One topic that I've seen discussed in multiple comment streams on Seeking Alpha is how to get children interested in investments. There are moments in life where you have the opportunity to intersect different aspects of life to come up with ideas that meet multiple agendas at once. I've had just such luck in the last six months: I have been able to intersect my investment philosophy and teaching potential younger investors. I had no idea where I was going to go with this idea, so I started with a simple question for them, "If you could buy one company to start your own investment account with, which would you choose and why?" What I decided after listening to the suggestions that they came up with is that I would buy these companies and track the performance of them going forward.
The good news for me is that the companies they chose were all companies that I followed so the discussions we had about them were able to be had without having to do research on the companies. This also meant that the companies they brought up were well within my comfort zone, even if they were not selling at what I perceived to be value at the time. The three children in question range from age 8 to 14 and each were able to come up with answers pretty easily. These purchases were made inside my Scottrade account and thus the funds from dividends are not reinvested back into the companies but instead are invested into what I deem the best investment each month. If I could do this in hindsight, I would probably change that aspect and have made these the first three purchases in my Learning from the Start series as the total return gains, with dividends reinvested, would have been very interesting to follow and compare through the years.
First choice was given to the eight year old, and she chose Starbucks (SBUX). At the time of purchase it was priced at $58.35 and had a yield of 1.1%. What interested me most was her reasoning for picking Starbucks. Every day she sees her mom, her teachers and everyone 'in line at the drive thru' looking to purchase their coffee. I asked her 'Are you worried that in the future people would cut back on coffee purchases if the economy struggled'. I thought this would cause her to have to think for a good while, instead she simply said 'no, the economy wasn't good for a long time and there are Starbucks all over the place'. That is logic that I cannot really argue with. In the 6 months since the purchase the stock price is down 4.27% through last Friday's close. The positives are that the company's earnings have continued to grow and the dividend was increased from .16 a quarter to .20 a quarter. The negative of this purchase is that I bought it at a time where I knew the value was not there. The nice part of that is that when she asks how it is doing, I am able to explain the earnings positives while also being able to talk a bit about how important buying value is.
The second choice was given to the ten year old, her choice was Disney (DIS). When I asked her what she liked about Disney, she talked about the built in customers that the movies, the theme parks and the Disney Channel gave the company. When I made the purchase I thought I had gotten a decent value as they were about 16% off the 52 week high. The shares were purchased for $100.10, with a yield of 1.4%. I mentioned the next Star Wars movie and she had no clue that Disney owned Star Wars, however when the last movie came out she announced to everyone that Star Wars was a part of Disney and that it was a company that she owned. I didn't have the heart to tell her that the shares were mine, and that we would have to work on saving to get her, her own but I was really excited that the conversation had stuck with her. She explained to her cousins that she was learning about investing, and was able to tell them a pretty convincing story that Disney was a company she would be investing in going forward. Since the time of purchase the shares purchased are down just under 9%, on concerns over ESPN subscribers. The release of Star Wars was a huge positive for the company, and the coming opening of Disneyland China have been topics that we have been able to discuss.
The fourteen year old's choice which was McDonald's (MCD). I asked him what made him choose McDonald's and he mentioned the road trip that he had recently taken and how many cars he saw in the McDonald's drive thru no matter what city or what time of day they drove by. At the time the company were just starting to talk publicly about the all-day breakfast plans. He thought this would be a very good idea for the company long term. I asked him if there were any concerns over the move to healthier foods. He said that McDonald's has changed menus before, they add things like the McRib and continue to make adjustments as needed. Unlike the first two choices, McDonald's was a company that I already owned so no purchase needed to be made. The closing price on the day the other purchases were made was $100.66, and they had a forward yield of 3.4%. In the last six months, McDonald's has seen its share price increase by 17%, the company has announced a dividend increase of 5%, announced they would not spin off a RIET as some thought they may and have seen positive earnings growth, helped by the all-day breakfast initiative.
What I've learned
Overall the results six months in is that the three stocks are basically even, while the S&P 500 is down just over 4%. Earnings on the three companies continue to do well, and I think for having little knowledge of investments they chose very well.
One of the unexpected benefits has been that we have been able to sit down and discuss what needs to be done to get to a point where they can start buying stocks themselves. We were able to sit down and get them savings accounts through a local credit union that pays interest at a rate of 6% for the first 500 dollars saved. Set up a plan where they put a third of their monthly allowance away in that account and have gotten them to the point where they check the statement each month to see how much interest they have received. When we go places they consistently notice how many cars are in the drive through at Starbucks or McDonald's, how many people are in line at Starbucks at the mall and if there are any new Disney movies out.
To date I wouldn't change my decision to invest into any of these companies, and am happy with the progress that we have made in discussing investments and long term strategy. Next up in our discussions are reinvestment of dividend strategies and how to start the process of portfolio building. In the long term I expect that this group of stocks will serve this project well and it gives us all something to discuss. What are some other suggestions on how to get children to become interested in investing? At what age is it correct to start the process of teaching kids about what investments are out there, and what families invest in? Let me know other ways that you've gotten children to become excited about investing in their future.
Disclosure: I am/we are long SBUX, DIS, MCD.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.