I have a big mouth, and what comes out of this mouth often gets me in trouble. This time I managed to drag my daughter into the fray, but she emerged unscathed. In fact, she gained some notoriety as a stock market pro with her class, with the added bonus of earning geek status (geek is *in* at my daughter's school). My problems began with my daughter's history teacher, a person who tried to teach the class how to invest. Investments in history? Of course! Investments are part of our history, and at least someone is willing to teach the stock market at my daughter's school. My concern wasn't with his efforts - it was with the methodology.

The instructor gave the class a handout with about thirty companies listed on the sheet. The class also received an imaginary $10,000 each. The students were allowed to pick two companies for investments. They could buy shares sporadically or in a lump sum, but they could not sell until the end of the project. The timeframe for the project was two weeks. The instructor prefaced the assignment with the comment that "this is not the way to do it, but this is how we are going to do it." Of course, this was paraphrased by my daughter, but I later found that she was spot on with the comment.

If you are investment-savvy, then you already see the problems. If not, let's walk through this assignment to discover the horrors:

1. The thirty companies on the sheet were all what is called "blue-chip" stocks. In other words, they were all fairly low-risk, and low-risk stocks usually do not grow as quickly as higher-risk stocks. The blue-chip companies are mostly large, multi-dimensional organizations (conglomerates is one word for this), that often produce a wide variety of products or services. They are known for their national and/or international status. These stocks are mainly stable, and they are a great base for a long-term hold portfolio. However, this list left no room for diversity into some high-risk investments for growth.

2. How many people do you know that could drop $10,000 into the stock market today? Of course, there are quite a few out there, but I personally don't know any in my daughter's class. We're fairly middle-middle class (or lower, depending on which chart we base this measurement on), and our investments are done on a monthly basis from a limited budget. Additionally, nothing was mentioned about this sort of investment into what is called a "drip" portfolio (see "What kind of BUYandHOLD Investor are you?" for various investment options at BUYandHOLD).

3. Only two choices from the list were allowed. This is trouble, especially for a diversified portfolio. We've already touched briefly on this issue with blue-chip stock limitations, but we didn't discuss the parameters of sectors. A wide variety of choices was available, but with only two choices, this variety is tough. Four choices in four separate sectors is a better choice, especially with a $10,000 windfall.

4. The two-week timeframe is a problem. This project is best to begin at the beginning of the quarter, semester, or even at the beginning of the school year, if at all possible. This way the students learn to ride through the ups and downs and experience the benefits of a longer-term buy-and-hold mentality. Picture the poor kid who makes a killing on his or her two choices in two weeks. This is a day-trader in the making, in my opinion. This is the birth of a stock-market junkie that lucked out the first time with fake cash, and who cannot wait to do the same thing again with real cash when they come of age. Of course, I'm exaggerating, but - it could happen. This experience would make a great storyline for a Stephen King novel?

Unfortunately, I live quite a ways from my daughter's school; otherwise I would be very obnoxious about this method of stock market investing. Instead, the word went through my daughter to her teacher, who agreed that this project would work better with a wider variety of stocks over a longer period of time. Whether this change will happen in the future is unknown, but at least Cora's class will learn about the problems with this current project.

Additionally, Cora made out quite well in spite of the difficulties. She chose two companies based on information she learned through various activities:

1. She chose one company known for theme parks and entertainment. She chose this company because of two reasons: First, because the company is producing three new films that will hit the screens this year; secondly, she chose this equity because of the timeframe. Since it was mid-April to the first of May, she felt the stock would rise on anticipation of future summer activities. She was spot on.

2. The second company was a self-service auto supply franchise. She chose this company because of a show she saw on TV where they advertised and used these products. After she helped with research for last week's article, she also realized that road traffic was on the rise and that most of this traffic was related to vacation and family travel. She presumed that many of these family travelers would spend money on their vehicles before vacation (especially if they had their tax returns in pocket). Once again, she did well.

Of course, I had to deal with her questions again - and one question arose specifically from the project's timeframe. "If I made this much in two weeks, why would I need to keep my money in the stock?" Ah, my little sweet pea, let's pick two more stocks (with a little more risk for growth), and watch all four stocks for a year. Then, you can answer the question for yourself...

Until Next Week,
Linda Goin