited by Fallible on Fri May 11, 2012 8:36 am, edited 1 time in total.
"Yes, investing is simple. But it is not easy, for it requires discipline, patience, steadfastness, and that most uncommon of all gifts, common sense." ~Jack Bogle
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Re: 12yo son's investing class at school driving me nuts
The thing is, it's helpful for a bright young person to get some kind of understanding of probability, statistics, and gambling, in some context where it doesn't matter. I've been trying to figure out myself what my own formative experiences were. Playing Monopoly and rolling dice definitely helps. For that matter, so do games of pure chance like Candyland or Chutes and Ladders.
I remember a period of time when I was intrigued by ESP, and actually conducted very amateurish Rhine-like experiments with friends to see whether one of us could guess the suits of cards as another went through the deck concentrating on each card--I wanted to get a proper Rhine deck with the plus, circle, square, waves, and star--especially the waves, they were so cool--but didn't know where to get them (it was before the Internet) and couldn't have afforded them anyway. What I remember vividly was the emotional rollercoaster--I'd get four or five right in a row, and I'd experience a feeling of total certainty that I was experiencing clairvoyance. Then I'd feel certain I had them and be wrong. Then I'd feel certain I'd lost it and be right anyway. Then we'd get to the end of the deck and I'd be just a tad below chance.
Somehow, one has to get into the situation where you just know what's going to turn up next--and keep track, and discover that it was an illusion.
I once kept a "premonition" diary--wish I'd done it more systematically--in which I actually wrote down those moments in which you feel a sense of overwhelming certainty that something bad (it's usually something bad) has happened to someone you know, or is about to happen today. When I wrote them down, what I learned was that it is astounding how many premonitions I got, all wrong. It was clear that one forgets all the wrong ones.
"I was just thinking of you and then the phone rang," only if one keeps track, often the phone doesn't.
One of the oddest poems I ever read was one by Wordsworth, the one where he's riding to his lover's house by moonlight in a reverie, and just as he's getting close, he suddenly wonders:
What fond and wayward thoughts will slide
Into a Lover's head!
"O mercy!" to myself I cried,
"If Lucy should be dead!"
The poem ends there, and I assume Lucy was OK.
I remember a period of time when I was intrigued by ESP, and actually conducted very amateurish Rhine-like experiments with friends to see whether one of us could guess the suits of cards as another went through the deck concentrating on each card--I wanted to get a proper Rhine deck with the plus, circle, square, waves, and star--especially the waves, they were so cool--but didn't know where to get them (it was before the Internet) and couldn't have afforded them anyway. What I remember vividly was the emotional rollercoaster--I'd get four or five right in a row, and I'd experience a feeling of total certainty that I was experiencing clairvoyance. Then I'd feel certain I had them and be wrong. Then I'd feel certain I'd lost it and be right anyway. Then we'd get to the end of the deck and I'd be just a tad below chance.
Somehow, one has to get into the situation where you just know what's going to turn up next--and keep track, and discover that it was an illusion.
I once kept a "premonition" diary--wish I'd done it more systematically--in which I actually wrote down those moments in which you feel a sense of overwhelming certainty that something bad (it's usually something bad) has happened to someone you know, or is about to happen today. When I wrote them down, what I learned was that it is astounding how many premonitions I got, all wrong. It was clear that one forgets all the wrong ones.
"I was just thinking of you and then the phone rang," only if one keeps track, often the phone doesn't.
One of the oddest poems I ever read was one by Wordsworth, the one where he's riding to his lover's house by moonlight in a reverie, and just as he's getting close, he suddenly wonders:
What fond and wayward thoughts will slide
Into a Lover's head!
"O mercy!" to myself I cried,
"If Lucy should be dead!"
The poem ends there, and I assume Lucy was OK.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
Re: 12yo son's investing class at school driving me nuts
The credit for the GMCR and similar stock picks goes to Peter Lynch, a successful manager of the Fidelity Magellan Fund who has popularized the "invest in what you know" principle. The concept was intuitively appealing, and simpleminded investors started flocking into their favorite consumption items such as Krispy Kreme, Green Mountain Coffee Roasters, Apple computer, etc.
This, of course, is wrong. Information propagates ever more efficiently, and a pedestrian buyer does not know anything that the market does not know. Furthermore, for every eager buyer there is a sophisticated seller on the other side of the trade.
But there are also some cognitive biases in play here.
1. Cognitive psychologists have identified a human tendency to favor items that are familiar, that are easy to pronounce, that sound similar to our names or have our initials. And so Lynch was endorsing a behavioral irrationality rather than providing a useful tip.
2. The mind sees patterns where none may exist. Using Kahneman's terminology, System 1 sees a run up in the stock price as an indicator of an increasing trend. One has to invoke System 2 to realize that all the GMCR gains may have already been made, and the stock price may soon revert to the mean.
