God bless the child… (who’s got her own)

Teaching My Daughter to Invest

OUR DIAPER CHANGING TABLE stands in the corner of the bedroom at a 45º angle. It effectively blocks any access to the door leading onto the balcony from our bedroom. This has bothered me throughout the diaper wearing portions of all three of our children’s lives. My wife likes the table there – so that’s where the table stands.

Fresh Pampers are stacked at the ready and a clean wash cloth floats in a small tub of warm water poised upon the shelf along the back edge of the changing table. As I maneuver my infant son into position on the table’s concave changing pad, my eldest daughter Sophia asks, “Papa, who makes Pampers? We use a lot of those.”

In hearing her question and the related followup observation my entire relationship to the changing table and this morning’s pile of soiled diapers collected at its base is transformed for the better. I smile.

Sophia age 7

My hands continue to move in practiced and automatic motions. The soiled diaper is taped closed and dropped unceremoniously onto the pile with the others. I wash and dry my son and swaddle him in a new diaper. Picking him up and coaxing a smile from him as I glance through the glass door toward the now unimportant balcony I realize that it’s winter anyway. I laugh and suggest to my daughter that we go together to the computer and look up the answer to her question.

I know perfectly well where Pampers come from. More important than answering this question is helping her to learn how to answer questions like this for herself. And, helping her to know what important questions should come next after that. In the next few moments Google leads us first to www.pampers.com and then on to Proctor and Gamble.

And then, having heard me talk at the dinner table about the concepts of successful investing, my seven year old daughter asks exactly the right question: “What’s the ROIC* on Proctor and Gamble?”

*Return on Invested Capital (ROIC) is a calculation used to assess a company’s efficiency at allocating the capital under its control to profitable investments.

PHIL TOWN

Wearing the biggest smile that I can remember having worn that year I think to myself that I’ve created a monster…

By the time that Sophia is ten years old she has begun keeping a spiral notebook of “paper trades” in which she tracks hypothetical stock transactions.

Sophia at the beach

Bring Your Daughter to Work Day

On bring your daughter to work day I arrange for her to spend what is originally to be fifteen minutes on the trading floor with the head of European equities at the Swiss bank where I work as a business analyst. They hit it off like old school pals and spend the next hour and a half executing and allocating real trades against SIX, the Swiss stock exchange. When later in the day I turn her over to the testing team leader for the bank’s new order trading and execution platform she dazzles the team with her knowledge of equities and options.

Yet, when asked by the testers what she is going to do when she grows up she replies, “Don’t tell my Papa; I want to be a singer.” When I hear that, I know that my little monster is still a real kid after all. And, I couldn’t be more proud of her.

For Christmas when she is eleven years old we set her up with a real brokerage account back in the US, with $2,000 of real money, via the universal gift to minors act (UGMA). And, we sign her up with a local vocal coach…

Two roads diverged in a wood, and I—
I took the one less traveled by,
And that has made all the difference.

ROBERT FROST

A little over a year later, in the summer of 2012, the news is filled with fears of the possible collapse of the Eurozone. Bears reign unopposed on Wall Street and politicians on both the right and the left in the United States are finger pointing at their counterparts, casting blame upon one another for the continuing economic downturn as the nation heads into an historic presidential election.

Managed funds, Index funds, ETFs and many of the best minds on Wall Street have been losing money for years now. Lehman Brothers is only a memory. Against this dismal background Sophia, now twelve years old and completing her freshman year in high school is managing her own portfolio and her return for the year is more than 35%. (Since then she's more than tripled her portfolio.)

How can a child, even a precocious child who squares three digit numbers in her head, so completely kick Wall Street’s butt? There are a lot of smart and talented professionals managing investments on Wall Street and most of them are consistently unable to even match the market returns of the S&P 500 index. Did my having worked helping to build the portfolio modeling tools and trading platform for one of the largest banks in Switzerland give her an unfair advantage? Maybe, but not in the way you might think.

Rule No.1: Never lose money.
Rule No.2: Never forget rule No.1.

WARREN BUFFETT

She’s seen leveraged investment strategies alternately make then lose and then hope to re-make more money in a few years than most people ever see in a lifetime. She’s made a conscious choice to avoid such strategies.

Sophia’s success is rooted in one of the oldest, least exciting and certainly the most consistently successful precepts of investing. A doctrine summed up by Warren Buffett as, “find a wonderful business and buy it at an attractive price.” She rejects Malkiel’s efficient market hypothesis. She doesn’t chase short term gains nor does she care about frictionless markets or modern portfolio management theories. She doesn’t trade stocks; she owns companies. Sophia is an old school value investor in the style of Benjamin Graham and David Dodd.

Teaching your kids about money – what it is and how it works is important. Giving a child a belief in themselves, a belief in the possibility of pursuing their dreams and staving off our society’s invented obligation to let go of their values and passions in exchange for the quiet desperation of just making a living is even more so. 

thank-you
james-circle

published by                        James Boyer

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