16 Mar After GameStop, my son wants to start trading. Should he?

Q. My teenager wants to start trading stock now that he’s heard about what happened with GameStop and those other companies. To me, that kind of trading is like gambling. If it’s just fun money, fine, but I don’t want him to develop bad habits. What do you suggest?
— Mom

A. Congratulations on your son taking an interest in trading stocks. It is never too early to help kids get a leg up on their lifelong financial journey.

But you’re correct. The huge runup in the price of GameStop was not because of the company’s fundamentals, but instead, a social media campaign.

“The type of trading we have seen with GameStop is gambling, plain and simple,” said Timothy Brunnock, a financial advisor and attorney with Trinity Financial Strategies in Morristown. “Gambling can be fun and exciting. And of course, there is the instant gratification one gets from placing a wager — in this case, whether a stock like Game Stop will go up or down.”

However, there is a huge difference between investing and gambling, he said.

Investing employs any number of different strategies in order to increase your probability of long-term success, Brunnock said.

“One may define long-term success as doubling your money after 10 years. Others may define success as receiving a steady dividend income no matter what is happening with the overall markets,” he said. “Short-term success is fine of course, if and when it happens.”

If you’ve done your due diligence and research in connection with a certain company, buy its stock and that stock price increases over the next several days, that’s wonderful. However, he said, volatility cuts both ways. What goes up very quickly can and often does come down even more quickly, he said.

“With all the buzz around Reddit, short selling and stories of quadrupling investments in a matter of days, entering into these types of trades can seem enticing,” he said. “There is definite FOMO (fear of missing out), especially among young or inexperienced investors, who don’t want to be left behind.”

You are understandably concerned that this type of trading can lead to bad habits, Brunnock said.

This can manifest itself in several ways. Perhaps there is some initial success, which could then lead to bigger and bolder risks, he said.

“At some point, just like at the casino, the gambler’s luck runs out,” he said. “When it does, a different bad habit could develop: the habit of abandoning disciplined, well thought out investment strategies because they `don’t work.’”

Take, for example, the people who heavily over invested in the dotcom stocks because they were such a “sure thing.” When they lost a lot of money, many chose to forgo the opportunity for long-term investing success because they “don’t trust the market,” he said

He recommends you talk to your son about companies he may already know.

“My 15-year-old son wanted to invest in his favorite sneaker company and a company that manufactures his favorite video games,” he said. Have your son research a company he knows and likes, and ask him whether he believes it has a good business model/product. Only then should he be willing to invest his hard-earned money.”

“Save the gambling for the casino,” he said.

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This story was originally published on March 16, 2020.

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