Taking Off the Kid Gloves

GBS explains why his daughters aren't spending their evenings trading.
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Hmmm, my

question and subsequent

column on kids' trading received more reaction than I anticipated. A

lot

more. Which is good, because at least you care. In fact, you know what the opposite of love is? It's not hate. No, it's apathy. And, thankfully, you're not apathetic about your kids.

Nor am I about mine. Therefore, I've given the subject of my daughters and trading plenty of thought. And here's my conclusion: They're not going to do it. At least not on my "watch." Now, in 10 or 12 years when they're on their own, well, that's their call. For now, no trading.

Am I right? Wrong? I think I'm right for my kids. For your kids, you can make your own call. But, it's my nickel today, so let me tell you my thinking.

My philosophy of child-rearing, if you will, is that all I'm trying to do is arm my kids with the proper fundamentals to lead a full and rewarding life. How they wind up leading that life is their concern. (Although I'd prefer if they stay out of jail and not kill anyone!)

And in that regard, Nancy and I try to teach the kids -- primarily through example -- about the benefits of hard work, honesty, integrity, etc. You know, all the greatest hits of being a good person.

In addition, there's the "how things work" aspect of life: how a checking account works; how to drive a car; how to make your bed. (The last area seems to be moving a bit slowly...)

And it's this "how things work" area in which most of the pro trading comments came. Many of you thought trading could instruct kids on how the markets work and how companies work. Others thought kids would learn about money, fractions and the actual mechanics of the market.

In addition, there were many of you who thought kids could learn about things like discipline, concentration, thorough analysis and dealing with emotions. And finally, there were more than a few folks who thought trading would be a swell way for kids to earn some money.

And, I agree with all. No one made a misstep, and everyone made some astute observations.

But, my take is this: The things folks outlined

can

be acquired through trading, but they're generally skills that should be brought

to

trading, not acquired from it.

As an example, many of the kids wrote in about how they learned about

AOL

(AOL)

, or

Gap

(GPS) - Get Report

or

Coca-Cola

(KO) - Get Report

, by trading or investing in those stocks. Well, they might have learned how AOL, GPS or KO trades, but they certainly didn't learn about how those companies work. Even those folks who advocated studying a company's fundamentals and investing that way got it wrong: I studied balance sheets, inventory flow, cost accounting, and operations management of hundreds of companies when I got my MBA.

But you know how I learned about how a company works? By selling shoes one summer. By working in a cardboard box factory another summer. By spending 16 years doing everything at

IBM

(IBM) - Get Report

from selling mainframes to working with grocery stores on effective end caps.

But even then I only had an inkling. You know how I really learned about business? By starting my own business. Yeah, for a while I had my own newsletter business where I did everything from direct mail to accounts receivable. That's how you learn how a business operates, not by learning that

NetB@nk

(NTBK)

has 100-point swings in a day.

Furthermore, along the lines of education, I heard from a few teachers who are doing some classroom work on the market. And I applaud your efforts. But for those of you who are doing simulated trading, let's not kid ourselves: The vast majority of these kids see trading as one big computer game, where they rush out from their classes to see if

Amazon.com

(AMZN) - Get Report

is up or down 25 points.

Trust me, there are very few kids in high school who can put more than 25 words together on Amazon's business plan, or how it intends to eventually turn a profit. (In fact, I'm not certain many Amazon employees could do that, either!) That's not to say learning about the market isn't a good thing. As it's an integral part of our lives, it's certainly of value. But 99% of kids will default to either the bottom line or the easy way out. In other words, they'll "research"

eBay

(EBAY) - Get Report

and hope the stock goes up 150 points, so their team can be crowned "Midvale's Best Traders" and be featured on

CNBC

.

On other aspects of trading, like research, discipline and hard work, I like to think there are a variety of better ways to learn those traits without trading dime one. My daughters have a swim meet at the Naval Academy in a few weeks. And they're going to do well, because they had the discipline and work ethic to get up this morning at 4:45 a.m. and swim for 90 minutes.

That's

how you learn the benefit of hard work.

Areas like research, concentration, emotional control? Those are things my kids are hopefully learning in grade school and later in college. Think I remember fact one about Roman history from my freshman year at

Duke

? Absolutely not. But I sure realized how important it was to budget my time, do thorough research and concentrate for a three-hour final.

I hear the naysayers: "Gee, you can learn all those things by trading and the kids can still earn money." Well, maybe, but here's where I have to be blunt: Having a kid spend even minute one trading is an idiotic way for them to spend their time. In fact, truth be told, I really feel it's an idiotic way for

anyone

to spend their time.

That's right, trading is downright stupid. You add zero value; you don't make anything; you don't help anyone (please, spare me the "I'm adding liquidity to the market" bit). Essentially, you exist to do what, exactly? Move money around?

Of course, that's not to say it can't be profitable. Or that you should never trade. Yeah, OK, I'm a hypocrite: I trade, and I love it. But, I trade so I can spend time with the kids, and take care of our home. I didn't set out to trade as a "career goal." No, I did it after I did a lot of other things. I did it after I had accumulated enough of the skills -- not to mention the equity -- to do it right.

But, I can see your next argument: "Well, trading may be stupid, but it's certainly no stupider than having your girls grow up to be something vacuous like a model!" (My apologies to all models: I realize many of you are not vacuous!) And, yeah, you have me there. I guess there are a lot of idiotic ways to make a buck. And maybe just about every job we do, we do to satisfy one of two things: either our ego, or the almighty wallet. I mean, really, when I sold a mainframe to

Taco Bell

so they could sell more burritos, was that such a great calling, helping a company sell more junk food? Nah, probably not.

So, I guess my argument boils down to this. There are a number of ways to learn the lessons of trading without actually trading. A number of better ways in my opinion. Trading is great, trading is wonderful. But at the end of the day, it's a particularly mercenary way to make a buck. My kids can be mercenaries when they grow up. For now, I want them to concentrate on some different areas.

Gary B. Smith is a freelance writer who trades for his own account from his Maryland home using technical analysis. At time of publication he had no positions in the stocks mentioned, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. This column, Technician's Take, appears every Monday. Smith also writes Charted Territory, which appears every Wednesday, and TSC Technical Forum, which runs Saturdays and Sundays. While he cannot provide investment advice or recommendations, he welcomes your feedback at

gbsmith@ibm.net.