The Wrong Education: Where Is Trend Following?

Jane Bryant Quinn is typically a fine writer. However, in her recent Newsweek piece, aimed at getting teenagers to avoid day trading, she actually just ends up giving the standard buy and hold defense:

Internet games are a fun way to get students interested in stocks. But then what? Let’s teach them diversification, not the art of short selling…Who are those kids hanging out by the school computers and shouting, “Buy Cisco, sell Intel”? They might be yours, using play money to bet on stock prices in class. During the stock-market bubble, young gunslingers sometimes skipped school to trade the hot tech stocks with real bucks. Now they’re back mowing lawns, but stocks remain a vivid presence in many classrooms. Kids as young as 8 are learning that KO is the ticker symbol for Coke.

Trend followers sell short. They make money in down markets. Why would you not want to teach students what the best traders do? The best traders make money going up and going down. Selling short seems to always get a bad rap. To make money in a down market is supposedly unethical to many. Nonsense. The market rules say you can go long and go short. Why would you not want to use all the tools at your disposal?

But should they? Or are there smarter ways of teaching the young about markets, business, profits and economics? The focus on stocks springs from zippy Internet games, used by some 750,000 students last year, mostly in the upper grades. Kids love them. They organize teams, get a virtual $100,000 to invest, then trade stocks as if they were baseball cards. At the end of 10 weeks, the team with the biggest profit wins…When it comes to investing, however, the teaching takes a wrong turn. I’ve looked at the textbooks and lesson plans and found little or no discussion of mutual funds, diversification, asset allocation or holding for the long term. Instead, they glamorize stocks, stocks, stocks-going so far as to explain short selling and margin buying to 16-year-olds. What’s the point, when the first investment young workers will face is a choice of funds in a 401(k)? “The games get kids interested,” says John Morton, vice president of curriculum development for the NCEE, “but then they teach them the wrong things.”

The objective is to win; the objective is to make the most money. The great trend followers shoot to win. They shoot for absolute returns. These are the wrong things to teach kids? Isn’t blind buying and holding REALLY the wrong thing to teach kids? We understand Bryant’s desire to keep kids from day trading, but if they try/fail at day trading…at least they are learning it doesn’t work. And then they might well make it to trend following. However, if all you do is tell them to buy and hold, how do they learn?

When Morton taught classes, he says, he always had students create a dartboard portfolio-picking stocks by throwing darts at the newspaper listings. One year it beat the stockpickers for the state championship. (For himself, Morton buys index mutual funds.) Fred Floss, a professor at Buffalo State College in New York and co-director of the Buffalo Center on Economic Education, tells kids that to win in 10 weeks they’ll have to “do the opposite of what’s good investing in real life.” (Floss buys index funds, too-is there a message here?)

If you want average — buy index funds. That is the message here. If you want no real achievement in trading — buy index funds. The choices are clear.


Reader, Rick Thomas, offers his feedback:

She is really off base. I traded my first stocks when I was in the 7th grade. My father set me up with his broker. I have been an avid trader ever since. What better way for kids to learn all about the markets than to jump in, either with real investments or “board games”. There are too many people in the world that just follow whatever is fed to them as far as mutual fund investments, etc. (especially 401k plans!) Just my two cents worth. Thanks.

More feedback from reader, Rob Booker:

Jane Bryant Quinn would have one believe that any form of active trading, or taking personal responsibility for one’s own portfolio, is wrong. I can’t think of anything better than teaching kids to take charge of their own wealth creation strategy. Don’t expect your teacher, your parents, your cat, or your stock broker to be good at investing. You’ve got to take responsibility yourself. You own your losses and your gains…Ms. Quinn’s other, more subtle, argument is that kids should not engage in day trading because it is risky…Just because kids start with day trading doesn’t mean they won’t learn about more successful methods of earning money as a trader. Ms. Quinn certainly didn’t start her writing career at Newsweek — she had to get her start in some low paying, risky job herself.

Trend Following Products

Review trend following systems and training:

Michael Covel Trend Following Products
Michael Covel Trend Following Products

More info here.