It's a fundamental piece of The Motley Fool's philosophy that investing is a long-term enterprise: The sooner you start, the more time you have to calmly watch your portfolio grow...and grow. And since it's a truism of parenting that we all want our children to do better than we did, we naturally view it as simple good sense to teach youngsters about the joys -- and perils, because there's no denying those -- of stock ownership, as soon as possible.
So, for this episode of Motley Fool Answers, co-hosts Robert Brokamp and Alison Southwick have invited their colleagues Matt Banner and Brian Withers into the studio to talk about how they put their kids on the path to compound-growth prosperity. Banner's daughter Emily came along too, to offer insights from the receiving end of all that parental wisdom. In this segment, they discuss the techniques they used to get the kids started, and young Emily talks about her growth as an investor.
A full transcript follows the video.
This video was recorded on Aug. 21, 2018.
Robert Brokamp: Why don't you talk, a little bit Brian, about your kids and starting with their story, because they're a little older... You have two kids. Matt's already talked a little bit about the account, so why don't you talk about how you started with your kids and the accounts that you chose?
Brian Withers: I started with my kids about the same time I started with The Motley Fool. It was one of those big light bulb moments that you mentioned in the beginning: the time in the market is the most important thing and not market timing. When I joined The Fool I was 37 and I was like, "Holy crap, I missed the boat." I love the saying, "The best time to plant a tree was 20 years ago. The next best time is right now," so I said I'm going to teach my kids. I want them to experience this before they're 37 and I pretty much gave them a 30-year head start on my experience.
One of the things that gave me this idea was David and Tom explained that at one point they were gifted some of their grandfather's money or portfolio. And it was in stock -- it wasn't in money -- and they were able to see things that had been held 20 and 30 years with a cost basis of under $5 that were $501 then and could see on paper the time value of money realized and what it really does. That's the experience that I wanted to create for my kids.
Somewhat unwillingly -- or I sprung it on them -- but at five and seven we sat down at the table and drew a big grid on one of these large pieces of construction paper into six squares. I drew a Dell logo. The golden arches. I took a Pikachu for Pokemon and put it on one of the squares. Buzz Lightyear for Pixar. And they took a set of pennies that I gave them, and they put pennies on the squares, and that's how we invested their money. So they've picked their stocks from the beginning. As far as accounts, I opened up UGMA accounts for them, as well. That way I felt like the money was in their name and it was their account, and they picked the stocks from the beginning. I wanted to see them succeed or fail based on their picks.
Southwick: When you were explaining investing to them from an early age you said, "I'm going to give you some pennies and you're going to set these down." But what did you explain to them before they set down the pennies?
Withers: This was, "What do you feel about the companies and how do you like them as a customer, potentially? What does it mean to you?" I talked about being a part owner. I don't think at five and seven that really resonated with them, but one of their large holdings is Chipotle and they both really love [it]. I call my kids the "Burrito Boys."
We literally visited Chipotle more than 100 times last year -- through the crisis -- whatever. We've never gotten sick, they're huge fans, and that's a super easy business to explain. You've got a shop. You've got to pay the employees. You have throughput. The more throughput, the more money.
It was really neat. I remember one day (and you've got to take these moments when they happen) we were at Chipotle. My son Zack said, "How does Chipotle make money?" and I'm like, "Wow!"
Southwick: Here we go!
Withers: Don't screw this up! How long do I have before the eyes start rolling in the back of their heads? That was a fun little discussion.
Brokamp: Matt, why don't you talk a little bit about how old your kids were when you started and how the stocks were chosen.
Matt Banner: Investing is probably my only real hobby and about the only thing I'm doing when I'm not doing chores and whatever has to be done around the house is I'm reading Fool discussion boards. I'm doing stuff in Quicken, or spreadsheets, or whatever.
At some point (and I think it was 2011) Emily said, "So, what is this that you're doing?" So we talked a little bit about the idea of companies and buying a stake in them. I asked her to think of companies that she was familiar with. I think you still have that list, don't you?
Emily Banner: Somewhere, yeah.
Banner: She was very focused on physical presence. You had like Costco, and Jo-Ann's, and Target, and supermarkets, and places that we go to every day. I was trying to then get her to step back a little bit and think about things that you use, and not necessarily places you go. And I was thinking, we use the computer. We google things.
But she was like, "Electricity!" And I'm like, "Ugh, I do not want to talk about utilities. I am not comfortable with utilities." And that was the one that she said, "Well, let's look at it." We actually pulled up some financial statements. This is probably 2011, so you're maybe six or six-and-a-half years old. And we did some really basic stuff like this is what a market cap is. I think we might have talked about dividends or something.
Then everything fizzled a little bit. We didn't go anywhere. Life gets in the way.
Southwick: She was six years old... so I'm having a hard time...
