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Chris DeMuth Jr.
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"It's not given to human beings to have such talent that they can just know everything about everything all the time. But it is given to human beings who work hard at it - who look and sift the world for a misplaced bet - that they can occasionally find one." - Charlie Munger I look... More
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  • Value Investing For Kids 5 comments
    Dec 18, 2012 10:07 PM

    Want to teach your children the principles of value investing? Or, as I like to call it, "investing"? My 2-year old and 4-year old both like this:

    Secret Millionaires Club featuring Warren Buffett

    It teaches a little bit of business and slips in lessons on character, too. When they are a little older, this is worth understanding:

    Everything You Need to Know About Finance and Investing in Under an Hour featuring Bill Ackman

    Everyone should know at least that much about finance and investing. Bill is a great investor and proves to be a great teacher as well.

    Finally, they may enjoy The Men Who Built America

    This is an inspiring and entertaining story of some of the great businessmen who changed the course of American history. Hollywood so frequently casts businessmen as villains that it is a refreshing change to see the other side including some of the positive contributions to our lives that businesses have made.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Additional disclosure: Chris DeMuth Jr is a portfolio manager at Rangeley Capital, a partnership that invests with a margin of safety by buying securities at deep discounts to their intrinsic value and unlocking that value through corporate events. In order to maximize total returns for our partners, we reserve the right to make investment decisions regarding any security without further notification except where such notification is required by law.

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Comments (5)
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  • sheldond
    , contributor
    Comments (1024) | Send Message
     
    This is something I would like to roll out into schools. I have an organization dedicated to education and this should be in everyone's curriculum. The future generations could really benefit from this.....teach a man/woman to fish type of asset allocation strategies.

     

    DCSIII
    30 Mar 2013, 10:29 PM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (4038) | Send Message
     
    Author’s reply » Good. Buffett also sneaks in a dose of values along with value investing.
    30 Mar 2013, 11:16 PM Reply Like
  • sheldond
    , contributor
    Comments (1024) | Send Message
     
    Well you always have to sneak the character curriculum in. Lol
    1 Apr 2013, 08:18 AM Reply Like
  • Ruerd Heeg
    , contributor
    Comments (408) | Send Message
     
    Love this subject and your links. Unfortunately my kids only understand Dutch. For those who's kids don't understand English either I have 3 more tips:

     

    - teach them how to play poker or black jack, and the concept of passing when your odds are bad and increasing your bet when they are good
    - teach them investing with paper trading.
    - teach them the concept of postponed rewards: if you do this, then tomorrow...
    22 May, 06:48 AM Reply Like
  • connellybarnes
    , contributor
    Comments (306) | Send Message
     
    My preferred way to do everything, including investing and science is in terms of deductive elegance. I'm not sure how to explain this to a kid, or people in general, because it's unpopular, and so doesn't have that many examples. But I have loved using that method since I was young.

     

    Einstein thinking a lot about Maxwell's equations and then writing down the laws of relativity. Sherlock Holmes figuring out a mystery. Pulling a scientific idea from one area, stripping it down to its bare essentials, and applying it to another area. A quality common in beautiful engineering, which Paul Graham talks about in his essay:

     

    http://bit.ly/1nK9A8S

     

    Most problems can be solved by applying sufficient elbow grease, and that is usually the practical solution preferred by worldly people. Unsurprisingly that is what employment consists of in corporations, since it's easy to establish a social consensus around working hard to gain some incremental payoff. Learn to trade some financial instrument, churn out code, or publish incremental papers. Hard work makes a lot of sense.

     

    But I personally have difficulty doing things well without elegance. Probably because I am far below average at organizing my life at the bureaucratic or practical level, and find it easy to arrange ideas by beautiful underlying theories.

     

    This is probably related to the concept of flow that athletes or artists talk about. Investing consists of highly dense information which is 99% random and therefore useless. An artist or athlete could express randomness by moving a brush around without purpose, or wandering aimlessly. That's pointless though so it's only meaningful to arrange information by the underlying beauty present within it.

     

    As an example I find the theory of Kelly betting beautiful, or more generally maximizing log utility. And the behavioral psychology of Kahneman and others that explains why risk aversion is common and can present behavioral mispricings. Poker I find dull because it requires capricious rules and statistics. But poker algorithms I find interesting because computing optimal strategy is hard, and they have to incorporate psychology to deviate from optimal strategy to exploit human opponents.

     

    Most people get caught up in the details of hard work and paraphrasing Keynes become, "slaves of some defunct ideas." Much easier if you understand abstract ideas well to lower them into particular cases, to exploit all the practical hard work that is going on. Like a bird exploiting thermals for gliding purposes.

     

    Another example might be everyone working super hard in China. Now if everyone is working super hard, then the market, research, and technology, in theory should be super efficient. But perversely, without an emphasis on creativity, all that hard work gets oriented along quantifiable dimensions. This efficiency then paradoxically offers even greater inefficiencies along creative or qualitative dimensions. Peter Thiel also talked about that in the context of technology startups.
    3 Jun, 05:25 AM Reply Like
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