Stock market classes my son taught me

Joseph Kennedy Senior was with his shoe. I have my 13 year old son – and my father.

About 92 years ago, Kennedy – the father of a president of the United States and two other sons who became senators – would have sold his substantial portfolio on the rising stock market after a boy who was cleaning his shoes gave him some tips on actions.

The story goes that Kennedy realized it was a signal to sell – everything.

He reasoned that when shoeshineers announced stocks as right, there was a lot of stupid money on the market, sustaining prices that would certainly fall.

Kennedy’s move saved his fortune.

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

On Thursday, I thought I saw that shoeshine man standing in front of me, waving a $ 10 bill.

My 13-year-old son enthusiastically asked for permission to buy a cryptocurrency – dogecoin – which, he shouted, would explode in price at the end of the night, quintupling or more his investment in hours.

“Elon Musk guarantees that!” my son said.

“What?” was my first question.

My second was, “Did you read that on ‘WallStreetBets?’ “

He immediately confirmed that he was unknowingly reading the Reddit r / WallStreetBets group.

That same group last week triggered the insane escalation of GameStop’s stock price, costing hedge funds nearly $ 30 billion in short sales.

This has also led to a flurry of comments about stock market morality, speculation and short selling, as well as a stirring of legislators across the political spectrum, from the progressive Rep. Alexandria Ocasio-Cortez, DN.Y., to conservative Texas GOP Sen. Ted Cruz.

And some users of r / WallStreetBets were also publicizing the virtues of buying dogecoin, hoping to take advantage of a similar wave of price increases.

I laughed at my son.

But he kept pressing me to let him buy some dogecoin. And he continued to mention Elon Musk.

I asked him to look at a graph of the history of cryptocurrency prices since 2013, which showed stomach-dropping falls that followed the bubbles in that investment sector.

“It’s only $ 10,” he insisted.

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

My own son quickly put the book on the couch.

Then I showed him another book, “Extraordinary popular delusions and the madness of the crowds”.

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

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

I’m not surprised.

Children and adults – especially adults – are difficult to reason when they are swept away by the idea of ​​a quick and easy financial return or some other craze.

I was a child – well, in my 20s – the last time I was a victim of that kind of emotion. In the years that followed, I certainly missed the chance for some big monetary gains. But I also avoided crushing losses.

This is probably due to my father.

When I was a child, my father often gave lessons to 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 accident that Joe Kennedy had managed to avoid.

And he repeated a mantra that resonates in my head today: buy and hold mutual funds, don’t buy or sell in hype, invest in tax-deferred vehicles as much as you can and don’t spend money on frivolous things.

My father was a police officer who left home because of an injury he suffered after years on the job. His pay fell by half his full-time salary when he was a police officer.

You wouldn’t believe how low that amount was and how it never increased a penny in more than three decades. Still, he and my mother managed to send three children to private colleges with what they earned.

He did this by paying close attention to money and investment management, spending hours reading financial and tax publications.

My father’s attention to finance probably came from his father’s example. My grandfather lived a modest life after his own father was hit in the 1929 accident. But my grandfather also managed to invest well and leave his son, my father, a good amount of money to grow.

For a long time I did not hear, or even tried to hear, my father’s mantra about investments.

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

I spent $ 500 on 100 shares of that bank.

The bank, like apparently any other small lender in Connecticut, was dramatically expanding its home loan business and trying to present itself as an attractive candidate for what was expected to be a widespread consolidation of banks in the region.

The insiders at these banks, their friends and people like me bought their shares hoping – and hoping – that there would be a big reward when they were bought.

This did not happened.

Instead, in the months after the stock was bought, the price dropped further. When it reached $ 1 per share, I saw enough and sold my shares at 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 these flaws as a young reporter. Since then, I have had a deeply skeptical eye when looking at any banker’s predictions.

My father told me, years later, that losing my shirt on that bench was the best thing that ever happened to me, because it healed the idea that I had some talent for choosing stocks.

Except for another small stock purchase in my 20s, I never bought shares in an individual company again.

Instead, I followed my father’s advice and effectively put my investments on autopilot: regular and consistent mutual fund stock purchases – which I don’t sell – while maintaining ultra-low administration fees and maximizing the use of tax-deferred vehicles, like 401ks and IRAs.

And I never, ever, buy anything that is exaggerated.

When my father died, I spoke at his funeral and described how for years, as a teenager and young man, “I did my best to close my ears to his preaching” about money and investments “, before having an epiphany one night that he had was right. “

“And then I started pestering my friends about managing their money, hearing their words coming out of my lips,” I added.

This morning, when I sat down to write this article, I heard my son scream from his room.

The price of Dogecoin had skyrocketed. He had missed the opportunity to quickly turn his $ 10 into more than $ 30 because I refused to let him buy.

He then stomped off to my table to blow me up for it.

I have a lot of work to do with him.