Fwd: NYTimes.com Article: In High School, Hallways Buzz With Stock Tips

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In High School, Hallways Buzz With Stock Tips
http://www.nytimes.com/2001/01/14/business/14KIDS.html

January 14, 2001
WORK FIRST, INVEST LATER? NOT THESE DAYS
By RANDALL LANE

Like many other investors, Alexander Danielides was smitten by the
1994 best seller "The Warren Buffett Way." Applying some techniques
immortalized by Mr. Buffett, the investing legend, he tripled his
stake in Motorola, is now long in General Electric and keeps a wary
eye on Compaq Computer and America Online   waiting until last
quarter's results are announced to see if they underperformed Wall
Street expectations.

 Alexander is 14; he read the Buffett book when he was 9. 

 A
sophomore at the Bronx High School of Science, Alexander says that
he spends an hour a night researching stocks on the Internet and
that he watches the Bloomberg television network intently. Yet,
compared with some of his classmates, he has only moderate interest
in the stock market. A member of the debating team and a die-hard
Yankees fan, he avoids the hallway banter about Federal Reserve
moves and insider selling that regularly commands the attention of
the 20-plus members of the school's stock market club.

 "I'm not one of those kids who gets amazed when a new earnings
report comes out," he said.

 What is most remarkable about Alexander's story is that it is
wholly unremarkable. 

 Over the last five years, the Internet has produced two new types
of stock speculators: day traders and teenagers like Alexander. 

 But while day trading appears to be a fad that died with last
year's bear market   Ameritrade Holdings, an online broker favored
by day traders, added to the evidence on Monday when it announced
that its first- quarter commission revenue would be less than $45
million, down from $132 million a year ago   the rise in trading by
teenagers appears to continue unabated. It has become as enmeshed
in the high school experience as football practice and yearbook
meetings.

 "It's not just the nerdy kids asking questions anymore," said
Mitchell Slater, a first vice president at Merrill Lynch who
lectures each month in New York area schools at assemblies filled
with students as old as high school seniors and as young as third
graders. "The jocks, the cheerleaders, the druggies   they all want
to talk about the market."

 Some 12 percent of adolescents aged 12 to 17 now own stocks,
versus 7 percent two years ago, according to a Merrill Lynch
survey. That works out to more than three million youths
nationwide. But the number who use those two tried-and-true places
for extra teenage money   savings accounts and piggy banks  
remained flat or declined over the same period, the study found.
Most young investors hold their stock passively, often in a trust,
experts say, but a sizable segment is trading actively for personal
accounts over the Internet. Just how sizable is unclear. Most
e-brokerage firms declined to provide statistics, though Datek, a
favorite online firm among aggressive traders and the No. 4 online
broker in volume last year, says that 2 percent of its customers,
13,000 in all, are minors trading via custodial accounts.

 If that ratio is extrapolated across the pool of online stock
traders, the total number of young traders runs to more than
200,000.

 That's a lot of kids, mostly from affluent families, trading a lot
of money. While the majority have accounts in the low thousands of
dollars, a precocious and generally well- financed few have
portfolios in the six-figure range, anecdotal evidence suggests.
(By comparison, the median stock portfolio for all shareholders in
1998 was $28,000, the New York Stock Exchange said.)

 The phenomenon worries some psychologists. "I know 16- and 17-
year-olds whose parents give them $1,000 like it's play money,"
said Dr. Stephen Goldbart, co-director of the Money, Meaning and
Choices Institute in San Francisco, which runs seminars about
coping with wealth. "They're giving them access to a very powerful  
and socially acceptable   avenue to addiction."

 Young investors no longer have to look to adults for advice,
either   the Internet provides it. Many Web sites, including some
designed specifically for teenagers, teach investing concepts.
Besides offering the basics, some give instructions in more
sophisticated and tempting techniques like buying on margin,
shorting stocks, trading in commodities and even avoiding taxes by
buying municipal bonds.

 The image of teenage stock trading was hardly helped last
September, when the Securities and Exchange Commission accused 15-
year-old Jonathan G. Lebed of Cedar Grove, N.J., of using Internet
chat rooms to manipulate low-priced stocks. To settle the case,
Jonathan agreed to return $285,000 of his gains plus interest. "I'm
proud of my son," his father said at the time.

 Still, many observers of teenage investing argue that Jonathan's
case was the aberration, not the rule. They say the vast majority
follow a fairly conservative strategy, obeying the traditional
axioms of buying and holding, not churning portfolios, and of
investing only in what you understand.

 The first stock ever bought by Chris Stallman, 17, a high school
junior in Bradley, Ill., was Walgreen   an easy choice, considering
that his father is a pharmacist for the company. That was two years
ago. Chris has since bought the maker of his favorite kind of
computer, Dell Computer, as well as a few blue chips like Merck.
Along the way, he has turned his $2,400 college account into
$8,000, despite the market's fall last year and after using $500 to
pay his tax bill.

