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Teaching my kids about money
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Teaching my kids about money

  #11 (permalink)
Market Wizard
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GFIs1 View Post
I was only mentioning that the PRICE of the tulips after the hype in the past today is nearly zero...
And the "future in form of the tulip" does no longer exist.
But today it is a very big business to market them in the auctions every day - as you showed
in the next post. You can follow them live on the internet. You see rows of carts with tulips
coming in. Traders up in the rows are bidding within seconds for one ore several carts.
And the next carts are coming in - the outgoing are directly steered to the cargo airport beneath.
If you can - visit such an auction house to see it live!
GFIs1

At the risk of violating the "off topic" rule of this forum:

From the Wikipedia Tulipmania story, the price of the underlying tulip bulb was not as volatile as we think. The shocking volatility occurred in price action of complex derivatives during the after-market, so to speak (the winter months when the cash market in tulip bulbs was closed). A violent spike in the future/options market based on sellside insider info and buyside rumors pending a big announcement. Sounds familiar.

By "complex derivatives," what you had was a straight futures contract that (was expected to be modified by regulators to) morphed into being convertible into an options contract. Fear, uncertainty, anticipation, doubt.

Futures convertible to options

So once the market heard in Nov. 1636 the rumors that futures contracts after Dec. 1 might be convertible into options contracts at an as-yet undetermined premium, Vol, which was already sky-high, went supernova. IV expansion around a binary political event, which was the formal announcement of convertibility to options in February 1637, at an as yet undetermined conversion price. It looks like options were already trading before the announcement or traders had gone ahead and started deeming their futures contracts to be options contracts in anticipation.

After the binary event, there was massive post-supernova Vol Crush. Call options buyers ended up repaying premium to the sellers decades later.

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Moral of the story: if you are going to trade options around a binary event, sell premium

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  #12 (permalink)
Market Wizard
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How's AAPL doing?

I have my my life goals organized and tracked on an Excel spread sheet. Spending time with the kids is #1 priority. My wife usually monopolizes them, but yesterday I got a few good hours in with my eight-year-old.

We spent some time talking about tulips and watching the tulip trading video above. She is very excited about the idea of my Tulipmania game proposal. I told her to come up with some ideas on how to structure the game.

Since they are going to Holland at the end of the month, I brought up the EURJPY cross rate chart and we studied it. We will be following this chart with anticipation as the month unfolds. I am sure that ever after in her life she will recall what the EURJPY chart looked like in March, 2015.

Then she kinda shocked me by asking me out of the blue how AAPL was doing.

I showed her the position I have on in the TOS Papertrader, and then she crowded right in there and brought up the chart in TOS. She was a little surprised that the P/L on the AAPL position could be up on the day even though AAPL was down. She's a numbers girl, and she's not the slightest bit intimidated by the TOS interface.

Then I did a kind of lousy job of explaining the meaning of "karauri" in Japanese to her (short selling). Anyway, she's smart and she gets the idea. "Market goes up, we make money, market goes down, we make money." I need to work on the delivery of that, but honestly, I lack the expressive ability in Japanese to explain hard concepts like this in simple terms that an eight-year-old can grasp. I also lack a perfect understanding of where she is intellectually, what concepts she is at home with. Later on, I spent hours and hours on Amazon Japan going through their books on related subjects. I really need to power up my Japanese with the terminology and expressions that can explain all this stuff. Nothing I like better than talking markets in Japanese, but I often stumble because I don't have the terminology.

One thing I learned from perusing the Amazon booklist is the work for "scalping" in Japanese, "sukyarupingu." Another takeaway is the knowledge that there is a whole bunch of manga books in Japanese on markets related topics, especially manga illustrated lives of heroes like Warren Buffett and Jesse Livermore. Time well spent.

Below is a page called "Marital Disputes" from a manga on Trading Psychology that I bought. Frame #3 shows the poor hapless guy explaining to his wife in bed that he just lost a million yen in the market that day. The final word on the page is "Divorce!"

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  #13 (permalink)
Market Wizard
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Progress on the teaching kids about money project. Both kids now have bank accounts and brokerage accounts, which have been funded with a couple thousand dollars. We are using the SBI platform, which is the favored platform in Japan with daytraders. Haven't made any trades yet.

