27 Mar 2018 #TradeMyWay: Why I should take trading advice from my 13-year-old
I still remember a conversation I had with my then 11-year-old son in January 2016. As we were hiking in the Drakensberg he told me he wanted to buy some oil. He had been listening to the news and told me, “Mom, the oil price is very low, I think it is going to go up.” When I started telling him about oil futures, shares in oil companies and ETNs, his eyes glazed over and he asked why we couldn’t just buy a lot of barrels of oil and keep them in the garden.
I realised that maybe he wasn’t quite ready to start investing, but I wished I had listened to his gut feel because the oil price moved from less than $30 per barrel to nearly $60 that year.
So, when he next came to me with his “gut feel” I was a bit more inclined to listen. This was at the beginning of November 2017 when the rand was trading at over R14/USD. He sat down and drew a graph and informed me that the rand was going to strengthen to R12/USD. I told him that the rand would probably strengthen depending on the outcome of the ANC elections in December, but that R12/USD was not that likely. He replied that it would start to strengthen in November. So, this time I tried to encourage him to place a trade but as not many forex platforms provide for the USD/ZAR pair, again he lost interest.
By the end of November, the ZAR/USD was trading around R13.50 and in January reached the R12/USD level. So now I am seriously considering selling him to an asset manager or at the very least trying to get him interested in investing.
Trading with virtual money
In an attempt to get him investing, as part of the Sanlam iTrade #TradeMyWay competition, earlier this month I encouraged him to register on the iTradeGlobal demo platform, where you have R1 million of virtual money to trade. Having that much money to play with really excited him, but he only had one investment idea: Intel.
He argued that Intel had fallen behind in the competition of the gaming consoles and would have to get more innovative. I showed him how to look at share price history and to see if the company was offering some value. He decided to buy 200 shares at 48.82 USD.
But seeing as he had all this ‘money’ to invest I suggested he buy another share as well. He wasn’t that interested but chose Microsoft as it was a “big” company and the share price had been under some pressure. He bought 100 shares at 94.20 USD.
And then his mother got involved.
I suggested he look at a mining company, partly because I was sure the rand would come under some pressure as the “Ramaphosa effect” wore off and I was hoping for some resolution on the Mining Charter. So, he bought 100 shares in BHP Billiton at 24 556c.
Then a few days later the listeria story broke and the Tiger Brands share price fell 8%. As Tiger Brands was still denying the claim, and knowing that share prices tend to overreact to news, I encouraged him to buy some Tiger Brands at 38nbsp;701c for a quick bounce (we didn’t go into CFDs for this particular project which would have been ideal for this type of opportunity).
Now, if I had been paying attention, I would have told him to place a sell order to take advantage of a short uptick as the share did indeed bounce back the following day and a quick 3% profit could have been made. But I didn’t stick with one of the basic rules of trading which is ‘know your exit price’ and unfortunately as the Tiger Brands story unfolded, the share price tumbled.
As I write up this piece, the only profit my son has made has been on his Intel shares which are up 6% in three weeks, providing him with a profit of USD500. The Microsoft shares are marginally down but his mother’s recommendations are complete bloodbaths!
I am not sure if this experiment has been sufficient motivation to give him the trading bug, but I have certainly learned from it. Firstly, don’t trade if you don’t have any good ideas – my son would have been better off sticking to his one idea. And secondly, next time I want to trade in a share, I’m going to ask my son’s opinion first!
For information on iTradeGlobal go to https://www.sanlamitrade.co.za/w/iTradeGlobal.aspx
Original post: Maya on Money