Some professors are fully into the stock market! They talk about it in class, animate extracurricular activities, supervise simulations. Their goal: to instill some fundamental notions in the young minds before them. Principles, they hope, that will serve them for the rest of their lives. You weren’t lucky enough to have such a teacher?
Here are the teachings of seven of them.
1- Assuming your responsibilities
The stock market does not interest you? That’s no reason not to understand how it works. Even if you’re not investing directly, you’ll need to know enough to ask your financial advisor the right questions. Because delegating with your eyes closed can be expensive!
“The saver is always ultimately responsible for his finances. In the end, it is he who lives with the results of his investments,” says Paul Bourget, founder of the stock market simulation Bourstad.
Young people often first think of the stock market as a game of lotto. They hope to stumble upon the right horses a bit by chance and go to the checkout. Then, they realize that, while the strategy can occasionally pay off big, it often results in big losses.
Arie de Jonge, a teacher at Père-Marquette high school in Montreal, invites them instead to see the stock market as a game of strategy, the rules of which must be known. To win, but also to avoid mistakes. “People often invest in companies because they are highly publicized, he gives as an example. That doesn’t mean they’re healthy. It is often even the opposite!
Yet anyone who wants to learn the rules of the game can. “Some students know absolutely nothing about the stock market at first, not even the difference between an action and a bond,” says Gilles Guindon, a college economics teacher at Collège Jean-de-Brébeuf. Over time, they discover notions, ask questions, assimilate concepts. And even end up, sometimes, by enrolling in finance!
2- Define your investor profile
Before venturing into the stock market, it is better to know the level of turbulence that one can endure without losing sleep. “Students – like investors in general – must first and foremost get to know themselves,” says Waguih Laoun, who taught for 30 years at Collège Ahuntsic.
The investor profile, on which the investment strategy will be based, uses several data, such as age, income and family situation. However, a more subjective element must be added: the temperament of the investor.
However, estimating its ability to live with the stress of the stock market is not easy. It is not uncommon, moreover, that people imagine themselves to be more tolerant than they actually are, observes Mr. Laoun. They invest thinking that everything will be fine, then panic at the slightest jolt in the markets and liquidate their positions.
Stock market simulations like Bourstad allow participants to realize that between hyper-risky high-growth stocks and boring but rock-solid stocks, there is a world.
3- Measure your investment horizon
In addition to knowing his temperament, the investor must identify his objectives. “We don’t invest just to make money, but because we have a project,” explains François St-Onge, teacher at Collège de Bois-de-Boulogne, a CEGEP in Montreal.
Depending on its nature, this project will have a more or less distant horizon in time. It can range from a few months for buying furniture, to 40 years for retirement planning. The choice of investments must be made while respecting this horizon: we will generally avoid taking too many risks for short-term projects, and we will allow ourselves more for long-term projects.
When they discover the stock market, some CEGEP students are tempted to invest all their savings according to audacious strategies, in the hope of tripling or quadrupling their bet, says Mr. St-Onge. Fortunately, he intercepts their intention in time! “You have to make them understand that it is risky to speculate. Especially since they will need this money in a year or two to go to university.
4- Respect your risk tolerance
Risk tolerance is rather abstract. To become familiar with the concept, Bourstad participants must establish an investor profile at the start of the simulation and respect it throughout their transactions. Which turns out to be easier said than done!
It takes a good dose of discipline to resist promising titles that are too risky. Especially when colleagues proudly display their own earnings! It will be, for students, a good practice for future office discussions or dinners with friends…
But knowing how to manage risks goes much further than that. “It’s a key skill in finance,” argues Paul Bourget. The retired teacher sees the thing in three stages: properly identify and measure the elements that represent risks; protect against them to avoid losses or, at least, to limit them; and take advantage of it to make gains. Attention, it is not a question here of speculating on risks, specifies Mr. Bourget. “Ask yourself which stocks [asset classes or industries] could rise if a given risk materializes.”
The risk analysis grid must include all risks, even those that are difficult to quantify, such as corporate social responsibility, adds Mr. Bourget. “These concepts are becoming more and more important, and we must seek to measure their impact on the performance of the company.”
5- Invest your time as much as your money
At first glance, investing in the stock market seems easy: you buy and sell shares. “Young people ask me how we know that an action will soon go up,” laughs Julie Blondin, an administration teacher at Collège André-Grasset. She quickly brings them back to Earth: if there was a magic formula, she wouldn’t be in her class, but rather counting her millions!