Banner: Life got busy or whatever. But back in the day Tom used to do his quarterly Everlasting picks live with a studio audience if you were at Fool Headquarters, so for the October picks I said, "Emily, do you want to go with me to Fool Headquarters and we'll see the great unveiling?" She thought that sounded like fun and I laid out a few ground rules. I bought her a notebook.
Southwick: Oh! It's here!
Brokamp: She just held it up.
Banner: She's been taking notes this morning at FoolFest. You need to write down each of the companies that Tom talks about and some bullets about why he thinks they're good investments. And then my plan (and we've done it mostly well) is that every quarter when those Everlasting picks come out, I give them to the girls and I allocate $500 for them to buy shares. In addition to picking out the companies, they have to figure out how many shares they can buy and rolling in whatever dividends they've been paid out in the meantime.
So for that first pick she was sitting right in the front row taking amazing notes and even afterwards...
E. Banner: And making lots of spelling errors. I'm looking at it right now.
Southwick: You're like, "I was so young and so foolish the mistakes I made back then all those years ago."
Banner: Which stock did you pick?
E. Banner: Facebook.
Banner: Facebook.It's been a good pick. I guess one other memory of that day here at The Fool is afterwards (and this is out in the round space at the end)...
Brokamp: The rotunda?
Banner: The rotunda, yes.
Brokamp: Or the Brotunda, as I like to call it.
Banner: Brotunda. Very good.
Southwick: Nobody calls it that.
Brokamp: Except I.
Banner: Only Bro. There were maybe like 30 or 40 people there. It wasn't a huge crowd. At some point I was talking with Jim Mueller and I look over and Emily's talking with David. And David's down like straight eye level. He's crouched down. They're off at the side having this great conversation. Later I asked, "So, what did you and David talk about?"
I'm thinking it's probably like the next amazing stock pick. Here's your opportunity.
Brokamp: Did you get a good stock pick, Emily, from David? Do you remember?
E. Banner: I do not remember.
Southwick: Not worth putting in the notebook, apparently. You didn't make the cut.
Banner: So when we got home that day her other job was to brief her sister, who in 2012 would have been just over five, so that Felicity could make a decision, as well. I was very clear that Emily wasn't allowed to say what she picked because I didn't want her to color (her sister's opinion). What were the reasons that you wanted to buy Facebook shares? Of course you have them written down.
Southwick: In the notebook. You've got your investing journal.
E. Banner: It's a worldwide company. A company -- I still spelled "world" with an "u" then. That was annoying. Has over a million users. 600 million? Thousand? Something like that. Log on to Facebook every day. People pay Facebook to show ads on Facebook. Tom thinks that Facebook will be the largest company in the world in 10 years.
Banner: We'll have to follow up on that.
E. Banner: Yeah, we will.
Banner: So at dinner that night Emily shared everything with Felicity and Felicity chose Cognizant. I asked why and she said, "I like the word, or the way it sounds," or something like that. And I said, "That's totally cool. I need you to write it down." And just this morning at breakfast I was talking with fellow Fools and this came up. "Yeah, well, I try to write better reasons, now."
So the notebooks have been a big thing. It's one of those definitely do as I say and not as I do because I'm not quite as organized about documenting everything in a journal. I have spreadsheets and Word documents and stuff littered all over the place. So every quarter they do that. They buy their shares and we enter them into a scorecard on The Fool so they can track that.
Again, sometimes life gets in the way, so coming to FoolFest I know they both said they wanted to come. I said, "OK, well, we haven't done the January picks yet. We haven't done the April picks, yet. A prerequisite for us going is we've got to get caught up because people are going to want to know what you've picked and what you're interested in."
Southwick: And you guys actually came to Foolapalooza?
Banner: Yes. You invited us to that.
Southwick: So you guys were here at Foolapalooza and Emily you were upfront on stage and you were getting interviewed along with your dad. I forget. They were asking you questions that were quite hard about how you invest, and your investing philosophy, and you were nailing them. You were doing such a great job and everyone in the audience was like, "Yes! She's the best!"
E. Banner: I'm pretty sure we had gone over the questions beforehand. So, that helped.
Brokamp: Still very impressive.
Southwick: You crushed it. Everyone was so impressed. You must be so proud.
Banner: Yes. It's been a fun...
Withers: Matt's turning red now.
Banner: I'm excited that they're interested in it because, again, they've got so much time to do this. When we opened the UTMAs [Uniform Transfer to Minors Act accounts], we contributed as much as we could afford for a long time. Although the intent, obviously, is for college, technically there is nothing that requires it to be used for college. I'd been thinking for some time before we started this about how I start that transition for them to take some ownership of this so that it's not just at 18 years old and "Tada, we can do this, that, and the other thing."
Southwick: I'm going to cash out so I can go buy a beater car.
Banner: I can go buy a house and a car.
Southwick: I'm going to go make some bad decisions with all this money. No, Emily's not going to do that.
Banner: Go party.
Southwick: No, Emily's not going to do that. Emily's too smart for that.