We've got $1,000 burning a hole in our corporate pocket, and it's going to some clever teenager. What's going on? Well, here's the scoop. In our 2002 book (check it out on Amazon or at your local bookstore), The Motley Fool Investment Guide for Teens: 8 Steps to Having More Money Than Your Parents Ever Dreamed Of, we announced an ongoing contest:
"We've decided to launch a $1,000 annual grant for the next five years for the most eloquent and effective advice on personal finance, investing, or business offered by a teen submitted to our teen discussion board. It could come from you, could it not? If you'd like to compete and learn from others, then contribute (as many times as you like) your best financial thoughts on the Teens board and take a chance at winning $1,000 for being a talented communicator of financial advice. (Remember, we offer a 30-day free trial to check out our boards. So don't delay. This could be the first $1,000 you invest for your future.)" Learn more about the contest.
Our most recent winner
The winner of the contest for 2004 is 14-year-old Mike Price, who offered some excellent investing advice on our Teens and Their Money discussion board. Here are some edited selections from his entry, "10 Investing Mistakes":
1) Wasting money on high-priced brokerages. Some brokerages charge over $50 for each trade. Others charge you depending on how much you buy, using percentages to figure out commissions. I think with both of these ways, you get charged too much. Another way you get ripped off is when the brokerage charges you to "manage" your portfolio. This is when they buy and sell all of the stocks in your portfolio, sort of like an overpriced mutual fund. The best brokerage to put your money in is one that has low commissions (never put more than 2% of your investment into commissions), is online... and does not have an account minimum (some brokerages charge you a fee if the value of your account goes under a certain amount). [Learn more about brokerages and find the best one for your needs in our Broker Center.]
2) Ignoring valuation. Some companies may have very good management, such as Starbucks
3) Using valuation alone. Even upon finding a company whose stock price is absurdly undervalued, with more cash per share than the share price, a thorough investigation of the company is still required before purchasing. Like many financial analysts say, "Cheap crap is still crap."
4) Caring about the "market." One of the biggest mistakes individual investors can make is paying attention to where the "market" is going. It does not matter where the S&P 500 is going or where the Wilshire 5000 is going; it matters where each person's separate stocks are going. Analysts at The Motley Fool say that one of the biggest mistakes they made while choosing stocks during the great bull market of the late '90s and early 2000s was buying companies such as Yahoo!, eBay
5) Ignoring a company because it has a high P/E. Many investors today lose money because they worry too much about a company's price-to-earnings (P/E) ratio. The P/E ratio was popularized by Benjamin Graham in his book The Intelligent Investor. When he wrote the book... 60 years ago, the P/E was a good way to evaluate a company's valuation. But today, accountants have found ways to "juice" a company's earnings to make it look like it has earned more than it really has. That's why I use a better way of quickly evaluating a company's valuation, the EV/FCF [enterprise value-to-free cash flow] ratio. Free cash flow is a lot harder to fake than earnings. [Learn more about EV/FCF in this article and this one.]
Click into our discussion board, where you can read the rest of Mike's winning entry.
Calling all parents, teachers, and friends
If you know any teenagers, I invite you to forward this article to them, or at least tell them about our contest. (You can forward this or any Fool article by clicking the "Email this page" link at the bottom of the page.)
How to enter
Entering is simple. You can email your entry to us at this address. Or better still, post it on our Teens and Their Money discussion board, so that others can read it and react to it. You can also see what other teens are saying about how they manage their money.
The financial advice or ideas you submit might be about:
- saving money
- earning money
- starting a business
- investing in the stock market
- avoiding financial mistakes
- or something else -- perhaps something we haven't even thought of!
More Resources for Teens
You can also help teens get a financial head start in life by pointing them to some other helpful resources. Here are a few, starting with a book and a nook:
- Our book The Motley Fool Investment Guide for Teens: 8 Steps to Having More Money Than Your Parents Ever Dreamed Of.
Our online nook for teens, Teens & Their Money. It's chock-full of information and advice from Fool staffers and fellow teenagers on saving, earning, spending, and investing money.
- Our Teens and Their Money discussion board (we're offering a free 30-day trial of our entire board community right now, so take advantage!)
- An article from last year, which offers some eye-opening excerpts from our book.
The best gift that the teens you know could receive might be a nudge toward financial independence. If they don't thank you now, they surely will some years down the road.
Go ahead -- help make someone a millionaire!
Selena Maranjian is no longer a teenager and regrets that she didn't start investing until her 30s. At least she'll never have to take another gym class, though. She owns shares of eBay and Amazon.com. For more about Selena, view her bio and her profile. You might also be interested in The Motley Fool Money Guide, a book she wrote.The Motley Fool is Fools writing for Fools.