 "Some girls in the high school have asked me to marry them," he
said. "They think I'm going to be rich."

 Zachary Skolnick, 16, a junior at the Branson School in Ross,
Calif., is a technology buff who makes $50 an hour helping a local
law firm solve its computer problems. Seeding a $4,000 stock
portfolio with those proceeds, he now focuses on his favorite area,
with a decided nod to quality and earnings: Microsoft, Intel, Cisco
Systems and Nokia. 

 Zachary, who has been trading since he was 13, often talks stocks
with his father. "We try to help each other out," he said. And he
spends his nights thinking up computer models and stock screening
programs. Yet he said he had never considered day trading. "Unless
you have a larger portfolio where the commissions don't eat up the
assets, it doesn't make sense," he said, sounding like a pro.

 For now, he is content to swap tips in his school's 12-member
investment club, which makes group purchases based on a two-thirds
vote. Members recently debated whether to buy into Krispy Kreme, a
snacking favorite among several members that was the second-best
performer among initial public offerings last year. The club
eventually decided against it. "We didn't feel that doughnuts were
a key growth area," Zachary said. It was a smart move: although
Krispy Kreme's shares rose after the vote, they closed on Friday at
$67.31, nearly 40 percent off their 52-week high.

 The fact that smart teenagers like Zachary can be taken seriously
as investors comes as a direct dividend of the Internet, which
allows young traders the most precious commodity of all: anonymity.
As comfortable surfing the Web as reading a book, they can uncover
the same kind of data   earnings forecasts, S.E.C. filings, analyst
reports   that until recently would have been the sole domain of
well-heeled adults. They can post questions and comments in chat
rooms and bulletin boards   and receive serious answers. And they
can trade stocks at feasible commissions and without having to call
a broker with the worry that their voice might crack.

 "You couldn't get an investment adviser to talk to a kid six years
ago," said Ginger Thompson, a onetime investment banker who in 1999
founded Doughnet, a Web site dedicated to financial management for
teenagers. 

 Young people "don't need one now," she added.

  
 Of course, there is a difference between having the tools to trade
and understanding how to use them. Many groups, both for profit and
not, have begun large- scale youth education programs. Two years
ago, the National Association of Investors Corporation, an umbrella
group of investor clubs, started a teenage membership program,
complete with a newsletter, Young Money Matters.

 More than 2,500 youths pay the $20 annual membership fee. "We want
to get the foundation built, so they're not thinking about the
quick buck but instead looking longer term," said Jeffery Fox, the
group's education chief.

 Even more popular, however, are online trading games. Every
semester, the Securities Industry Association runs the Stock Market
Game, a 10-week simulated market for students in grades 4 through
12: Teams are given a hypothetical $100,000 to invest while
studying a complementary curriculum in math, economics and social
studies. Five years ago, the game had 400,000 participants; now the
number tops 600,000.

 CNBC also runs a contest, with a more tangible prize. Since 1998,
teams with names like "Stockluvers" and the "Dollar Dollies" have
competed for a chance to be flown to New York for an appearance on
the network's "Power Lunch" program. Squads from almost 13,500
schools competed last fall, up from 2,500 schools 18 months ago.

 The games provide more than education. They build interest   and
confidence. Alexander, Chris and Zachary all played the Stock
Market Game with varying success before moving from chits to cash.
"Now I'd rather do it with real money," Alexander said.

 These three teenagers are typical in another way: they are male. A
survey by Teenage Research Unlimited, based in Northbrook, Ill.,
found that 25 percent more teenage boys than girls reported owning
stocks, and the company's experts said the ratio grew far more
lopsided as trading became more active.

 In one sign of the overall interest, at least a half-dozen summer
camp programs on investments have popped up, including one at
Haverford College outside Philadelphia that features instruction
from the Wharton School of the University of Pennsylvania. Another,
at Bentley College, near Boston, buses campers into the city for
field trips in the financial district.

 More than a dozen Web sites now cater to young investors.
Doughnet, Ms. Thompson's site, draws 150,000 unique users monthly
and is unabashedly pro-investing   showing teenagers how to set up
trading accounts. Ms. Thompson said she believes that young people
should have the right to invest as they please. "They're allowed to
drive and kill themselves on the road," she said, "but not invest
their money?"

 Ms. Thompson, who has worked at Donaldson Lufkin Jenrette, First
Boston and as a marketing executive at MTV Networks, added that, as
in love perhaps, a teenager is better off getting some experience
when he or she is young and the stakes are low. 

 "They lose money once; they learn a powerful lesson," said Ms.
Thompson, who plans to open an account for her 12-year-old daughter
this year. "A thousand dollars is a huge amount of money to a
teenager. That's why they learn more than most adults."

