More Teens Making Trades --on the Stock Market

Fifteen-year-old Benji sounds as if he has Wall Street pretty much figured out.

“By investing in the stock market, you could begin to save money for a car,” he writes to other teens on a financial Web site called Doughnet.com. “You could even save to pay for your first mortgage. You could be sittin’ pretty with your BMW and brand-new mansion! The possibilities really are infinite.”

Adults may find Benji’s comments amusing, but to a growing number of youngsters investing has become serious business. For some teens, playing the stock market has become far more interesting than playing the latest video game or pop CD.

Since he started investing two years ago, 17-year-old Chris Stallman has built an $8,000 portfolio that includes eight stocks.

Stallman has been so successful--his portfolio is up 23% this year even though the broad market is down--that friends and even teachers ask for stock tips, he says.

“I sometimes tell my mom that this is my calling,” the Bradley, Ill., high school junior said.

A dark side of the youth-investing wave made headlines last month when federal regulators charged a 15-year-old New Jersey boy with reaping almost $273,000 in illegal profits by manipulating prices of “penny” stocks online.

The percentage of youngsters committing securities fraud is almost certainly tiny, of course. Still, the incident underscored the growing fascination of many kids with the market--and the risks it can pose.

According to one survey, 31% of youths in grades 8 through 12 now own stocks, bonds or mutual funds, up from 14% in 1993.

Although many received their investments from parents or other relatives--and may not be actively managing them--kids’ interest in the market has clearly mushroomed.

In a student stock-picking contest run by the CNBC cable TV network, the number of schools entering teams soared to 13,000 this spring from 2,500 in fall 1998.

Like Day Traders Chasing Fast Buck

Children have become enamored of the market for some of the same reasons as many adults: a chance to make big money and to relish the excitement of picking winners.

And just as the Internet has made buying and selling stocks easy for many adults, it has given children a window into the market that they never had before.

To parents and teachers, the benefits for kids go beyond money. They can develop financial discipline, learn about the economy and gain analytical skills from researching companies and their stocks.

“We joke that these are the kids who all the kids on the [nonfinancial] Web sites will work for in 10 or 20 years,” said Clay Stobaugh, chief of MainXchange, an Internet firm focused on teen investors.

But some experts worry that there may be a downside for young stock jockeys: Kids may be counseled about the wisdom of long-term investing, but some quickly begin to act more like day traders chasing a fast buck.

“My nephew said, ‘Hey, this is easy. I put money in and it makes money,’ ” Stobaugh said.

In some schools, students spend their lunch hours at computers checking stock prices. Some high schools now offer courses and clubs devoted to the market.

Thus far, schools say that investing with real money or play money is far more popular with boys than girls. Just as fast-paced computer games have a huge audience among young males, the competitive thrills of online stock-picking have become a hot draw.

“It’s largely a male, and not a female, phenomenon in the teen population. Some of that is borne from a gaming [mentality] and a familiarity with the computer. Investing online is a very cool application,” said Ginger Thomson, chief of financial site Doughnet.com, which is youth-oriented.

Stallman said he has entered many stock-picking contests on the Net in which contestants make hypothetical stock trades in fictitious accounts. Though it’s only play money, “seeing one-hundred grand double in a couple of weeks is pretty exciting,” he said. “It’s fun to see how I do against [adults] who are twice my age and have twice the experience.”

But as with any game, kids sometimes lose in the market. And if real money is involved, the effect on a child’s psyche may be no less intense than what adults face.

Recently, Stallman got an e-mail from a friend who became frantic while on vacation with his parents. Bad news from semiconductor giant Intel Corp. had yanked down the friend’s portfolio by a whopping 18%.

“He was extremely angry. He was blaming the company,” Stallman said. “A lot of kids would like to go to Las Vegas and gamble, so they think of Wall Street as a legal way of gambling.”

Some critics also worry that teaching youngsters about investing sends the wrong message--that children will believe that making money takes precedence over more selfless goals.

“We have a generation of young people who are already unduly materialistic,” said Michael Josephson, president of the Josephson Institute of Ethics in Marina del Rey. Stock market instruction is a “dangerous reinforcement of preexisting trends,” he argues.