The proposed stock strategy is to buy a 1) nominal amount of shares in some company that has a retail presence that affects the kids in their daily life. Starbucks would be the obvious one. Apple another. Still thinking. 2) core strategy will
be Vol products, and the purpose here will be to make some money. I discovered that Nomura has localized XIV for trading on the TSE under the symbol of 2049.T

Anyway, all of the above will work for the 13 year old, who now thinks very abstractly. For the soon-to-be nine year old, it's a different matter.

I think we need to start out more concretely, so with this coming birthday we are going to start collecting silver coins. Well, a coin collection. I don't really know anything about coin collecting, but my father always collected silver coins out in the wild, and he passed on his collection of coins to me, among all the children, for some reason. Ever since I received the collection, I had been wondering what to do with it.

Now I know. This is a teachable moment for us all.

As a birthday present, I got the nine-year-old a 1 ounce silver eagle dollar, since the child is American and we might as well reinforce the American identity. The silver eagle is actually a very beautiful object, and it's heavy and gives you a real sense of existence.

This is MONEY, there is no mistake about it. It's not just a bunch of zeroes on a spreadsheet.

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  #14 (permalink)
Market Wizard
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We did very well trading the vol products during July and August, deftly avoided the crash then went long. The teaching strategy is just start off with the most risky high-alpha vol trades.

I am staring at the UVXY chart the other day at 83 or something, and the nine year old walks into the room and says, off hand, in Japanese, "You don't want to be shorting UVXY at this moment." Yes, dear.

I've found that the Futures chart on Finviz is the best graphical representation for market awareness. The good thing about it is that there are a lot of very concrete items on there that would appeal to a nine year old girl. Cocoa, Sugar, Milk.

We were toying with the idea of putting on a "hot cocoa" spread on the TOS Papertrader. But no milk on TOS. WTF, so I fire off an email to Pete Mulmat and I find out that there is just not enough volume of milk to trade futures.

This does not make much sense to the nine year old. After all, there is orange juice on TOS. Do Americans drink that much more orange juice than milk?

The nine year old is interested in silver. I tell her we are could take 20% of the profits from trading at the end of the year and buy some real silver coins. Since the PL numbers are pretty abstract, I try to express them in stacks of silver coins. Right now one silver eagle is about 2600 yen. She tells me she would actually rather have an iPad Mini.


Recently, I started using Bitcoin for doing international money transfers. My local Bitcoin exchange is hooked right into the banking system and I can trade bitcoin, litecoin, and dogecoin. The trading platform shows the order book and makes it very easy to learn about the bid/ask system for currency, and to see the effects of liquidity.

Since we have a Shiba dog, the nine year old is very interested in Dogecoin, which is a coin that was for some reason named after last year's cute shiba dog Internet meme. One beautiful thing about Dogecoin is that you can really, really TRADE SMALL, since the current price is 0.018 JPY. So, we can trade a single coin if we want, and the nine year old sees no need to own more than one coin. Well OK.

It's skin in the game, right?

It's actually a good study in the nature of liquidity, because the Dogecoin market is so illiquid.

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  #15 (permalink)
Market Wizard
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My Kids Money Project has been running for about a year. I am now shopping for the second silver coin to be presented to the younger as a birthday present. Maybe a Panda this time.

The kids' trading accounts have been active for 11 months. In the 14 year old girl's account, we have only swing traded XIV and VXX, along with some intraday Nikkei index ETFs. As expected, in terms of PL the account has done well. But given the totally abstract nature of volatility products and index ETFs, this style of trading is not as engaging as a traditional product like DIS. So, we sold our position in XIV on Friday and now I think I want to mix it up some, now that we have some house money in the account, by getting some DIS around the release of their new Nemo sequel.

I told the kids they could draw out 20 percent of the gains on their trading accounts and spend on whatever they like. I think it is important to try and make it real and for them to take some of the house money off the table. So, once we got up money on this last trade, the girl took her first draw and bought a new bicycyle. I merely drove the car to the bank and the bike shop, she had handled everything else.

Including the question of whether to purchase the extended warranty on the bicycle and also the liability insurance, which is now said to be compulsory (only not really compulsory as she soon found out). This was a teaching moment, but it slipped by. I didn't comment on whether I thought she should purchase either option.

