Countdown Test

00days 00hours 00minutes 00seconds 2020-12-25 12:00 AM     00days 00hours 00minutes 00seconds 2020-10-25 12:00…

The back story: I wrote recently of my Halloween experiment, giving children the choice of “cash or candy” again this year.

In 2016, I offered costumed children in third grade and up three fun-sized pieces of candy — a value of roughly 37.5 cents — or the chance to pick a coin envelope from a basket. (Younger children got candy.) The envelopes contained anywhere from 25 cents to $5; I made up 50 envelopes, and it took 54 kids for me to run out, meaning 93 percent took the money.

The set-up: This year, I gave costumed children in grades three and up three options:

1) Take three pieces of fun-sized candy, 2) Take no candy, but pick from a money basket, where every envelope has at least 25 cents in it with a maximum of $3, or 3) I take a fun-sized candy from the child’s bag, and they pick from the “big money basket,” where the envelopes contain 50 cents minimum up to a $5 grand prize.

I expected most kids to take money, but few to let me take their candy.

The results: I was dead wrong. Not a single child – including the neighbor who told me there was no way I would get any of her candy – took the small-money option.

Forty-eight children gave up candy to play for the big money; four kids just wanted candy.

The children picked the best deal, though I’m not sure they knew it or cared. (If you assume the three pieces of candy they don’t take – plus the one they gave up – were worth 12.5 cents each, they had no real possibility of loss, and a potential jackpot of 10 times their “investment.”)

They just valued the money more, given that they had more candy than they could eat.

But I was pleased that they at least wanted to talk about money, about trading something they valued (candy) for something they wanted more. And my costs were reduced, because my envelopes bought me 48 pieces of candy to give away to others.

Whether it is my approach, a cash-for-candy swap as advocated by the National Financial Educators Council or something you come up with on your own, I wholeheartedly recommend it; challenging the kids to think made Halloween an even bigger treat than normal, and that’s a pretty good trick.

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   Chuck Jaffe is editor at RagingBull.com; he a nationally syndicated financial columnist and the host  of “MoneyLife with Chuck Jaffe” (moneylifeshow.com). He is a long-term investor and does no short-term trading of stocks, options or ETFs. You can reach him at chuck@ragingbull.com.

Author: Chuck Jaffe

It’s going to be a “Trick, treat or trade” Halloween at my house this year, and that has nothing to do with the stock market.

If you want to teach your children and the kids in the neighborhood a lesson about money, risk and, yes, trading, you might follow my lead and swap cash for candy on Halloween night.

It won’t send you to the poor house, but it will send the kids home talking about what you have done. And, if my experience from last year holds again in 2017, it won’t leave your house covered in eggs or toilet paper.

Here’s the back story and how I am changing things up to add a trading component to it this year.

Last year, I created a drawing for costumed children in third grade and up (younger kids got candy like any other Halloween). I offered the kids the chance to take three fun-sized pieces of candy — a value of roughly 37.5 cents — or a coin envelope they picked from the money basket.

I made up 50 envelopes – we get 80 to 100 trick-or-treaters in my neighborhood each year – each with a minimum of a quarter in it, with one jackpot envelope holding $5. I made the kids aware of those parameters when offering them the choice.

All 50 money envelopes were scooped up by children. Only four age-eligible kids chose candy (and two children who came too late wound up with candy when the envelopes were gone, but noted they would have taken the money).

It was my personal twist on the “Cash for Candy” campaign pushed by the Financial Educators Council (NEFC). (I also am in favor of the Halloween Candy Buy Back, a nationwide effort held mostly at dental offices that removes excess treats from kids while also supporting US troops; you can get more details on participants near you at www.halloweencandybuyback.com.)

My results from last year didn’t surprise me; being the only house in the neighborhood doing something different made the money the obvious pick. The best part, however, was hearing from my neighbors who loved discussing my cash-or-candy option when the kids got home and opened their envelopes.

So this year, I am taking my efforts a step further, hoping to open kids up to lessons and discussions about money, value, risk and more. I’m adding an element of trading to the game, because if children think about the choice I am offering them, they will be factoring risk and reward into the picture.

On Tuesday night, costumed children in grades three and up will have three options:

1) Take three pieces of fun-sized candy, 2) Take no candy, but pick from the money basket, where every envelope has at least 25 cents in it with a maximum of $3, or 3) I take a fun-sized candy from the child’s bag, and they pick from the “big money basket,” where the envelopes contain 50 cents minimum up to a $5 grand prize.

I expect most kids to take money, but few to let me take a piece of their candy.

And yet giving me candy in exchange for a chance to win the big jackpot is the best deal. It is clearly the best trade here.

The candy itself, as noted, has a value of 37.5 cents. Trade that value for an envelope and you could lose 12.5 cents – if you pull a minimum envelope – or make a maximum of eight times your “investment” if you pick the $3 envelope.

By comparison, letting me pick a candy adds 12.5 cents to the value of the play, but with a minimum of 50 cents in the minimum “big money” envelope, there is no real possibility of loss. And the $5 jackpot means that the reward is 10 times the risk.

You don’t have to be a stock trader to understand that a potential reward of 10 times your investment – with no real possibility of loss – is a great deal.

