...and why you may not want to try.
When Alice Finn, a veteran wealth manager, set up small investment accounts to help teach her two children basic investing principles, she never expected that she’d end up picking up some new ideas herself.
When her 15-year-old son Michael Finn-Henry set out to invest, it was with modest objectives. “I wanted to understand how the stock market works, because that seems to be where a lot of adults end up making money,” he says. More importantly, perhaps, he wanted to make enough money to buy his own iPad.
Finn had told him he could keep a percentage of any profits from his brokerage account and spend them on things that his parents might consider luxuries but he deemed necessities. Over time, however, Michael’s portfolio has fared better than those of many professional investors — and he has done it by investing in stocks that he’s passionate about.
It’s an approach that makes Finn wince. She’s an ardent believer in the benefits of a more passive and disciplined approach to investing; her firm, PowerhouseAssets, relies on lower-cost products offered by providers like Dimensional Fund Advisors and Vanguard. "I believe in using index funds rather than trying to beat the market with stock picking,” she explains.
While Michael’s portfolio does include a handful of these indexes, it’s the stock picking that has really made it zing.
His first stock pick was Apple (NASDAQ: AAPL), a logical addition, given his urge to acquire an iPad. He rode the stock up to $700 – more than doubling his money – and then down again, although he has since recouped his paper losses as Apple rebounded to split-adjusted record highs. “He learned from his experience with Apple that he needed to lighten up when he made a lot of money very rapidly on a single position,” says Finn.
Michael didn’t back away from his passion for investing in single stocks rather than indexes, to his mother’s chagrin. And although he became an avid student of details such as price/earnings multiples and dividend payout ratios and now reviews all kinds of corporate news and market valuation methodologies with his mother in regular “stock lessons,” Michael remains drawn to investing in companies with which he feels a personal connection.
A case in point: Lionsgate Entertainment (NYSE: LGF), which he bought ahead of the 2012 release of the first “Hunger Games” movie adaptation of one of his favorite novels. Since then, the S&P 500 index has gained about 67 percent; Lionsgate is ahead 350 percent thanks to the huge success of the films.
Finn-Henry’s passions include rock climbing, scuba diving and other outdoor adventures. It’s unsurprising, then, that he was drawn to the rugged, wearable GoPro (NASDAQ:GPRO) camera that captures the experience of climbing, sailing, skiing or any other adventure. People have gone ski-diving with a GoPro, or attached it to their babies, their pets and to a pizza pan; a GoPro has even captured the image of itself being devoured by a fox.
When Finn heard of the company’s plans to go public this summer, she picked up the phone to call her son; he immediately forgot an argument they’d been having over something else and insisted on buying into the IPO. He ended up with a small block of shares at the initial offering price of $24 apiece. It has since shot up in value to nearly $49.
Michael’s rationale for the investment, however, wasn’t just a quest to make a quick buck. "I want to understand how the business behind a product like GoPro actually works," he says.
In fact, for all his success, Michael he has displayed another kind of discipline. Not only is he generating returns, he isn’t squandering the percentage of his profits that he’s allowed to use to buy whatever he wants. On a recent shopping trip ahead of two weeks at summer camp, he gravitated toward a pair of hiking shoes that were pricier than Finn thought was necessary. She told him he could have them if he was willing to pay the $45 or so price difference out of his stock market profits. Michael balked at the idea and stopped urging her to make the more costly purchase.
Finn – who admits that she has her own “entertainment” account, to which she’ll add the occasional stock that catches her fancy – is still taken aback by her son’s stock-picking prowess. She also rather hopes that her clients don’t draw the wrong lesson from it. "I tell my clients that I don't consider this serious investing,” she says.
On the other hand, she confesses, she has to admit that “he is making serious money, and by the time he's in his 20s, he'll have had a decade of experience of investing."
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