 But like most adults, most younger investors probably also managed
to avoid overall losses during the surging bull market of the late
1990's. And coming of age as an investor during that time was a bit
like a neophyte gambler winning big on his first trip to Las Vegas,
said J. Michael Faragher, who for 15 years has been co-director of
the Center for Addiction Studies at Metro State College in Denver.
"This is going to set up a memory trace that isn't going to go
away, and will be coded in the brain," he said. 

 Dr. Faragher said the wild swings in the market   which have only
become wilder in recent months   are particularly troublesome for
teenagers. "Being an adult, I can put that in context, but an
adolescent really can't," he said. "It's potentially very
dangerous."

 Dr. Goldbart, of the Money, Meaning and Choices Institute, likened
the potential pitfalls of early market successes to the plight
often faced by child actors. "Self-esteem," he said, "can go up and
down with the market in the course of a day or two."

 As a remedy, both Dr. Goldbart and Dr. Faragher support strict
parental controls on brokerage accounts.

 Theoretically, those controls already exist. It is technically
illegal for minors to trade securities; that is why teenagers must
open custodial accounts, which are set up in the child's name but
require parental approval for any transaction. But the Internet
does not recognize a child's face or voice and, as with the keys to
the family's second car, passwords are usually difficult to reclaim
once they are turned over.

 In many cases, the adults don't seem to want them back, especially
when the youths are trading with their own money. Roberto Weis, a
construction manager in Fort Lauderdale, Fla., oversaw his son,
Alexandre, as he invested a $2,500 windfall from his bar mitzvah.
Comfortable that his son was picking up the fundamentals, Mr. Weis
gave him full control over his DLJ Direct account at the age of 14.

 In the ensuing three years, Alexandre has turned that stake into
$5,000, even after the year's market decline. Mr. Weis was
comfortable enough with his son's skill   Alexandre brags that his
portfolio has outpaced his dad's   that he entrusted him with the
savings accounts of his 16-year-old brother, Rodolfo, and
12-year-old sister, Veronica. Now Alex runs what is basically a
Weis family mutual fund, with assets in the $10,000 range, focusing
on technology companies. 

 Alexandre, who has seen his own and his siblings' accounts drop by
25 percent since last spring, acknowledged that the bear market of
2000 had shaken him up a bit. 

 And that's a healthy feeling, said Mr. Slater of Merrill Lynch,
among others. "Teenagers have seen what happens when greed takes
over," he said. 

  
 Still, unlike day traders, young investors are not bailing out of
the market. Alexandre repeats the mantra of millions of investors,
including many of his peers   that the stock market is the premier
investing vehicle for long-term investors, especially when their
horizons are 60 or 70 years. He has spent the last year bringing
down the average cost of stocks he already owns and likes by buying
more shares.

 Chris Stallman, the 17-year-old Walgreen shareholder, remains
similarly bullish for the long term. Nearly two years ago, he and a
friend started TeenAnalyst.com, the first site created by teenage
traders for teenage traders. "Investing," the site's motto screams
out with a verve more reminiscent of naughtier activities, "it's
not just for adults anymore!" 

 Run out of his bedroom, the site, visited by 10,000-plus unique
users a month, offers simple articles and a variety of services
that demonstrate the vitality   and perplexing nature   of the
youth market. Adult-looking pages offers teenagers free trial
subscriptions to Fast Company magazine and a $240-a-year stock
newsletter, while a banner ad for credit cards flashes a contest to
win $25,000 off your annual mortgage or rent. (No word on whether
this can be applied to the family home.)

 Because the current generation of teenagers is already a viable
market, and may eventually prove to be the largest pool of stock
traders in history, many brokerage firms have overcome image
concerns and moved cautiously into marketing to young investors.
Some, like Merrill Lynch, take the education route. A. G. Edwards
of St. Louis runs its own stock market simulation, Big Money
Adventure, with levels ranging from "Rainbow Castle," for 2-
to6-year-olds, to the Star-Traders game for teenagers. Each week,
Edwards gives T-shirts to the winners.

 Still, other brokerage firms seem to worry about being accused of
concocting a stock market version of Joe Camel. Ameritrade refused
to provide any numbers about its teenage business, and a press
representative from E*Trade tried to go "on background" just for
the purpose of confiding that, no, E*Trade wanted nothing to do
with this article.

  
 But the genie is out of the bottle. "Teens see the opportunity to
build wealth in ways that generations before them never did," Ms.
Thompson said. In many ways, it is becoming just another facet of
being a teenager. Just as they talk sports or dates, Zachary and
Alex and Alexander, among others, say that they now talk investing
at the dinner table with their parents, and that their parents'
friends ask for investing advice. 

 Chris Stallman said teachers and administrators at his school,
instead of asking him about the latest bands, have been asking him
for stock picks. He refuses to give specific recommendations,
however, instead sticking with pat answers like "go with blue
chips."

 "I don't want to give a stock pick to the principal," he said.
"Then it goes down, and I'll be in detention." 
 
        


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