My Very First Investment: An 11 Year Old’s Stock Pick

by JT McGee

I’ll always remember my very first investment I ever made.

This was about 12-13 years ago or so. My dad had worked in various levels in banking, from loan origination to VP, and he was, and still is, by all definitions, a workaholic. I remember him waking up very, very early in the morning, checking Bloomberg TV to get a feel for the markets and interest rates that day.

He’d wait patiently for the 10-year Treasury to come up on the screen as various indexes, commodities, and currencies cycled across the right part of the screen. It was just part of the daily routine. I wanted to be just like my dad – I had to know what those numbers meant.

Of course, my dad, being the great dad that he is, tolerated my every question. “Why?” was, by all accounts from my parents, my single favorite question.

Dot com bubble

These were the glory days of the stock market. Everyone was getting rich. Companies were IPOing at a record pace. Webvan. Pets.com. AOL. Yahoo and eBay. It was unreal, really, watching the NASDAQ hit new highs every day.

Even to me, then a 10-11 year old kid, it was the most alluring thing I had ever seen. Very smart people would get on the television and explain why everyone was getting rich. The stock markets were the place to be. No ifs, ands, or buts about it.

Compound interest had always been a fascination of mine after my parents explained that my bank account, which I had opened at 6 or 7 years old, would pay me just to keep money in it. (My goal then was to make $1 per month in interest…I saved every dime I could to get to that point.) But that 4-5% per year, whatever it was, wasn’t the 10%, 20%, or 30%, that stock markets were seemingly set to provide investors for years and years.

I wanted more.

From gambling to stocks

Back in those days I was obsessed with odds and numbers. There was something special about them. I remember devising a scheme that would allow me to beat a table top over/under 7s game at my Catholic school summer social.

Yeah, I can’t believe I’m admitting this either.

It was only after a month of watching Bloomberg, and after maybe a year of collecting coins, that I realized the Canadian dollar was worth less than the US dollar. If I played over or under 7 with Canadian coins, but got paid out in US dollar coins, I could effectively beat the odds, supposing I could buy Canadian quarters and play them as US quarters. (I never did it; something about ethics and taking a church for dollars, one quarter at a time. Although, hey, they were letting the second and third graders gamble!)

The stock market quickly took over my obsession with odds. I wanted to play the odds in equities.

So, I did what any kid should do. I hounded my parents for subscriptions to Money magazine, and, using the internet, signed up to a 14-day free trial to Investors Business Daily. I started getting investing books on every trip to the local library. My dad introduced me to Warren Buffett’s ideas. The simplicity was attractive. I was going to get rich in the markets, I told myself.

I was going to master my dad’s many HP12C financial calculators laying around the house. Combined with my annual reports and library books, how could I fail?

Funny thing about magazine and newspaper subscriptions. Sign up for enough and you start getting really good junk mail. Well, I got an offer from Etrade and the Motley Fool whereby I would get a $100 bonus for just opening an account. That was the turning point. I could invest with someone else’s money.

From Investors Business Daily, I started ordering free annual reports.

Actually, I ordered hundreds. They were free, after all!

So I started cracking them open as they came in the mail. My dad sat with me and helped me digest line-items on an income statement. I’m lucky to have had a father that studied accounting in undergrad and who was patient enough to deal with my every concern and question.

Buying my first stock

Dollar General was the first stock I ever purchased. If I remember correctly, it traded for something like $12 a share, paid a robust $.13 annual/quarterly dividend, and was a model that made sense to me. (Dollar General was taken private and relisted a few years ago or I’d look these numbers up). I remember looking at an IBM annual report, too, but what I had learned in my recently readings and from my dad’s own warnings was that I should only invest in something that I understood.

My dad cautioned that with tech, R&D spending is something to pay attention to, but neither of us knew what that R&D may eventually bring. Suddenly, the cost of goods sold line in DG’s annual report looked much more appealing, and much more understandable than the R&D in IBM’s income statement. So Dollar General it was!

Did I really understand Dollar General? Hell no. I could spit out its P/E multiple, PEG multiple, dividend and dividend yield, and probably tell you way too much about how many stores it had, or its gross margins, but hell, so could Yahoo Finance!

I mean, really, I don’t even care to pretend that the idea of business valuation was something I truly understood as a 11-12 year old kid.

But I did know enough, I thought, to make my first purchase. So I did. And boom! Just like that, everything that had ever enticed me to the stock market hit me like a ton of bricks. I was part owner in one of America’s greatest enterprises, I thought. I was set to be a bazillionaire, just like every other person who puts $100 of someone else’s money (thanks, Etrade!) into a stock of their choice.

Since that time

Not much has really changed since then. I’ve become older, and naturally a little better with the basics of investing and corporate accounting. I’ve self studied ever since that first day, reading everything about investing that I could get my hands on.

I’ve become much better at reading annual reports and finding what really matters in a company’s reporting. I’ve also figured out what kind of stocks I really like, what “cheap” stocks actually means, and found a better understanding of what made Warren Buffett and Benjamin Graham the kings of Wall Street by reading their every book and books on them.

If I were to do it all over again, or start now, I’d probably start with a stock market game. They’re a great (and free) way to learn about stocks and get a feel for how the stock market moves each day. Plus, Etrade doesn’t hand out free $100 bills any more!

