GameStop, cryptocurrency and bubbles: Market lessons from my son — and dad – CNBC

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Three generations of Dan Mangans

Courtesy: Dan Mangan

Joseph Kennedy Sr. had his shoeshine boy. I have my 13-year-old son — and my dad.

Some 92 years ago, Kennedy — father of one U.S. president and two other kids who became senators — is said to have sold off his substantial portfolio in the red-hot stock market after a boy who was cleaning his shoes offered him some stock tips.

The story goes that Kennedy figured that was a signal to sell — everything.

He reasoned that when shoeshine boys were touting shares as sure things, there was a lot of stupid money in the market, propping up prices that were certain to fall.

Kennedy’s move saved him his fortune.

But others who believed the hype lost it all in the Wall Street crash in the fall of 1929.

On Thursday, I thought I saw that shoeshine boy standing in front of me, waving a $10 bill.

My 13-year-old son was excitedly asking for permission to buy a cryptocurrency — dogecoin — which, he yelled, was going to blow up in price by the end of the night, quintupling or more his investment in hours.

«Elon Musk guarantees it!» my son said.

«What?» was my first question.

My second was: «Did you read this in ‘WallStreetBets?’ «

He immediately confirmed that he had been, unknown to me, reading the Reddit group r/WallStreetBets.

That same group in the past week ignited the insane escalation of GameStop‘s share price, costing hedge funds nearly $30 billion in short-sale squeezes.

It’s also led to a flood of commentary about the morality of the stock market, speculation and short-selling, as well as to saber-rattling by lawmakers across the political spectrum, from progressive Rep. Alexandria Ocasio-Cortez, D-N.Y., to conservative Texas GOP Sen. Ted Cruz.

And some r/WallStreetBets users also were touting the virtues of buying dogecoin, with the hopes of riding a similar big wave of price increases.

I laughed at my son.

But he kept pushing me to let him buy some dogecoin. And kept on mentioning Elon Musk.

I had him look at a chart of cryptocurrency price history since 2013, which showed stomach-churning drops that followed bubbles in that investment sector.

«It’s just $10,» he insisted.

I shoved a book in his hand, «Blue Chip Kids,» a basic, but excellent explanation of how markets and financial instruments work. The book’s author, David Bianchi, wrote it after setting out to teach his own 13-year-old son about money.

My own son quickly set that book down on the couch.

I then showed him another book, «Extraordinary Popular Delusions and the Madness of Crowds.»

Since its publication in 1841, Charles Mackay’s account of the Mississippi Scheme, the South Sea Bubble and the Dutch tulip craze has been the gold standard for understanding why financial bubbles happen and how they invariably end very, very, very badly for investors when they pop.

My son didn’t even pretend to read the summary on the book’s back cover.

I’m not surprised.

Kids and adults — particularly adults — are hard to reason with when they are swept up in the excitement of the idea of a quick, easy financial return or some other mania.

I was a kid — well, in my early 20s — the last time I fell prey to that kind of excitement. In the intervening years, I’ve certainly missed out on a chance for some big monetary gains. But I’ve also avoided crushing losses.

That’s likely due to my dad.

When I was a kid, my father frequently lectured me and my sisters — and our mom — about money and investments.

He also told us about how his own grandfather, who had been a wealthy veterinarian, lost a whole lot of money in the same 1929 crash that Joe Kennedy had managed to duck.

And he repeated a mantra that resounds in my head today: buy and hold mutual funds, don’t buy or sell on hype, invest in tax-deferred vehicles as much as you can, and don’t spend money on frivolous things.

My dad was a police officer who went out on disability because of an injury he suffered after years on the job. His compensation dropped to half of what his full-time pay had been when he was a cop.

You would not believe how low that amount was, and how it never increased by one penny over more than three decades. Still, he and my mother managed to send three kids to private colleges on what they made.

He did so by paying close attention to money and investment management, spending hours reading financial and tax publications.

My father’s attention to finance likely stemmed from the example of his own father. My grandfather lived a modest life after his own father got hammered in the 1929 crash. But my grandfather also managed to invest well and to leave his son, my father, a decent amount of money to grow on.

For a long time I did not hear, or even attempt to listen to, my dad’s mantra about investments.

In the late 1980s, I made my first stock purchase ever: in a local bank where I had opened my first savings account.

I spent $500 on 100 shares of that bank.

The bank, like seemingly every other small lender in Connecticut, was dramatically expanding business with real estate loans and trying to set themselves up as attractive takeover candidate for what was expected to be a wide-spread consolidation of banks in the region.

Insiders at those banks, their friends and people like me bought their stocks hoping — and expecting — that there would be a big payoff when they were bought out.

That didn’t happen.

Instead, in the months after I bought the stock, its price drifted lower and lower. Once it got to $1 per share, I’d seen enough and sold my shares for a loss of 80%.

Soon afterward, that bank went bust in what was the first big wave of bank failures in the nation since the Great Depression.

I covered many of those failures as a young reporter. Ever since, I have had a deeply skeptical eye when looking at the predictions of any banker.

My father told me years later that losing my shirt on that bank was the best thing that ever happened to me because it cured me of the idea that I had any talent for stock picking.

My father told me years later that the best thing that ever happened to me was losing my shirt on that bank, because it cured me of the idea that I had any talent for stock picking.

Except for one other small stock purchase in my 20s, I never bought shares of an individual company again.

Instead, I followed my dad’s advice and effectively put my investments on auto-pilot: regular and consistent purchases of mutual fund shares — which I don’t sell — keeping management fees ultra-low and maximizing the use of tax-deferred vehicles such as 401ks and IRAs.

And I never, ever, buy anything that’s hyped.

When my father died, I spoke at his funeral and described how for years as a teen and young man «I did my best to close my ears to his preaching» about money and investing, «before I had an epiphany one night that he had been right.»

«And then I began hectoring my friends about their money management, hearing his words come from my lips,» I added.

This morning, when I sat down to write this article, I heard my son yell from his bedroom.

Dogecoin’s price had shot up. He had missed out on quickly turning his $10 into more than $30 because I had refused to let him buy it.

He then stomped out to my desk to blast me for that.

I’ve got a lot of work to do with him.

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