Others say the benefits of learning about investing at a young age far outweigh the negatives.

“Would I prefer that my children--and I have three of them--play a stock-market game at school than listen to [controversial rap star] Eminem? Absolutely,” said Doughnet’s Thomson.

Heavy Interest in Stock Class

Generally, teenagers younger than 18 can invest only through custodial accounts set up by their parents or other adults at brokerages or mutual funds. Many parents control access to the accounts, but others give their children free rein to buy and sell on their own.

Jennifer Tabbush, who taught a stock-market course to teens at Campbell Hall school in North Hollywood earlier this year, saw firsthand how youngsters’ interest in the market has grown.

A onetime investment banker at Merrill Lynch & Co., Tabbush originally intended to limit the class size to 20 students. She upped the limit to 25 amid heavy interest, and let a 26th student talk his way in, she said. Only one student, however, was female.

At Campbell Hall, a K-12 private school, Tabbush was surprised to see the campus newspaper run an article on Federal Reserve Chairman Alan Greenspan and his impact on the stock market.

“It was unbelievable to me,” Tabbush said of her experience. “Kids would come up to me and say, ‘Did you see Rambus today?’ And I was thinking, ‘My God, here’s a 15-year-old kid and he’s checking [shares of semiconductor-design firm] Rambus every 20 minutes.’ ”

Learning Lessons for the Future

At Chatsworth High School, membership in the student stock club has ballooned to about 70 students today from three at its launch two years ago.

“The kids do more research for my 30-minute club on Fridays than for most of their classes,” said Gary Wiessner, the teacher who oversees the club.

Joseph Shaposhnik, the 17-year-old founder of the Chatsworth High club, says he tries to hold stocks for at least a year with a goal of keeping some for five years. Shaposhnik, who manages his own account as well as a small amount of money for his father, says people often query him about stocks.

“People often ask me what they should buy,” says Shaposhnik, who owns such names as America Online Inc. and Cisco Systems Inc. “Some of the people I don’t think can handle the risk so I make a joke out of it. Other people who can handle the risk, I tell them what I’m doing.”

Pointing to the nation’s low personal savings rate and the fact that few adults learned about investing when they were young, proponents of market education say that students who learn the right lessons give themselves a big leg up.

“It’s a life skill that will be the difference between whether they’re going to enjoy a comfortable and financially secure life or whether they’re going to have to struggle” financially, said Don Blandin, president of the American Savings Education Council in Washington.

Yet he also worries that many youngsters are coming away with the impression that stock market gains are “easy money and there’s more where that came from.”

That attitude disturbs securities regulators, who are seeing an upturn in stock manipulation by younger investors, particularly those in their 20s. Proficiency with the Net may be leading some young people to believe they can get away with online stock fraud, experts say.

Several high-profile cases in the last year, including the alleged manipulation of Emulex Corp. stock in August by a 23-year-old, have involved younger investors.

“In a number of cases we’ve come up with a person . . . who on average is younger than the people we have pursued” in the past, said Richard Walker, enforcement chief at the Securities and Exchange Commission.

But most serious young investors are likely to have more in common with Chris Stallman.

Like a lot of youngsters, he became interested in the market through his parents. His father works for the Walgreen drugstore chain and “when I was little he’d have me sit in front of CNBC and tell him where Walgreen’s [stock] was when the [streaming] ticker went by,” Stallman said.

Stallman made his first investment two years ago in the Stein Roe Young Investor mutual fund, which is specifically marketed as an investment for kids.

Soon after, he bought stocks ranging from AOL to Merck through a custodial account set up by his father.

Encouraging the Longer Outlook

Stallman now has his own Web site (https://www.teenanalyst.com). He stresses long-term investing but worries that some young people don’t heed his advice.

“A lot of kids think they need to double their money in a couple of weeks,” he said.

“Once they make money, they think they have to make more money quickly. It becomes an obsession.”

As for the 17-year-old friend who lost 18% in one day, Stallman counseled him not to sell at a low. “I told him he should keep a longer outlook on the stocks.”