Today’s post is the conclusion to last week’s post, How I am Helping my Children Form Their Money Mindset. Last week, I shared my sons’ experiences with fractional trading with Wealthsimple. In today’s post, I will review the investment performance of each boy’s stock portfolio and share some commentary from Big W and Little J about what they have learned so far.
To recap last week’s post, in September, Big W, age 11, and Little J, age 7, opened up investment accounts with Wealthsimple and selected their own portfolios of fractional shares. To make their selections, I gave each boy a piece of paper and let them choose from the list of shares that were available for fractional trading. We talked about investing in companies that you know something about, discussed the impact of the Covid-19 pandemic on consumer spending and companies that might play a role in the pandemic recovery, and talked about diversification – geographic and by industry. I let each boy make their own list, and then did some minor tweaking before making their share purchases. We then made some further purchases in October.
Over the Christmas break, I analyzed the investment performance of each boy’s portfolio. Below is the return data, and some commentary on the winners and losers in each boy’s portfolio.
The Winners
The top performer in Big W’s portfolio was Home Depot, with a return of 20%. Sensible choice, a company whose product offerings are well matched for the DIY/home improvement climate we have been experiencing during the Covid-19 pandemic.
Little J’s top performer was Tesla, with a return of almost 34%. This stock pick did not follow any of my selection criteria; however, Little J thought that the company was interesting, and the Wealthsimple historical return graph was trending upwards. This choice totally fits his personality; however, past performance does not guarantee future returns!!!
Both boys had some solid, middle-of-the pack returns. Coca-Cola and PepsiCo both delivered returns of 12% and 13%, respectively. Colgate-Palmolive, a solid household and consumer products company delivered close to 12%. And finally Dollarama, a company that the boys are familiar with and see in our neighbourhood, yielded 7%.
The Losers
Here’s where things get interesting! The boys had high hopes for these firms. Big W’s biggest loser was Door Dash, a company that he selected because he thought that there would be good demand for their services during a pandemic. Return: -37%!
Both boys selected Twitter, Little J in September and Big W in October. The rationale for the stock pick: Mr. Schultz uses Twitter a lot. Little J’s three month return was -40%.
Other pandemic-influenced stock picks were Amazon (-4%), because people would be doing more online shopping during the pandemic, and Netflix. Big W purchased Netflix in September and only lost 6%, while Little J purchased in October and lost 18%. I guess that people have re-emerged from isolation and binge watching is down (or there is just more competition in the marketplace for streaming services, or both).
Conclusion
Regrettably, the losses generated by the losers offset most of the gains earned by the winners. Overall, however, both boys came out ahead, Little J earning 1.85% and Big W earning 1.46%. Better than the current yield on a 90 day guaranteed investment certificate!
Big W found the returns analysis interesting. I asked him what he had learned from the experience. Here are some of his comments:
- Just because a company is big and you hear about it a lot, doesn’t mean that it is a good investment.
- Smaller, more basic companies, can still be good investments.
- Twitter and Amazon’s negative returns were surprising because they are “big name” companies.
- If one stock is tanking and you have multiple stocks, don’t be too worried (diversification!).
After the portfolio review, the boys finalized their selections for their new investment of their $20 “report card treat” from Grandpa T. They made some repeat purchases of strong performers, chose some stocks in similar industries to the winners (e.g., Lowe’s), and then branched out and added a few new stocks, notably Aflac and T-Mobile. Big W doesn’t know much about these companies; however, they are advertised heavily on the channels carrying NFL football games. (Expect a post on the availability heuristic in the future).
I will review their portfolios again at the end of the first quarter of 2022 and will provide an update in the future.
Neither Big W nor Little J are professional investment advisors and the information in this post should not in any way be construed as a replacement for personalized professional advice.
Life Lessons 