Preteen Picks - stocks favored by young investors - Brief Article

Kiplinger's Personal Finance Magazine, Nov, 2000 by Janet Bodnar

MONEY-SMART KIDS -- Young investors look close to home for clues to GOOD STOCKS.

SURE SIGN of a market top: Sony announces it will introduce a new version of its popular PlayStation video-game system, and instead of asking for a PlayStation2 your 12-year-old son asks (as mine did) to buy stock in Sony.

Don't ever think that investing in the stock market is for adults only, sort of like an R-rated movie. It's more like PG-13. Children that age, and even younger, are able to understand the fundamental principle behind investing: If Sony introduces a new video-game system that's a hit with kids, you might want to be an owner of Sony so you can share, in the profits. And kids are prime practitioners of the market dictum to invest in what you know.

Each year I help select the nine winners (three from each grade) in an essay contest for fifth, sixth and seventh graders that is sponsored by SteinRoe Young Investor fund. In this year's contest the students were asked, "What company's stock would you recommend that the portfolio managers of the Young Investor fund purchase?"

"I absolutely hated to take those trips to Home Depot with my parents," wrote fifth-grade winner Bethany Murphy of Mount Laurel, N.J. "They bought so much and spent hours in that store. Kids have to drag their parents out of there." So, "what better choice than a rapidly improving `adult toy store' like Home Depot," where Bethany was also impressed with the customer service: "You're looking for a certain paintbrush. So you ask a worker and before you could even say another word--poof!--you are rushed to the exact paintbrush!"

Fifth grader Robert Grace of McLean, Va., picked Amazon.com as the "number-one way to shop on the Internet" because its service and convenience pleased his dad: "A few weeks ago my father tried shopping on Amazon.com and it hardly took him any time to find presents."

Sixth grader Jasmine Stewart of West Helena, Ark., credited her family with teaching her that "if a business or industry has value, growth and the ability to provide jobs for the community, it is a good company." As a result, she chose Wal-Mart, "the major shopping store in my area," which also provides employment for many families "in an area where there is very little industry and jobs."

It was the ringing of cell phones on her softball team--"parents checking on pickup time"--that convinced sixth grader Catherine Hobson of Mesa, Ariz., that there's a future in the wireless industry, especially in VoiceStream Wireless. And having actress Jamie Lee Curtis as a spokeswoman means the company "is able to relate to kids as well as adults."

Seventh grader Bryan Mayadas of Bellaire, Tex., likes the future prospects of McDonald's. Bryan cited the company's growth potential worldwide; its social conscience in reducing energy use and recycling packaging; its advertising ("I have been an eager participant of toy promotions like the Beanie Babies"); and, of course, its french fries. "Most young people like me will agree that McDonald's makes the best-tasting french fries in the world!" he says.

Minority shareholders. Of course, it's still a minority of kids who would choose the stock over the french fries. In a recent Merrill Lynch poll of kids between the ages of 12 and 17, only 11% said they own stock. In my experience, children most likely to take an interest in the market fall into three categories: kids who already have their own savings accounts and want their money to grow faster; entrepreneurial kids who have big plans for money they've earned from a job or business; and kids whose grandparents, parents or friends invest in stocks and pass along their passion.

For those who do catch the investing bug, online trading and low commissions make it easy to get carried away. Parents and grandparents need to use their influence to make sure that kids become long-term investors whose interest will survive the inevitable bear market, and not incipient day traders--or even short-term profiteers, as in the case of my son. As soon as Sony's stock price jumps, as he anticipates it will, "I'm going to sell," he says--and maybe use his profits to buy a PlayStation2.

--Reporter: COURTNEY MCGRATH