TEENS AND THEIR MONEY

True Teen Stories

Teens and Their Money

By Selena Maranjian

Here are a few true stories from fellow teenagers, taken from our book, The Motley Fool Investment Guide for Teens: 8 Steps to Having More Money Than Your Parents Ever Dreamed Of. For more stories, suggestions and ideas from fellow teens, check out the book.

The Rewards of Saving

When I was about 14, I decided that I would be proactive with money, so I got a part-time job at a local deli. With my first paycheck, I realized that I would have to work awfully hard to make very little money. My supervisor had been making just above minimum wage for 20 years, and I knew I didn't want to spend the rest of my life working to death. Around the same time, my godparents took me to an investment workshop. Immediately, my eyes were opened to the power of compound growth in investing. I knew that this was a way to financial freedom. I left the workshop determined to make my money work for me instead of just me working for money.

Honoring what my mother had taught me, to share whatever I had, I donated a portion of my paychecks to raise money for breast cancer, and saved everything else to build up a large enough nest egg to open a brokerage account. Too excited to wait, I began reading everything I could about investing. With most of my life savings (which wasn't very much money), I invested in DuPont, AT&T, Caterpillar, and International Paper. The pride in being a shareholder in a company, along with watching my stocks increase in value, fueled my desire to learn more. I went to three more investment workshops with my godparents and browsed books at the library.

I began with $4,000 in my account and have added about $2,000 since then. My portfolio is now worth roughly $12,000, five years later, having grown about 18% per year, on average. Some of my favorite holdings are Procter & Gamble and two biotechnology companies that I know a fair amount about because they're based near me.

In the years since then, I have experienced many moments of gratitude for discovering investing so early in my life. I'm in college now, and plan to go onto medical school and become a family practice physician. And I know that, thanks to investing, my road will be much easier. Not only have I taken a proactive step towards improving my long-term financial future, but I am confident that I will also be able to generously support the causes I believe in with more ease than I otherwise would have imagined. -- Tacy Holliday, 19

A Jumpstart on the Future

From the very start, my parents encouraged me to save half of my earnings. It first felt like a chore to "give" my money to the bank, but I eventually realized that I was actually paying myself. When I was about 12, my parents urged me to start investing small amounts, such as $150 to $200, in the stocks of my choice. My eyes were wide with the prospect of riches, but I didn't really know how to go about finding promising companies and researching them.

In the summer of 1998, I attended CompuFest, an annual conference held by the National Association of Investors Corporation. In their youth program, I learned how to research a company, to evaluate the criteria that make a good investment, such as good management, a relatively low P/E ratio, good growth rate and solid prospects for future growth. I bought my first stock, in the Applebee's restaurant chain, when I was about 13. My approach to finding stocks has changed over the years.

These days I often visit investing websites to get ideas -- but I never buy a stock without first researching its history and management thoroughly. I expect to make money in the stock market if I invest for the long term. I'm currently saving for college -- and eventually a house, once I'm out of college. I think it's essential to learn how to invest at a young age, to have a jumpstart on the future. -- Tina Dressel, 18

A Dripping Teen

I became interested in investing when I got my first job as a waiter. I had money that I'd saved and wanted to buy stocks like my parents. When I turned 16, I opened an account with my mom at a local brokerage. I then bought my first two stocks: $200 worth of General Electric and $200 worth of Abbott Labs, a pharmaceutical company. I picked these companies using information I gathered from books and online discussion boards.

After buying my first stocks, I gained confidence and wanted to keep investing. It was if I had been on a swaying bridge and had finally set foot on solid ground. I continued to learn more and kept putting money in my brokerage account. I then bought stock in several other well-known companies, including AT&T, Cisco Systems, Intel, Pfizer, and WorldCom. As I learned more, I sold my first shares of GE and Abbott Labs, reinvesting the money in a "Drip" (dividend reinvestment plan) with Pfizer. Dripping is my favorite way to invest, because it's so inexpensive. I currently Drip both Pfizer and Duke Energy.

I pick my stocks using the principles of Warren Buffett and Peter Lynch. I like companies that steadily increase earnings and have high profit margins, with room to grow. I also like to see little or no debt. I prefer companies whose products are used by everyone, products without which the world would be different. Can you imagine the world without medicine and computers?

