Stocks 'R' us: teaching your kids about the stock market gives them a jump-start on investing - Cover Story

Black Enterprise, May, 1993 by Timothy Middleton

Teaching your kids about the stock market gives them a jump-start on smart investing.

Next time you hear a 16-year-old kid talking stocks, listen up. Especially if it's Terrance O. Davis.

Last December, the junior at William Howard Taft High School in San Antonio, Texas, used the analytical skills he'd sharpened in his advanced math, English and computer classes to monitor Wisconsin Pharmacal Co. Inc. The precocious student was betting that Wall Street pundits were wrong in their belief that the government would soon approve Pharmacal's new contraceptive device. The teen's strategy? Sell his $200,000 worth of shares in a risky move called "shorting," then scoop them back up as the stock price plunged. In a matter of days, Pharmacal went from $20 to $15 per share--netting Davis a handy--if imaginary--$42,880 profit.

"You have to take risks," says Davis, whose Christmas coup helped him land top honors in the nationwide AT&T Collegiate Investment Challenge. By the end of the three-month contest, Davis had outwitted 1,800 high school students, growing his $500,000 play-money portfolio to $984,340, for a stunning 97% gain. Not only did he beat his closest competitor by $225,000, but he clobbered the Dow Jones industrial Average, which eked out a mere 4.5% in the same period.

While stock-picking tykes like Davis may not be in the same league as Warren Buffet, they're well on their way. As part of a national drive to make young Americans more proficient in economics and finance, programs such as the AT&T Challenge are surfacing from coast to coast: At least a half-dozen full-blown stock games are being played nationwide today. Even better, more and more black finance pros are sponsoring progams of their own, steering youths to the stock market--and great careers.

So whats in it for your child? A leg-up on money management, for starters. Today, despite sagging interest rates, African-Americans are still less than half as likely as their white counterparts to invest in common stocks. "We just haven't been as aware of the alternatives that the stock market offers, and we're more reluctant to expose our capital to risks," sums up Alan Bond, president and chief investment officer of New York City-based Bond, Procope Capital Management.

Adds Charles Ross, host of Your Personal Finance, a nationally syndicated radio program, "No matter how you cut it, if you want to build wealth, you need to be involved in the stock market."

No one knows that better than stock specialist Bond. "When I was 10 years old, my family went to Disney World," he recalls. "When we got back, my parents said, 'We've got $5,000 to put in the stock market; what should we buy?' I said I thought we should invest in Walt Disney, because it was so much fun, and Delta Air Lines, because it flew us there, and GM (General Motors Corp.) because we had rented one of their cars." Good thing his parents listened: Over the next decade, those three stocks soared, and helped pay for Bond's four years at Dartmouth College.

Today, Bond shares his market smarts with inner-city youngsters. For six years, he has sponsored "A Day On Wall Street," a program that introduces sixth-graders to the stock market. The adventure, which includes a visit to the floor of the New York Stock Exchange and lunch in its ornate, beaux-arts boardroom, helps teach youngsters that the products they use can open the door to investments and profits.

Based on his own childhood experiences, Bond, now 31, encourages kids to "invest in names they know," such as Reebok, Blockbuster Entertainment, Apple Computer, Nintendo, Delta and Johnson & Johnson. (For more on this approach, see "The Power Of Investing In What You Know," December 1992.) But his young charges don't place bets on a whim. Under Bond's program--which includes about 70 students from New York City-area public schools--kids "buy" their imaginary stock only after they've done careful research.

"We make the concepts very elementary, but the kids learn to do fundamental research," says Bond, who introduces them to The Wall Street Journal, stock tables and other tools of the trade. Then he urges them to consider," 'Are the products good? How many will they sell? Do they have good marketing? Does the product have longevity?' They learn the key components of assessing a company and a product."

The children also learn to recognize smart buys by paying attention to the world around them--noticing that every kid in their school suddenly owns the latest Reebok athletic shoe, for instance. Soon, they learn what every smart investor knows--how to recognize a trend before the rest of the market does. (See "How To Pick A Stock Before It Gets Hot," October 1992.)

Stocks In The Classroom

Most experts agree that it's never too early to start coaching kids on the complexities of stocks. In fact, teaching students the basics of investing gives them "extra credit." For instance, stock prices are reported as fractions, an important math concept for grade-schoolers. Researching companies by following developments in the newspaper improves reading and communications skills. And for older children, learning how stock prices relate to corporate performance means grasping a range of complex economic information.