The 2007 National Stock Portfolio Contest, sponsored by Citi Smith Barney, was recently won by an 8th grade class at a private school in Seattle.  The winning stock picks made a whopping 25.9 percent in a three month period while the S&P 500 made only 2.4 percent.  

Don’t get me wrong.  I love teaching young people financial literacy, and I think getting teenagers interested in investing is a great idea.  But this contest sends the wrong message - and in a very big way.

Nearly all the experts, including Warren Buffet, John Bogle and Peter Lynch, have stated that investors should not waste their time trying to pick individual stocks. Picking stocks is a poor man’s sucker game.  Teaching this game to young people is a disservice to them and, of course, self-serving to the sponsoring brokerage.

To make matters worse, the brokerage firm issued a press release patting itself on the back for teaching 8th graders the “fundamentals of investing,” and helping them “navigate the road to financial security.”  Baloney!

The fundamentals of investing don’t involve picking stocks or guessing which direction the market is going in three months.  This is not what successful, long-term investors do.

The brokerage firm claimed the contest showed the students “truly an exhilarating experience for everyone involved.” Aside from some misleading information about how to invest successfully, the message was: emotions are important in investing. Baloney!

Nobel economist Paul Samuelson once said: "Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas."

Teaching financial literacy to teenagers is a challenge that’s worth doing right - without contests and thrills. Young people have a golden opportunity to learn lifelong habits and attitudes that will help make them wealthy and comfortable with money.

What many teenagers really want to know is how to be smarter and richer (of course) than we (the poor parents) are. This is easier than you probably think – Paul Merriman has written a recipe for doing it, in an article titled “Young investors: How to be better than your parents.” You can find it in the article library at www.FundAdvice.com.
 
This article is based on a popular talk Paul gives every year to high school students. He calls his talk “How to get rich.” There are 10 lessons covered, along with test questions after each and self-grading instructions.

Paul’s points cover making choices between saving and spending, between stocks and bonds, one stock vs. many stocks, load funds vs. no-load funds, and low expenses versus high expenses. He writes in plain English that any young person can easily understand. I wish I had had this article when I was young.

I hope you’ll encourage your local schools to provide young people with real financial education. A stock-picking contest is just a superficial and misleading diversion.