What I wouldn’t change is getting hooked early. I remember telling my peers that I wanted to be a stockbroker shortly after buying my first stock. Yeah, in a classroom of future doctors, lawyers, and firefighters, that may have made me the laughing stock, but it’s all in good fun! They just don’t understand, I told myself.

Starting early, either by “paper trading” or committing a very small amount to the markets is a great way to start. I couldn’t be happier that I started when I did. I don’t think there’s a single person in the world who wishes they found the markets later rather than sooner.

A special thanks goes to my loving and caring parents who nurtured my love of finance to the best of their abilities. I cannot thank them enough.

{ 14 comments… read them below or add one }

krantcents May 23, 2013 at 12:20

I was never hooked on the stock market even though it one of the best places to earn money. I was fascinated with money and what you could do with it. My direction was small business and investing in income property. I liked it better because I felt I had more control and I understood it better.

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JT McGee May 24, 2013 at 16:44

Money seems to hook everyone in different ways. The idea that money could make me more money was what got me. I remember wondering why anyone worked for very long given that money begets more money.

Like you, I feel like I understand stocks more than other investments. It’s my comfort zone. Small business (like an owner-operated one) or investment property aren’t in my own “circle of competence.” Different strokes for different folks, but the end-game is all the same!

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PK May 24, 2013 at 10:57

How did you do on Dollar General?

Pretty solid origin story, and first person too (makes it easy when your biographer writes the next great American Biography, eh?). I’m with you on starting with a game – I didn’t have the valuation experience, so I developed my value philosophy by playing a game… and buying mutual funds (call it outsourcing while I found my wings).

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JT McGee May 24, 2013 at 16:47

I did okay. DG basically wiggled from $10-18 until it was bought out. I didn’t follow it much, and it was taken private YEARS ago.

Honestly, that account is still out there floating around somewhere. There were oodles and gobs on restrictions for withdrawing the money, and when I had real money to invest, I went to another broker. The commissions at Etrade were far larger than the $100 benefit. Think casinos and their bonuses where you basically have to lose money to get your “free” money.

Heh, biography. I’ll be happy if I can get a long-term record a few bps higher than the market. A 3% long-term outperformance would make me happy as could be. Obviously, the more the merrier, though. I want another 2011.

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Kayla May 24, 2013 at 13:50

“So, I did what any kid should do. I hounded my parents for subscriptions to Money magazine.” When I was 10-12, I hounded my parents for subscriptions for the Babysitters Club books…

But honestly, props to your parents for helping you when you were young and explaining everything. That “why” question can become oh so very annoying, and it’s good that they didn’t ignore that. I think in your situation you will have a piece of paper in a few months saying “Bachelor” on it, but in the end, your Dad is the real person that taught you. 🙂

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JT McGee May 24, 2013 at 16:50

I owe the world to my family. From my sister, who as a starving kid in college loaned me $600 when I was like…13 to buy a computer to start my first online business, to my parents who put up with every single question of mine, they’re just awesome people. If I could only be half the person my mom, dad, sister, and brother are, I’d be a very happy person.

My dad definitely got me on the right track. Eventually, I outgrew his knowledge base, but luckily Google was right around the corner to get my back. His patience with me is worthy of a dad-of-the-millennium award.

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Michael @ The Student Loan Sherpa May 24, 2013 at 14:42

Great story of how you got your start. I’m always amazed at how many people end up in their parents professions. I guess it makes sense when you think about it. Our parents are our first roll models, so the allure of their professions becomes ingrained upon us at an early age.

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JT McGee May 24, 2013 at 17:07

Heh, I guess it’s really just convenient. My parents never pushed me toward finance, but when I showed an interest in it, they didn’t push me away from it, either. My dad and I have very similar personalities, so it doesn’t really surprise me that we’re interested in the same stuff.

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Jon Haver May 25, 2013 at 13:58

Great story ! Well, that’s exactly why parents have such an important role in their childrens careers and future. If you find out that your kid is into something, you should encourage him and give him all the support he needs, who knows , maybe he’ll end up beeing very successful later..

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Evan May 29, 2013 at 13:28

Awesome Story so what are you up to no JT? You living your dream?

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JT McGee May 29, 2013 at 15:33

Heh, something like that. Living the dream running my own portfolio in the public markets and killing off my last few months of school. The real dream would be to make a living in the markets, either with my own capital or with that of others. We shall see. One thing is for sure: no matter where life goes from here, there’s no way I won’t be reading 10-Ks each day looking for undervalued stocks. It’s an obsession!

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Evan May 29, 2013 at 15:41

For someone who is a few months deep on an investment club with buddies be careful who you partner up with.

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Evan May 29, 2013 at 15:41

*from someone

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JT McGee May 29, 2013 at 15:56

I’m definitely keeping that in mind. It’d be great if I could find a group of people offline who were truly interested in deep value ideas, but I don’t exactly live in a financial center. And, frankly, I’m not too keen on letting someone else run a pool. I mean, there’s always Berkshire Hathaway for that, heh.

I may give http://ValueInvestorsClub.com another chance. Last time I wrote up an article to apply, I wimped out with my pick lacking a clear catalyst. Thought I’d refine and submit later. Fast forward a month and it got bought out. There goes that chance! It’s a great online group of investors, though, many of which are portfolio managers of value-oriented mutual funds/hedge funds. I’ll put it on the to-do list again.

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