Are Schools Failing Our Children by Teaching the Stock Market Game?
This is a pet peeve of mine.
Consider this: The securities industry supports and finances this “education” effort. Altruism? I think not!
In whose best interest is it for your kids to grow up believing “investing” is betting on the stock market – that it’s a great and exciting game and you can make a killing playing it? Certainly this is not something your kids ought to be taught!
Suppose her school taught your daughter all about how to play craps or roulette. She learned how the tables are laid out, how to bet, how to double down, maybe even how to manage money so as to delay its loss as long as possible.
Does this mean that it’s a good idea for your child to learn to gamble? Not at all! In the formative years, your kids need to understand that there’s no free lunch, no legitimate place for them to get something for nothing.
Your kids need to learn that investing is not a gamble. It’s an easy way to put money they’ve already earned to work and earn more money with it, with very little risk. (Probably you’ve been brought up to think otherwise, too, and need to learn this lesson yourself.)
First, though, they need to learn the basics of financial literacy: what money is, how it’s made (as opposed to being earned), how it’s accounted for and saved. They need to learn about credit (good and bad), and how to avoid having their money taken away by someone who isn’t entitled to it.
From there, it’s an easy segue to apply those simple rules to a business and learn about how a business earns money for its owners. Finally, it makes sense to teach them the very simple things you need to know to tell if a company is a good company and if its stock is selling at the right price.
Until schools stop teaching “the stock market” game, financial literacy will have to begin at home. And you can help. Learn, yourself, how to invest the right way so you can pass it on to your family. And then educate your kids’ schools!
Click here to view earlier op-ed piece from the Sun-Sentinel.
Schools and colleges who seek to teach investing by conducting short-term contest of a year or two are doing a diservice to students. Real profitable investing is with a long-term (5 years)perspective.
Ralph Seger
Ralph,
It’s so good to have you visit and help me to get our messages across. I hope you’ll come back often and give us the benefit of your wisdom.
For the few of you who ,may not know of Ralph Seger, he is a financial professional and a legend, having served on the board of trustees of NAIC beginning in 1964—only five years after it was founded. He has made enormous contributions to the mission of that organization, to the methodology, and, in fact, was the first to develop an effective, methodical means of managing one’s portfolio. He referred to it as the PERT (Portfolio Evaluation and Review Technique). It was adopted by NAIC and copyrighted. And, it was the foundation for the portfolio management tools that are found in the fifth and sixth versions of the Investors’ Toolkit software.
I have a friend who is a junior in college and they had a stock picking contest. She asked me and I told her QSII was a pretty good candidate to own. It turns out the students, all novices, were buying and selling daily and weekly. The class was not considering trading costs, short term tax hits to their pot of money. In short she did not win. She did end up in the black. The sad part is I’ll bet that some of those students think they can trade and make money as easy as it was with fake money. The contest was for six weeks and from what I take from this is that a six week course cannot replace a lifelong lesson.
My point, exactly, Danny! Those college chums of your friend need to grapple with the answer to this: “In a six week period, what changes in the value of what you own that entitles you to sell it for more than you paid for it?”
I’m wondering if, considering all of the misery that everyone is floating around in these days, this might be a good time to go to the folks that created the Stock Market Game and try to make a pitch. We need to persuade them that ours is the “holy grail,” that we can teach the kids what they need to know to break away from the gambling and really understand investing as ownership. And, by the way, there’s software avaliable now that the kids can use to help them pick the good ones.
I’ve spoken with the fella who started it and runs it. Nice guy, actually. He was rather incensed at the op-ed piece I had written, but we settled down and had a nice conversation after we got past that.
The market is certainly NOT a game, and should never be taught as such. It is very rewarding over the long term however–5 to 10 years. Anything shorter than that time fram is simply gambling.
The ironical part of it is that schools won’t let us in to teach long-term investing and the advantages of that approach.
As an illustration, let me tell of one of Peter Lynch’s observations: “If you investing in quality companies in 1925, by 1936 you’d have had a big smile on your face.” How many investments became worthless during that same period because of short-term thinking? And, the same is true today–buy quality companies today while they’re on sale and a few years you’ll be grinning ear-to-ear.
Good point, Bob! The logic is incontrovertible. So long as companies operate profitably, they will grow in value (unless they pay out most of their profits in dividends) every year. And the price educated investors are willing to pay for their shares will reflect that growth, even if they have to wait a while for the uneducated investors to come to their senses. By selecting and retaining only those companies whose profits grow fast enough to meet your needs, you can obtain a return on your investments that is equivalent to the maximum sustainable growth achievable by well-managed companies. And it’s foolish to expect more, don’t you agree?
Shortly after I became acquainted with NAIC 15 + years ago, the local news paper featured a 10 year old student in their Sunday investing section.
He was presented as an investing genius at this young age with many locals commenting on his investing prowess.
As you read the story, you find he was investing in penny stocks. He’d bought a few hundred dollars worth of stock, watched it wildly gyrate for a few days, and then managed to sell it for a profit the day before the stock trading was suspended!
With all of this, the news paper still made him out to be a hero?
We’re in strange territory here, Gary. The securities industry has done such a good job convincing everyone that you’re not an investor unless you’re a gambler. I’ve seen few journalists who recognize the difference between betting on the market and putting money into the ownership of good companies.
In fact, in yesterday’s newspaper, there was a column by a prolific Washigton Post financial writer who was telling everyone that the time has come to abandon investing in growth stocks! What a terrible piece of advice at this moment!
I’m all for teaching kids about investing and money management, but it seems like so many games focus on short-term gains. That’s not what I teach my own child. It is far better to focus on the long term view, because if you’re patient and disciplined, it’s hard not to make money over time.
A brokerage firm in Denver went belly up and allowed their own stocks to to the same (underwriters). They made lots of easy money for me and then managed to steal it all back and then plenty more.
That being said, I have the kids play the Stock Market Game at the school where I teach. Last spring our teams to all three top spots.
I will certainly inform them of your concerns. They are completely valid. In addition, one may invest for ten years in a prudent fashion, see the steady returns, count your profits…and, and, if you are not
vigilant, you may join the millions of people who see years of their
hard-earned profits disappear.
There are no easy, no intelligent, no insights. Beware. Be vigilant.
One rule of thumb I have used effectively. If your mutual fund goes down three or more times in a row, move it to a money market until things settle down. Then take advantage of the moves back up by placing
your money in a fund which is moving. The funds, areas, all have their day…gold and silver, finance, oil, etc.
You cannot be lazy and prosper. Ignorance plays into the hands of those monied interests and invividuals all too willing to steal some of your profits.
I will continue to play the game. Our class starts tomorrow. I will tell the kids about crooks. It’s the “human condition.”