IDEA #26. Find a product or company you are interested in, find it on the stock market, and follow its fortunes there. Imagine that you have bought 100 shares of a stock, and track it—write it down!—at least once a week on the Internet or in the newspaper. Keep track of how much you win or lose in a month, or two months. Are you happy or sad that you didn’t invest real money?
Stock market reports feature prominently in the news, and investment is the cornerstone of capitalism. The child who learns to understand the system and who can begin to see the relationships between the urge to buy and the urge to sell can at least begin to develop a sense of society’s values as well as how day-to-day events influence the economy.
The first order of business is to help the youngster understand what a “share” of a company is, and how the rising or falling value of the share is a function of the perceived future value of the company. The simple fact is that a stock sale represents a fundamental disagreement between buyer and seller as to whether the value of the stock will rise or fall, a fact with profound implications for the economy as a whole and, of course, for the immediate future of the company.
The second step in this activity is to choose a stock for the hypothetical purchase. Youngsters like to invest in things in which they believe and with which they are familiar—a company that makes a favorite possession, like a computer or a game, or that provides a service the youngster enjoys, like a particular restaurant or television network. It should be fairly easy to find out if the company is listed on one of the major stock exchanges—New York or NASDAQ—and what its trading symbol and current share price are.
Imagine one share at X dollars, and then imagine a hundred shares. This is the initial investment cost. For the duration of the activity the young investor can track the share price; does it rise or fall? Older children may want to track several stocks, perhaps keeping a graph or table of daily value and perhaps also noting the state of the market in general, up or down.
At the end of the period, total up the value of a hundred shares and then compare it to the initial cost. If the investment “made” money, especially more than a percent or two, the investment was sound and perhaps spectacular. If there was a paper loss, then all involved should feel relieved that the investment was not real, but even a significant loss might not signal disaster. The question might be, What would explain the rise or fall in the stock’s price? Were there news items relating to the company and its business, or did the fluctuations in price seem to have little relationship to anything obvious?
The real lesson of the stock market is to look at long-term investment and to see how a company might do over an extended period of time. Another wise investment strategy involves diversification, investing in several or more different kinds of businesses. Many people do not understand the importance of the stock market as a principal investment of pension and retirement funds, insurance companies, banks, and even college and private school endowments—not just individuals.
It should be possible to locate a stockbroker—try an online search—who would be willing to discuss the market and its vagaries and processes with an interested young potential investor. Of course, this exercise could be performed with real money and real shares, although perhaps a very small amount of stock would be a safer way to start.