Pick one business for your child to extensively research. Teach them that a share of stock is a partial interest in an actual business and that expected long-term cash flows, discounted by the cost of capital, determine stock prices. Watch Munger say this:
The YouTube link to the Munger interview with the BBC disappeared. You can find other versions in the web. Or this is the transcript.
Teach the child a sound investing process. Suggest that they read Michael Mauboussin's books. Also read what Howard Marks and Jason Zweig write.
Teach the child a sound investing process. Suggest that they read Michael Mauboussin's books. Also read what Howard Marks and Jason Zweig write.
Help the child avoid the mistake of assuming that good outcomes are the result of a good process and that bad outcomes imply a bad process. Teach them that the best long-term performers in any probabilistic field, like investing, focus on process over outcome. Use checklists:
A spillover benefit of teaching investing in this way is that the child is better prepared to participate in the world of business. He or she will perform better if they understand the fundamentals of business (e.g., if they start an index fund that uses statistical factors).
A child will be a better investor because they understand business and will do better in business because they know investing. Deciding whether to buy servers or hire people involves some of the same processes as making an investment. Help them understand how value is created.
My high school investing class included a stock picking contest that lasted six weeks and was "won" by one person who picked the right penny stock. The class should have been called: "Introduction to Survivor Bias." That class was the inverse of how young people should be taught.
Charlie Munger: "If you take the modern world where people are trying to teach you to come in and trade actively in stocks, well I regard that as roughly equivalent to trying to induce a bunch of young people to start off on heroin." google.com/amp/s/www.cnbc…