I've had many good stock picks and a few bad ones. My best has been my Pfizer Drip, which has grown steadily. Another good one has been AT&T. I invested $380 into AT&T, and it is now worth $510. My worst pick has been Cisco Systems, which I bought at $50 per share and watched go all the way down to $15. You have to take the bad with the good, and I am not worried. After all -- I'm only 17. -- Robert Morgan III, 17

Top 10 Reasons to Participate in an Investment Club

  1. You'll learn about something that schools forget to teach you, something that will have a huge impact on your life.
  2. You'll have a strong chance of making money.
  3. You have something more valuable than money, something that you will not have for much longer and that you should take advantage of: You have time.
  4. It's a good extracurricular activity that colleges will look at.
  5. It also looks good on a resume.
  6. You can make contacts in the business world that you would not have otherwise made.
  7. You get to hang out with friends while learning something and still having a good time.
  8. You may even end up being covered on the news or in the newspaper.
  9. You'll earn the respect of fellow classmates, parents, and teachers.
  10. You'll have the opportunity to change your life.

-- Bryan Sims, 18

The Tristan System

I initially thought that investing was something rich people did to get more money. Now I understand that the majority of people can invest. I began investing in order to buy a nice used car. My best stock has been Chico's, a small-cap women's clothing retailer. It's gone up about 25% since I bought it. Applied Innovation, a small-cap computer networking equipment maker, has been my biggest dog, dropping about 40%. I'm holding on to it, though, because I think it has great prospects.

I've sold only two stocks so far, Mellon Financial and DTE Energy, losing just 4% or so on each. Overall, I'm down about 10% over the last few months, which isn't that bad considering that the stock market has fallen much more than that in the same time period.

To find companies in which to maybe invest, I use stock screeners at businessweek.com or morningstar.com, or I hear about a stock on TV or stumble onto an interesting company on message boards at Yahoo! Then I look them up to see if their balance sheet looks good, how profitable they are, etc. I make sure they're undervalued enough. I aim to buy a company when its P/E ratio is below its 5-year average P/E ratio and lower than its industry's average P/E. I also read the company's last annual report (from its website) and see how fast it's growing. These are just some of the things I do. I plan to keep investing all my life. -- Tristan Crockett, 15

My Investing Life -- So Far

Three years ago, I opened an account with a discount brokerage, and I was instantly in the game. Drunk on power, I felt like a major player in the financial markets. With a point and click, I moved hundreds of dollars from stock to stock: Papa John's Pizza, Indonesian Telecom, 3Dfx, Analysts International. The titans of Wall Street trembled at the mere mention of my name.

Day trading was soon an all-consuming passion. I snuck out of classes to check my stocks and pulled the trigger on companies just for the thrill. Unfortunately, I was losing money. Trading five times daily simply didn't work. Even with my brokerage's low commissions, I was paying $10 each time to get both in and out of positions. Factoring in taxes on any gains, my green was quickly disappearing.

So I settled on the traditional method of value investing espoused by the old guard. After extensive research, I selected the five solid companies that would make my fortune. And so my life continued, placidly, until the fateful day that my cousin David called. A big shot investment banker in Miami, he's the type who wears $900 Gucci sandals and cements deals on a 50-foot yacht. "I have an amazing deal for you," he promised. Some global satellite company called Iridium was trading at $14 per share, down from a high of $75. Confident in its imminent turnaround, he apparently had half a million shares in it.

I felt bad for all those old ladies and their investing clubs. Without the inside information held by the privileged few such as myself, they could only hope to eke out a meager return. With all my other positions liquidated, I sat back and waited for Iridium Satellite to make me rich. And waited. When it hit $7 or so, I placed a call to my cousin, who assured me that it was about to skyrocket. He encouraged me again when it declared bankruptcy, describing that as a formality. Its billions of dollars of debt were apparently no problem, either.

Well, now the stock is worthless and my life savings are gone. The moral of the story? The professionals don't always know as much as you think they do. You can invest well on your own with proper research and due diligence. Me, I just stick to an index fund now. With the miracle of compound interest, I hope to retire at age 30 and buy a solid gold house. -- Alexis Neuhaus, 18

Consider Giving Some Money Away

I read somewhere that if you have any money in a bank account and a little money in your pocket right now, you are among the wealthiest people in the world. Having gone to Honduras on a mission trip and seen the conditions that others live in every day, I see things from a different perspective here in the United States. It's amazing how much we have that just gets squandered on depreciating assets that really do not make one's life much happier. I wish more people saved more, invested more, and gave more to charity. It certainly makes you feel better when you realize that some of your income is actually going towards a productive purpose, rather than a nice DVD player or computer system that quickly becomes worth only pennies compared to what it cost brand new. -- Jason Ramage, 20

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