Stock market price my son taught me

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

92 years ago, Kennedy – father of a US president and two other children who became senators – allegedly sold his large portfolio on the hot stock market after a boy who cleaned his shoes offered him advice on stocks.

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

He felt that when shoe shiners touted stocks as safe, there was a lot of stupid money in the market, supporting prices that were sure to drop.

Kennedy’s gesture saved his fortune.

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

Thursday, I thought I saw this shoe shiner standing in front of me, waving a $ 10 bill.

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

“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 had read, without my knowledge, the Reddit group r / WallStreetBets.

Last week, that same group sparked a crazy escalation in GameStop’s share price, costing hedge funds nearly $ 30 billion in short selling.

It also led to a flood of commentary on the morality of the stock market, speculation and short selling, as well as saber-rattling from lawmakers from all walks of life, from Progressive Representative Alexandria. Ocasio-Cortez, DN.Y., to Conservative Texas GOP Senator Ted Cruz.

And some r / WallStreetBets users were also touting the virtues of buying dogecoin, hoping to ride a big wave of similar price increases.

I laughed at my son.

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

I asked him to check out a chart of cryptocurrency price history since 2013, which showed belly drops that followed bubbles in this investment sector.

“It’s just $ 10,” he insisted.

I stuffed him a book, “Blue Chip Kids”, a basic but excellent explanation of how markets and financial instruments work. The author of the book, David Bianchi, wrote it after setting out to teach his own 13-year-old son about money.

My own son quickly put this book down on the sofa.

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 craze has been the benchmark for understanding why financial bubbles occur and how they invariably end very, very, very bad for investors when they appear. .

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

I’m not surprised.

Children and adults – especially adults – are hard to reason with when they are carried away by the excitement of the idea of ​​a quick and easy financial return or some other fad.

I was a kid – well, in my early twenties – the last time I experienced this kind of excitement. In the years that followed, I certainly missed a chance to make big monetary gains. But I also avoided crushing losses.

It is probably due to my father.

When I was a child, my father spoke frequently 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 vet, lost a lot of money in the same 1929 accident that Joe Kennedy managed to avoid.

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

My father was a policeman who was released on disability due to an injury he sustained after years of work. His pay dropped to half his full-time salary when he was a cop.

You wouldn’t believe how low that amount was and how it has never gone up by a dime in over three decades. Still, he and my mom managed to send three kids to private colleges on what they did.

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 stems from his own father’s example. My grandfather lived a modest life after his own father was hammered in the accident of 1929. But my grandfather was also able to invest well and leave his son, my father, a decent sum for himself. develop.

For a long time, I didn’t hear, or even try to listen, my father’s investment mantra.

At the end of the 80s, I made my first share purchase: in a local bank where I had opened my first savings account.

I spent $ 500 for 100 shares of this bank.

The bank, like apparently every other small Connecticut lender, was expanding its business with real estate loans significantly and trying to present itself as an attractive takeover candidate for what was to be a large-scale consolidation of banks in the region.

Insiders of these banks, their friends, and people like me bought their stocks hoping – and expecting – that there would be a big payoff when they were redeemed.

This does not happen.

Instead, in the months after buying the stock, its price drifted lower and lower. Once it got to $ 1 per share, I saw 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 these failures as a young journalist. Since then, I have had a deeply skeptical eye looking at any banker’s predictions.

My dad told me years later that losing my shirt on that bank was the best thing that ever happened to me because it cured me of the idea that I had a talent for stock picking.

With the exception of another small stock purchase in my twenties, I never bought any stock in a sole proprietorship again.

Instead, I took my father’s advice and effectively put my investments on autopilot: regular, consistent purchases of mutual fund stocks – which I don’t sell – while maintaining management fees. very low and maximizing the use of tax deferred vehicles such as 401ks and IRAs.

And I never, ever buy anything trendy.

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” on the money and investment, “before he had a revelation one night that he was right.”

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

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

The price of Dogecoin had skyrocketed. He had failed to quickly turn his $ 10 into over $ 30 because I refused to let him buy it.

He then walked over to my office to blow me up.

I have a lot of work to do with him.