Originally posted on Institutional Investor’s Inefficient Markets Blog
April 28, 2015 at 9:30 AM EST
Author: Vitaliy Katsenelson, follow him on Twitter @
I have a confession to make. I want my company to someday be called Katsenelson & Kids. That doesn’t have to be its official name, but I want to work with my kids. I want my kids to be value investors. I know I am supposed to want them to be doctors or nuclear physicists. I don’t. Maybe if you go Freud on me, you’ll tell me this is my way of not wanting to let them go.
But I don’t want to push them into investing unless they absolutely love it. I want them to be happy. So far, none of my three kids — especially my 15-month-old, Mia Sarah — has shown any interest in following in my footsteps.
Six or eight times a year, I am invited to give a talk on value investing to undergraduate and graduate students at the University of Colorado Denver or Denver University. I really enjoy these talks. They are always structured in a Q&A format (I thereby pass the burden of class preparation on to the students). As part of their homework, they have to read my articles and come to the class with questions.
At these talks I always get the question “How do I start investing?” My answer: Forget everything you’ve learned about Modern Portfolio Theory. Start with an area that you know. If you like shopping, you have plenty of retailers to choose from. If you know cars, you’ve got some choices there. You don’t need a diversified portfolio, just a few stocks. But research these stocks. Read everything you can about them.
Don’t do a model portfolio; do real money. Take as much money as you can afford to lose and start investing. Look at this as your tuition money. The most difficult part of investing is not the analysis but the psychology. A paper portfolio doesn’t trigger fear or greed — only real money will. Charlie Munger has a saying: “Learning about investing from books is like learning about sex from romance novels.” (I skip this line when my kids are in the classroom.)
There are many reasons why I do these talks. First, I’m trying to undo some of the damage that Modern Portfolio Theory dogma has done to these young minds. Second, my firm employs three or four interns from these schools, and I use these talks as a recruiting tool.
The third reason is a long shot. I have a secret plan (which is not so secret anymore). I always bring at least one of my kids with me to class (two if I’m lucky — my son Jonah is 14, and older daughter Hannah is nine). I never have to drag them because after my presentation we usually go to DQ (my bribe of choice). I don’t know whether they pay attention all the time or not, but I know that they are at least listening a little because I ask them to give me a list of six things they learned from the lecture. My biggest hope is that these talks will spark some interest in investing. If they don’t, I gave it a shot, and at least we got to spend time together.
Jonah is my immediate hope. My wife, a typical Jewish mother, says that he can become an investor or anything else — after he finishes medical school. (She doesn’t share my dream.) Jonah has so far shown little interest in either investing or being a doctor, but he loves to make people laugh, so maybe he’ll be a comedian.
In my latest attempt to gently nudge Jonah’s direction in life, I am taking him to the Berkshire Hathaway annual meeting this Saturday, May 2. I don’t know if he’ll be able to sit through six hours of the Warren Buffett & Charlie Munger Show or if he’ll just spend most of his time browsing the showroom at the convention center and eating DQ Dilly Bars (DQ, of course, being part of the Berkshire Hathaway stable). But in the worst case, he’ll have a memory of this trip. And memories are important.
It was the winter of 2001. I learned that Luciano Pavarotti was going to give a concert in Denver. But by the time I found out, only the very expensive tickets were left. My wife was very pregnant with Jonah — we were a brand-new family. Those two tickets could buy the nice TV we were saving for. I was trying to figure out how to convince my wife to spend what was at the time a significant amount of money for a two-hour experience. We are both big fans of Frank Sinatra, and we were watching a biography about him. I said, would it not be incredible if you and I could see Frank Sinatra live; it would be one of those once-in-a-lifetime experiences. Then I said, we can’t go to Frank’s concert, but Pavarotti is coming to town, and we have a chance to see him. She was still under the influence of the Sinatra movie, and she agreed. Today neither of us regrets that decision. The TV is just a thing, but we got to see Luciano Pavarotti, the one and only, live!
Why am I telling you about this? Well, this trip to Omaha is going to be a similar experience for Jonah (though he probably doesn’t understand that yet). He’ll be telling his kids and grandkids that he actually went to the 50th Warren & Charlie Show.
Will Jonah become a value investor? I don’t know, but I hope that some of the values of value investing will rub off on him and he’ll treat the stock market not as a casino but as a place where you buy businesses at a significant margin of safety. If he decides to become a doctor or a comedian, at least I have two more kids to nudge (brainwash). Maybe it will be Katsenelson & Daughters.