In reflection on this past year, with the older child, I feel my efforts have been a mixed success. The level of engagement is not as high as I hoped, but OTOH as a father of a teenage daughter, I guess I should just be happy that she will talk with me at all, right?

I think she did grasp the point that by "investing" her money it's possible to get a tangible return that is much greater than leaving it in her bank account at 0.001% interest.

And she did experience the pain of a drawdown.

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  #16 (permalink)
Market Wizard
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We have been reviewing the results of trading the first year in the kids accounts.

In the process I discovered that they do not understand the concept of compounding returns.

Somehow this gets overlooked in the Japanese school system, although they do rigorously learn some very hard math through the end of high school. Just looking at the homework makes my head hurt.

So now I have to figure out the best way to teach this concept. It's one of the most important things you can learn about money in your life, whether as a saver or debtor.

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  #17 (permalink)
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suko View Post
So now I have to figure out the best way to teach this concept. It's one of the most important things you can learn about money in your life, whether as a saver or debtor.

This might help ....


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  #18 (permalink)
Market Wizard
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Thanks, that gives me some ideas.

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  #19 (permalink)
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I think it's great you are teaching your kids important lessons like these.

One thing I was always grateful for (not at the time though) was that my parents always made me work during the summer when I was young, including hard labour. They had both grown up pretty poor but had risen to the middle classes and didn't want me to grow up spoilt. From the age of 15 I was made to work at least 4 weeks of my summer holidays at their friend's construction site as a labourer doing all the grunt work. I hated it and it was really hard work but I really appreciated how hard it was to earn money for stuff such as a games console or holiday with friends. As the years went on I learnt to be a good painter and decorator and other handy skills which has helped me when painting my own flat etc.

But out of all the jobs I did whilst young, the most important lesson I learnt was respect for others. Seeing how hard people work day in, day out was eye-opening. I would do 4 week stints and be absolutely drained. I couldn't imagine doing that for 50 weeks of the year! Nowadays I may wear a suit and work in a nice office but I always show respect to everyone, no matter if it's the barista serving me coffee or the cleaning lady in the office. I't sad that often the most senior staff will act ignorantly and treat those same people with no respect or dignity which always pisses me off.

Teaching your children about trading is great, but it can be quite a surreal environment in terms of money moving around so quickly - it can often feel fake. I'd suggest some tough work involving long hours too to balance out their education. Just my two cents though - sorry for the essay.

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  #20 (permalink)
Market Wizard
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I also did a lot of hard labor as a teenager on farms, $20 a day. Happy to get it.

Later on, after I finished college I ended up doing construction again -- painting, cabinetmaking, carpentry and so forth. Started a business. It was very tough but also enjoyable. Started at $30 per day.

Nowadays my wife and I have a business that we run out of home, over the kitchen table. The kids are constantly exposed to business discussions about clients, bids, rates, business practices, and so forth. Our work takes us behind the scenes in a lot of enterprises, so the kids are exposed to a lot of what goes on in the business world through us, and sometimes we put them to work in the business, at an hourly rate.

They also make money around the house by cleaning windows and so forth. They are very proud of this hard-earned money. The trading earnings they seem to be indifferent to.

They money they get from their maternal grandparents as gifts, plus allowance, which is conditional on chores, plus window washing money all goes into account A.

The money from the paternal grandparents, the trading capital, is in account B.

They make a clear distinction between the value of money A and money B. It's as though money A is real and money B is unreal. It's as though A is "Hard Work Money" and B is "Money for Nothing." For instance, they would not risk any of the money in A by investing it in B.

If I hadn't read the great little book "Why Smart People Make Big Money Mistakes and How to Correct Them" I would not have indentified this distinguishing between A and B as the fallacy of "mental accounting" -- basically the idea that there is such a thing as "house money." In reality, there is no "house money" or "savings" or "capital" and there is no difference between A and B.

It's all money just the same. If you regard gift money or house money as something of lesser or different value than the money you earned washing windows, then you will be more inclined to waste it.

The question of how we address this fallacy as a teaching point, would be a good one. It's difficult, because I suffer from it myself, as we all do.

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