3. Individual psychology is influenced by the psychology of a group. However critical of the "herd instinct" we may be, we all still have it. A stock going up is not only an upward trend (in the sense of five days with increasing temperature forming a "trend"), it is also an indicator of other people valuing the stock at ever higher levels. For the early humans, the wisdom of a crowd was a good indicator; for modern market investors the crowd behavior should be a contrarian indicator, if anything. But of course, contrarian behavior requires the System 2 activity (see #2 above).
Victoria
This, of course, is wrong. Information propagates ever more efficiently, and a pedestrian buyer does not know anything that the market does not know. Furthermore, for every eager buyer there is a sophisticated seller on the other side of the trade.
But there are also some cognitive biases in play here.
1. Cognitive psychologists have identified a human tendency to favor items that are familiar, that are easy to pronounce, that sound similar to our names or have our initials. And so Lynch was endorsing a behavioral irrationality rather than providing a useful tip.
2. The mind sees patterns where none may exist. Using Kahneman's terminology, System 1 sees a run up in the stock price as an indicator of an increasing trend. One has to invoke System 2 to realize that all the GMCR gains may have already been made, and the stock price may soon revert to the mean.
3. Individual psychology is influenced by the psychology of a group. However critical of the "herd instinct" we may be, we all still have it. A stock going up is not only an upward trend (in the sense of five days with increasing temperature forming a "trend"), it is also an indicator of other people valuing the stock at ever higher levels. For the early humans, the wisdom of a crowd was a good indicator; for modern market investors the crowd behavior should be a contrarian indicator, if anything. But of course, contrarian behavior requires the System 2 activity (see #2 above).
Victoria
Inventor of the Bogleheads Secret Handshake |
Winner of the 2015 Boglehead Contest. |
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Re: 12yo son's investing class at school driving me nuts
Great lesson here. I remember having a similar class when I was that age. I believe it was focused on the classic stock market game that basically incentives maximum risk taking since 1st place wins and everyone else loses.
In retrospect though I'm really glad I had that class because it made me interested in the financial markets at a young age and got me to invest my money at an early age. I think most people make mistakes when they first start investing and there is a lot to learn. Better to make those mistakes, learn, and invest at a young age then later on in life.
In retrospect though I'm really glad I had that class because it made me interested in the financial markets at a young age and got me to invest my money at an early age. I think most people make mistakes when they first start investing and there is a lot to learn. Better to make those mistakes, learn, and invest at a young age then later on in life.
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Re: 12yo son's investing class at school driving me nuts
Count me in the frustrated group who's tried to teach a child about investing, while at the same time attempting to give them some sort of chance at doing well in the "contest". Years ago I found an academic study of Probabilistic Investing: or How to Win the Globe and Mail’s Stock Picking Contest (50% of the time) that offers a viewpoint on how to win.
As to the teaching side, one thing that I've found useful it is having them setup their selection(s) in an investment tracking site, and periodically monitor what's happened after the contest winner has been declared, with the view that it will help them understand the difference between short-term performance and long-term performance. Time will tell if they learned anything from either the school's investing class or my add-on teachings.
As to the teaching side, one thing that I've found useful it is having them setup their selection(s) in an investment tracking site, and periodically monitor what's happened after the contest winner has been declared, with the view that it will help them understand the difference between short-term performance and long-term performance. Time will tell if they learned anything from either the school's investing class or my add-on teachings.
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Re: 12yo son's investing class at school driving me nuts
Well, it's not looking so good any more. Good thing you didn't take his advice.DougK wrote:I just checked GMCR ticker today and ran the 1m, 6m, 1y, 3y, etc. returns. I'm too embarrassed to talk to him about it right now. I'm thinking I'll pull up the ticker in 5-10 years, call him at whatever university or first job he's at, and prove my point then. Good idea, right?
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Re: 12yo son's investing class at school driving me nuts
Your child is lucky to be taking an investment class at school IMO. We certainly did not have anything like that in the school system I went to.
Why not let him invest in a stock or two with his own money? Nothing is a better teacher than taking a loss with money you care about. Tell him you will take the other side of the trade. Be sure to charge him frictional cost and keep up with everything diligently so he can see what he is paying to buy or sell. This seems like a great opportunity to have an ongoing lesson with him over the next 5-6 years.
Why not let him invest in a stock or two with his own money? Nothing is a better teacher than taking a loss with money you care about. Tell him you will take the other side of the trade. Be sure to charge him frictional cost and keep up with everything diligently so he can see what he is paying to buy or sell. This seems like a great opportunity to have an ongoing lesson with him over the next 5-6 years.