But whether the kids will understand that innately is a good question. I recently talked with a neighbor child about doing “cash for candy” this year and was told in no uncertain terms by a 10-year-old that I would not be getting a piece of her candy.

Even if you find the whole idea silly, the intentions and motivations are good.

There’s no denying the obesity problem in this country — sadly, I personify it myself — and no child needs to consume a mountain of candy. Encouraging moderation is good.

Encouraging talks about money is even better.

Whether you do it yourself or not, find out what your kids would do if they came to my house. Ask them to try to figure out which deal is best; help them see the value of their trick-or-treating – where candy is like the wage they get paid for the time and effort they put in – to see if they would risk dollars on this deal rather than candy.

The trade here, in the end, is mine. I’m trading some cash – and some candy – for the chance to feel like Halloween is about more than sweets and silliness.

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   Chuck Jaffe is editor at RagingBull.com; he a nationally syndicated financial columnist and the host  of “MoneyLife with Chuck Jaffe” (moneylifeshow.com). He is a long-term investor and does no short-term trading of stocks, options or ETFs. You can reach him at chuck@ragingbull.com.

Author: Chuck Jaffe

Traditional mutual fund and ETF investors can learn a lot from traders, more than I first imagined.

I’m a long-term investor myself and abide by an ethics policy that makes it impossible for me to pursue short-term trading strategies in order to avoid potential conflicts of interest, but the more I work with traders the more I have come to appreciate how they do their jobs.

But just over a month ago, I detailed five things that long-term buy-and-holders should learn from short-term traders, a list gleaned from a few months as editor at RagingBull.com, where veteran traders write about their day- and swing-trading strategies. I’m still not suggesting that average long-term investors become day- or swing-traders – too many studies show that fund investors are better off buying-and-holding a slowly-evolving asset allocation than trading even semi-annually – but there’s no doubt in my mind that the tenets of successful traders will improve their investment process and results.

See Chuck Jaffe’s first five lessons from traders for fund investors

After talking about the importance of “trading the plan,” “using the right tool for the job,” “quantifying risk and reward” and more, it became clear – with some help due to a few traders who also buy-and-hold the core of their portfolio – that I hadn’t gone far enough. Thus, here are four more ways that long-term buy-and-holders will become better investors by emulating short-term traders:

Understand the size of the trade.

Traders carefully consider the size of their position in any one investment because they can be wiped out if they risk too much, and they won’t achieve sufficient growth if they risk too little.

Savvy traders risk 1 percent or less of their account in any single trade; their “trade risk” is how much they’re willing to lose if the stock or ETF runs against them.

Say they buy an investment at $10, and set a stop-loss to guard against a mistake that sells if the price falls to $9.50. That potential 50-cents-per-share loss is their “trade risk,” so if they have a portfolio of $50,000 and their maximum risk is 1 percent of their account, they’re only willing to risk losing $500 on the trade.

Traders divide the money at risk (the $500) by the cents at risk (the 50 cents-per-share possible loss) to determine the maximum number of shares they’ll trade.

Long-term fund investors don’t need to size trades this way, but are wise to consider how losses could affect their portfolio; the math would encourage them to diversify and rebalance their portfolios regularly.

Don’t worry about break-even.

One of the worst things I ever hear from fund investors stuck with a bad fund is “I’m waiting to get back to break-even,” as if the goal isn’t to make money but rather not to lose it.

If you’re stuck with a laggard or a loser, you may recover losses faster by selling out and buying a new fund than by waiting for a dullard to stumble back to the starting line.

Worse yet, many fund investors see a recovery to break-even as a reason to expect performance to improve; this is how bad funds stay in investment portfolios for decades.

If breaking even isn’t your goal, then – as noted in the first five trading concepts I wrote about – accept your mistakes and move on.

Evaluate securities based on where they are now and what’s happening next.

Beyond avoiding the stigma of break-even thinking, traders evaluate their holdings based on what is happening now and what they see as happening next. They are always looking forward.

Most buy-and-holders, however, use past performance as their primary buying criteria, and are willing to hang on so long as the performance numbers meet their definition of “acceptable.” The problem is that they are driving forward while keeping their attention focused in the rear-view mirror.

Fund investors always should evaluate funds with an eye towards whether they are appropriate for current and future market conditions, rather than based on what they have done in the past.

Have your standards and stick with them.

Traders have bedrock concepts they believe in. For example, many day traders want to make sure that the industry trend is running in the direction they see for an individual stock for the industry. Thus, if they expect a stock to be rising, but the ETF for the industry is trending down, they stay on the sidelines.

One trader explained it to me as wanting “all green lights.” If all systems aren’t a go, there is no lift-off.

Too many buy-and-hold fund investors stick with funds where independent ratings have changed, expense ratios have increased and more. They buy funds that look “mostly” good rather than finding issues that meet all of their criteria.

Buying something that pushes all of your hot buttons give you something to believe in, which always delivers better long-term results than sticking with something where your feelings are lukewarm.

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   Chuck Jaffe is editor at RagingBull.com; he a nationally syndicated financial columnist and the host  of “MoneyLife with Chuck Jaffe” (moneylifeshow.com). He is a long-term investor and does no short-term trading of stocks, options or ETFs. You can reach him at chuck@ragingbull.com.

Author: Chuck Jaffe