Stock lessons my son taught me

Joseph Kennedy Sr. had his shoe shine boy. I have my 13 year old son – and my dad.

About 92 years ago, Kennedy – the father of a US president and two other children who became senators – is said to have sold his substantial portfolio in the red-hot stock market after a boy polishing his shoes offered him some stock tips.

The story goes that Kennedy thought that was a signal to sell everything.

He reasoned that when shoe shine boys offered stocks as certain things, there was a lot of stupid money in the market, pushing up prices that would definitely fall.

Kennedy’s move saved him his fortune.

But others who believed the hype lost everything in the Wall Street crash in the fall of 1929.

Thursday I thought I saw that shoe shine boy standing in front of me, waving a $ 10 bill.

My 13-year-old son excitedly asked for permission to buy a cryptocurrency – dogecoin – which, he screamed, would drive up in price by the end of the night, quintupling his investment or more in hours.

“Elon Musk guarantees it!” my son said.

“What?” was my first question.

My second was “Did you read this in ‘WallStreetBets?’ “

He immediately confirmed that he, unknown to me, had read the Reddit group r / WallStreetBets.

That same group fueled the insane escalation of GameStop’s stock price over the past week, costing hedge funds nearly $ 30 billion in short-sale bottlenecks.

It has also sparked a torrent of commentary on stock market morality, speculation and short-selling, as well as saber chatter by lawmakers across the political spectrum, from progressive Rep. Alexandria Ocasio-Cortez, DN.Y., to conservative Texas. GOP Senator Ted Cruz.

And some r / WallStreetBets users also praised the virtues of buying dogecoin, hoping to ride a similarly big wave of price hikes.

I laughed at my son.

But he kept pushing me to get him to buy some dogecoin. And I kept mentioning Elon Musk.

I had him look at a chart of cryptocurrency price history since 2013 that showed stomach cramps that followed bubbles in that investment sector.

“It’s only $ 10,” he insisted.

I put in his hand a book called “Blue Chip Kids”, a simple yet excellent explanation of how markets and financial instruments work. The book’s author, David Bianchi, wrote it after trying to teach his own 13-year-old son about money.

My own son quickly put that book on the couch.

I then showed him another book, “Extraordinary Popular Delusions and the Madness of Crowds.”

Since its publication in 1841, Charles Mackay’s account of the Mississippi Scheme, the South Sea Bubble, and the Dutch tulip madness has been the gold standard for understanding why financial bubbles form and how they invariably end very, very, very badly for investors when they pop . .

My son didn’t even pretend to read the summary on the back of the book.

I am not surprised.

Children and adults – especially adults – are hard to reason when they get caught up in the excitement of the idea of ​​a quick, easy financial return or some other mania.

I was a kid – well, in my early twenties – the last time I fell prey to that kind of excitement. In the intervening years, I have certainly missed an opportunity for big money gains. But I also avoided devastating losses.

That is probably because of my father.

When I was a child, my father regularly lectured me and my sisters – and our mother – about money and investments.

He also told us how his own grandfather, who had been a wealthy veterinarian, lost a lot of money in the same 1929 crash that Joe Kennedy had avoided.

And he echoed a mantra that echoes in my mind today: buy and hold mutual funds, don’t buy or sell on hype, invest as much as possible in tax-deferred vehicles, and don’t spend money on frivolous things.

My father was a police officer who went handicapped because of an injury he sustained after years of work. His compensation fell to half of what he paid when he was an agent.

You wouldn’t believe how low that amount was, and how it has never increased by a cent in more than three decades. Still, he and my mom managed to send three kids to private schools for what they made.

He did this by paying a lot of attention to money and asset management and by reading financial and tax publications for hours.

My father’s attention to finances probably stemmed from the example of his own father. My grandfather lived a modest life after his own father was beaten in the 1929 crash. But my grandfather also managed to invest well and leave his son, my father, a decent amount of money to grow up.

For a long time, I haven’t heard or even tried to listen to my father’s mantra about investment.

In the late 1980s, I made my first ever share purchase: at a local bank where I opened my first savings account.

I spent $ 500 on 100 shares of that bank.

The bank, like seemingly every other small Connecticut lender, expanded its business dramatically with real estate loans and sought to establish itself as an attractive takeover candidate for what was expected to be a widespread consolidation of banks in the region.

Insiders at those banks, their friends, and people like me bought their stock in the hope – and expected – that there would be a big payout when they were bought out.

That did not happen.

Instead, in the months after I bought the stock, the price continued to fall. Once it was $ 1 a share, I had seen enough and sold my shares for an 80% loss.

Soon after, that bank went bankrupt in what was the first major wave of bank failures in the country since the Great Depression.

I covered many of those failures as a young reporter. Since then, I’ve had a very skeptical eye when I look at every banker’s forecasts.

My dad told me years later that losing my shirt on that couch was the best thing that ever happened to me because it healed me from the idea that I had any talent for stock selection.

Except for another small stock purchase in my twenties, I never bought shares from an individual company again.

Instead, I followed my father’s advice and effectively put my investments on autopilot: regular and consistent purchases of mutual fund shares – which I don’t sell – keeping management costs ultra-low and the use of deferred vehicles, such as 401ks and IRAs.

And I never buy anything hyped.

When my father died, I spoke at his funeral and described how, as a teenager and young man, I spent years “ trying my best to shut my ears to his preaching ” about money and investment, ” before one night I received a revelation that he had been right. “

“And then I started hectoring my friends about their money management, hearing his words coming out of my mouth,” I added.

This morning, as I sat down to write this article, I heard my son screaming from his bedroom.

The price of Dogecoin had skyrocketed. He had missed that he quickly turned his $ 10 into over $ 30 because I refused to let him buy it.

He then stomped over to my desk to blow me for that.

I have a lot of work to do with him.