Re: 12yo son's investing class at school driving me nuts
Personally, I think you're asking too much from the teacher. This is a 6th grade class, isn't it? It's a start - period.My 12-year-old son was placed in a gifted class at school about 3 years ago, and so far, I've felt everything they've done has benefited him.
There is a price to be paid for education.
If you think education is expensive, try ignorance.
If I have seen further, it was by standing on the shoulders of giants.
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Re: 12yo son's investing class at school driving me nuts
I always come across as a contrarian on here, but of course not everyone can index (who knows in 5, 10, 20 years time, we may have reached 'peak index', at which point index trackers may have to be outlawed on competition laws)
So stock picking is something I'd want my kids to learn .. Teach a man to fish, etc
So stock picking is something I'd want my kids to learn .. Teach a man to fish, etc
"Economics is a method rather than a doctrine, an apparatus of the mind, a technique of thinking, which helps its possessor to draw correct conclusions." - John Maynard Keynes
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Re: 12yo son's investing class at school driving me nuts
Ah, a teachable moment: Don’t take stock tips from anybody, even “gifted” 12 year olds.
Your son’s school is wasting precious resources on teaching finance. This is a fad. Swap the stock charts for Mark Twain, Jules Verne, etc.
Successful kid investors sport Phds—Parents Have Dough
Your son’s school is wasting precious resources on teaching finance. This is a fad. Swap the stock charts for Mark Twain, Jules Verne, etc.
Successful kid investors sport Phds—Parents Have Dough
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Re: 12yo son's investing class at school driving me nuts
This is hilarious.beammeupscotty wrote:Well, it's not looking so good any more. Good thing you didn't take his advice.DougK wrote:I just checked GMCR ticker today and ran the 1m, 6m, 1y, 3y, etc. returns. I'm too embarrassed to talk to him about it right now. I'm thinking I'll pull up the ticker in 5-10 years, call him at whatever university or first job he's at, and prove my point then. Good idea, right?
It seems like a perfect time to teach your 15 year old a lesson, Doug.... (if such a thing is even possible.....)
Or even better, if the teacher is still there, teach the TEACHER a lesson.
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Re: 12yo son's investing class at school driving me nuts
Teach the kid how to use M* to plot and compare stocks and funds.
Examine the VOLATILITY over the past five years between GMCR and VTSAX.
There's always something to be learned on a topic like this...
Examine the VOLATILITY over the past five years between GMCR and VTSAX.
There's always something to be learned on a topic like this...
Attempted new signature...
Re: 12yo son's investing class at school driving me nuts
What about a fantasy portfolio, right next to the fantasy sports team?cottonseed1 wrote:Your child is lucky to be taking an investment class at school IMO. We certainly did not have anything like that in the school system I went to.
Why not let him invest in a stock or two with his own money? Nothing is a better teacher than taking a loss with money you care about. Tell him you will take the other side of the trade. Be sure to charge him frictional cost and keep up with everything diligently so he can see what he is paying to buy or sell. This seems like a great opportunity to have an ongoing lesson with him over the next 5-6 years.
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Re: 12yo son's investing class at school driving me nuts
This is a great thread.
The true test is if the average student portfolio beats the total stock market. Of course that could backfire as well...
The true test is if the average student portfolio beats the total stock market. Of course that could backfire as well...
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Re: 12yo son's investing class at school driving me nuts
Why would you say that as it is CLEARLY wrong. Of course, there are stocks that outperform the total market otherwise the returns of the market would be lower then it is. The point is few stocks outperform and majority underperform. The few that outperform bring up the overall average of the "market". This is true in any given year.DougK wrote: I pulled up the charts on GMCR last fall, and I showed him how this was just another case of people chasing past returns. And I told him, "Let's look at this in a year or two, and I'll bet you anything GMCR underforms the total stock market."
The reason we index and the reason security selection is a loser's game is because NO ONE knows which one's will outperform and which will underperform. So the simple yet elegant approach is just to buy ALL of the stocks (losers and winners).
I would focus on that as the approach in teaching your child.
Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” |
-Jack Bogle
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Re: 12yo son's investing class at school driving me nuts
Why would you say that as it is CLEARLY wrong. Of course, there are stocks that outperform the total market otherwise the returns of the market would be lower then it is. The point is few stocks outperform and majority underperform. The few that outperform bring up the overall average of the "market". This is true in any given year.DougK wrote: I pulled up the charts on GMCR last fall, and I showed him how this was just another case of people chasing past returns. And I told him, "Let's look at this in a year or two, and I'll bet you anything GMCR underforms the total stock market."
The reason we index and the reason security selection is a loser's game is because NO ONE knows which one's will outperform and which will underperform. So the simple yet elegant approach is just to buy ALL of the stocks (losers and winners).
I would focus on that as the approach in teaching your child.
Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” |
-Jack Bogle
- Maynard F. Speer
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Re: 12yo son's investing class at school driving me nuts
Jim Simons has averaged 71.8% annual returns (before fees) for the past 20 yearsstaythecourse wrote:The reason we index and the reason security selection is a loser's game is because NO ONE knows which one's will outperform and which will underperform.
You could work out the statistical likelihood of achieving that by chance, but I'm not sure most computers could represent numbers that large ... So I'd question 'NO ONE' ..
"Economics is a method rather than a doctrine, an apparatus of the mind, a technique of thinking, which helps its possessor to draw correct conclusions." - John Maynard Keynes
Re: 12yo son's investing class at school driving me nuts
I agree that it is pretty cool to have such class, even if a few things might be misguided, this will be tremendously beneficial overall. I would also add that it could be a great lesson for your son to see that YOU (experienced investor, right?) and his TEACHER (close to God!) can actually get it really wrong when predicting individual stocks trajectories... Be humble, your kid will remember that.cottonseed1 wrote:Your child is lucky to be taking an investment class at school IMO. We certainly did not have anything like that in the school system I went to.
Why not let him invest in a stock or two with his own money? Nothing is a better teacher than taking a loss with money you care about. Tell him you will take the other side of the trade. Be sure to charge him frictional cost and keep up with everything diligently so he can see what he is paying to buy or sell. This seems like a great opportunity to have an ongoing lesson with him over the next 5-6 years.
Instead of investing actual money, why not have your son (and yourself) have a friendly contest with a virtual portfolio tool? I do that with my sons, using Wall Street Survivor: http://www.wallstreetsurvivor.com.
The interface is simple, one can do basic research, and check it out every now and then. Personally, I chose to NOT explain that much to them, and let them play around. Within a few years, we'll take some lessons... For fun, I created two portfolios for myself, one with my regular AA, another being a "portfolio of sure losers". Guess which one is way ahead...
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Re: 12yo son's investing class at school driving me nuts
I'm definitely in the camp there are those who beat the index. I is just common sense. Why would anyone try to beat the index if no one ever did. The fact folks even try is an indication that there are those who have done it. As an example: No one tries to put there hand in a fire even if offered money as they know no one has done it without getting burned. This is unlike folks who jaywalk across busy streets as they know folks have done it in the past and been successful.Maynard F. Speer wrote:Jim Simons has averaged 71.8% annual returns (before fees) for the past 20 yearsstaythecourse wrote:The reason we index and the reason security selection is a loser's game is because NO ONE knows which one's will outperform and which will underperform.
You could work out the statistical likelihood of achieving that by chance, but I'm not sure most computers could represent numbers that large ... So I'd question 'NO ONE' ..
The issue for the investor is not IF it is possible, but can you do it: Post fees, post taxes, on a dollar weight basis over your lifetime of investing (50 yrs) AND do susbstantially better then just investing in indexes with much less risk of your WHOLE retirement portfolio blowing up in one's face.
Of course, the other issue is if the folks who beat the index did it out of luck (probability that someone has to beat the index with all the folks trying) or some level of skill which shows reproducibility going forward.
Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” |
-Jack Bogle
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Re: 12yo son's investing class at school driving me nuts
+1Ozonewanderer wrote:I think your son is most fortunate to to be in a good school with a good teacher. He's being taught about investing in stocks and he's being taught to do research about his investments. At the ripe old age of 12 he is smarter than most adults!
You can teach him about asset allocation and index investing when he's older. Maybe wait until he's 13...
In my opinion, a kid should understand companies and how they work in relation to capital markets before you can understand what a market basket is and why index funds diversify away risk. The lesson that investors can be rewarded by investing and sticking with a company for a long time is a good thing to know.
So I think it is actually a good thing for the class to see an outlier (in terms of performance) and for your son to learn that it happens. I am sure he is not stupid and was also taught that this is a rare thing, hard to find, and that sticks go both up and down based on how well their underlying business does. He is way ahead of the game.
Re: 12yo son's investing class at school driving me nuts
Here is the classic dilemma about wanting financial education in schools.
Even really smart and effective teachers trying to do the right thing will not necessarily do the right thing on this topic. It is probably better than bringing in a shill from a local broker, though.
Even really smart and effective teachers trying to do the right thing will not necessarily do the right thing on this topic. It is probably better than bringing in a shill from a local broker, though.
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Re: 12yo son's investing class at school driving me nuts
Better would be something like the Bogleheads Hedge Fund contest. Have each kid start their own hedge fund, pick their stocks, and discuss weekly how their performance is collectively distributed around the performance of a low cost index fund. Talk about luck and chaos, and compare the top performer with examples of real-life top performing funds from the past that crashed and burned, and why. Rather than rewarding the "winner", it could be an educational experience for everybody.