Bullish On Stocks
Normal teenagers, as most hassled parents observe, are pre-occupied with the most mundane things – television, clothes, latest electronic gadgets, and Malling. The American teen actress and singer, Rachel Fox – is different. She is not like most ordinary teenagers.
Fox, who is best known for playing Kayla Huntington in the television series, Desperate Housewives, made 338 stock trades and 30.4 percent earnings last year. She battered the S&P 500, by being technically savvy.
You now hear her spicing up her conversation with the trader’s lingo – covered calls, shorts, and double tops. Fox says, “When all the technical indicators are aligned, you get the best feeling of all!”
The bull run of recent years has intrigue most teenagers. They have been fascinated by upsurges in the stock market, like Standard & Poor 500 stock index, which earned 140 percent more than its lows in March 2009.Some young kids have become fascinated by making money with the click of a finger, rather than flipping hamburgers in fast food chains.
“What is making them interested in trading are the new highs in the market and the growing investor confidence and new optimism in the economy,” says the author of The Teenage Investor, Timothy Olsen. Apparently, the author knows of what he says here, since he bought his first investment of PepsiCo.com shares when he was eight (8) years old; he is now 24.
Parents should not be worried since it takes time for the newbie stock trader to get used to it. Teens cannot open their own brokerage accounts until they are of legal age of around 18 or 19. If younger, they will have to get a custodial account with their parents as co-signatories – like what Rachel Fox did.
Many youngsters seemed to have caught the investing bug most recently. Investors at ages 18 to 24 now hold around 11 percent of all accounts with the online brokerage, Scottrade. This figure was up from 10 percent late last year, 2012.
Below 34 years old, 26 percent of American investors would be willing to stake an above risk on their portfolios. This was according to the Washington D.C. based company, Investment Company Institute (ICI). The 26 percent figure was a substantial increase as compared to last year’s, 18 percent.
Are the reports about young American investors eagerly entering the market will continue into the future? Well, that remains to be seen.
ICI’s senior director, Sarah Holden says, “There are two things to be considered here. First, is the query if younger investors are just more willing to take on the risk because of the age and time factors.
Second, is if this group just tends to move in the direction of the prevailing bull market. Since the market was on the uptrend these last few years, these young investors may think that they are merely riding in the pack saddle.
Younger investors, with ages 35 and below are more bullish than their older counterparts. This is according to the survey made by TD Amiritrade, an online brokerage firm. These so-called Generation Y and Z are the most optimistic group as regards their portfolio holdings – with indicators 74 percent as against 59 percent in all age groups.
This group is also more likely to have shattered their risk tolerance levels in the last couple of months at 14 percent versus 8 percent for all investors. This is also the same group that would have plowed in additional investments at 23 percent as compared to15 percent of stock market players that were surveyed in that same time period.
Which brings about the question: Are the younger investors bullish because they have not yet experienced the harrowing events like the dotcom meltdown? Are they playing merely based on a one-sided view of the market?
If they see the whole ball game based entirely on its current bullish run, then they might think that the rocketing of the Dow Jones Industrial average is just a normal thing – that is achievable in a few years.
A financial therapist in New York City, who advises clients on the relationship between emotional wellness and money, Amanda Clayman says, “The younger investors may not know what a downturn is, since all their experiences have been with the up market. That is looking at reality with a very skewed perception.”
“Scientific studies have shown that the prefrontal cortex side of the brain which makes a person to accurately perceive danger is not fully developed yet until one reaches mid-20s. That is the reason why teenagers have a mind-set of invincibility, which is a dangerous trait for wannabe stock traders,” Clayman clarified further.
Young investors might opt to try virtual portfolios like those offered by thinkorswim.com before they start to get deeper into the game. This was the route taken up by Rachel Fox to prove to her parents that she can steer a live brokerage account with real money at stake.
Author Timothy Olsen, suggested that young investors try out a broad – based basket of index funds for them to start. This strategy would be less risky than if they were to pick individual stocks themselves. Parents can also help put the caps on the amount invested by their budding Warren Buffets. “They should not be tweaking their college funds to hedge on stocks and must not risk anything that they cannot afford to lose,” says Clayman.
Even on the downside, wherein the Dow Jones Average plummets to shock these young bulls, it would not mean that they cannot make money out of it. One recent favorite of Rachel Fox’s trade is: shorting the S&P 500 exchange-traded funds before it spun downwards.
“I saw a downward pattern that looks like a bearish trend, and I knew how to respond to it immediately. I am real proud of that one,” say Fox who now has a website for young investors at FoxOnStocks.com.