When my kids have reached an age where they have more defined interests, I’ll encourage them to buy stock in companies they’re interested in. Obviously I’m not talking about loads of money here; I’m also not talking about all of their money. I’m talking about just enough to care about how the business is operating and what their investment is doing. I’m especially interested in having them invest where they eventually will/would like to work. Here’s why:
1) They’ll think beyond just being an employee
My first real job was busing tables and hosting at an Italian restaurant when I was 16. That was the first place I learned about the hierarchy of businesses. The place I learned first-hand what great management looked like, and what terrible management looked like. The place where total strangers would speak to me in the most condescending manner, and the place where some of my peers would come in and benchmark their life against mine as the (many) years went by.
Do you know what would have philosophically changed my mindset about being an hourly employee at a large restaurant chain? Owning its f—ing stock. I apologize for the passion 😉
I wish I could go back in time and buy shares in the companies/parent companies I worked for. One was privately held, but the rest were publicly traded. The stocks were cheap and liquid. I wish I knew enough then to be like “Wait… the company’s year-over-year growth is down 15% percent, Q3 earnings were revised downwards, and we just lost our CFO. Please tell me again how the way you treat your staff is in alignment with the broader mission of the company’s growth?” I would actually pay to go back in time and ask that sort of question aloud. Especially to myself because I deserved better and I just didn’t know it.
You see, you hold your head a little higher when you’re the owner of something, even if it’s a very small percentage. You’re prouder. Dare I say that sometimes you even get treated better. Rough nights and long weekends are easier to swallow because you’re returning in more than one way. You see things more holistically. Interests are better aligned; and if you really do get wrongfully reprimanded from someone on an ego trip, you get to remind yourself in confidence that they actually work for you, and they don’t even know it.
2) Knowledge is power. It will guide them where to work (and even shop)
I would have only taken one pre-career job I actually had if I had a greater understanding of how each business was operating (both in an absolute and relative sense). One. It’s all about knowledge and choices here. Maybe my kids will only want to invest/work for a company that is socially responsible. Maybe they want the board to be composed of mostly women. Maybe they’re just looking for an innovative company with great growth potential. Maybe they find that a company is under financial distress, so they don’t want to invest in it nor work for it. Maybe they recognize a broader trend in the market (the rise of e-commerce for example), and they don’t want to put their money into (nor work for) companies that are struggling to compete with that trend. All things equal, if they wouldn’t buy the stock, then they sure as hell shouldn’t go work for the company.
I own a small business. I sincerely hope with everything in me that both of my kids will want to participate in that. I’m obviously not publicly traded, but my kids would gain a heck of a lot by investing in analogous companies if that sector is of interest to them. Urban Outfitters (URBN) owns Free People and Anthropologie. One of those concepts is growing faster than the others, which one? Why? Where? How is it competing with Zara (parent company Inditex is traded on the Madrid Stock Exchange) and their envious position in fast fashion ? All of that knowledge is helpful for us as a (very small) market participant. Maybe they’ll come to me and tell me that I suck after their analysis, and they don’t want to work for Ellie & June… I’d listen!
3) It will give them a better macro-economic perspective of the world
Underlying company fundamentals won’t be the only variable moving stock prices and affecting their returns. Shocks to the market like world events and broader economic policy like increases or decreases in exchange rates will affect how much they earn. There will be certain sectors in the market that perform better than others depending on the phase of the economic cycle we’re in. There will be periods were stocks move more closely together and their returns will be lower on a relative basis. That’s only a handful of examples! They will have a front row seat to see this and learn from it first hand!
4) They learn about business in real-time
I wouldn’t ever encourage them to monitor their returns every day, especially at the holding period I’d hope they would have… but information comes in every day. If this isn’t learning about business in real-time, I don’t know what is. Heck, they might even hop on an earnings call or read through a filing. They’ll learn about business strategy, successes, and failures. They could go through a stock split, a dividend payment, or even a merger or acquisition. Exciting!
5) Shareholder meetings and voting
They can vote if they choose to exercise that right! Depending on what their rights are and the issues shareholders are entitled to vote on (they vary by company), they will have a say! Yes, it’s not a ton of say, but it’s probably no less than in presidential elections (which I will strongly encourage them to participate in as well)!
6) They might even make a return
Well heck… 😉