A portfolio without sector diversity is like a cup of hot chocolate without a marshmallow.–Callie Sundin, Morristown fifth-grader
Who needs a financial planner? Just bring your cash to Morristown’s Thomas Jefferson School and let fifth-grader Callie Sundin invest it for you.
At a school assembly on Friday, Callie learned that her essay about dividend investing (see below) won a statewide contest called InvestWrite, sponsored by the Securities Industry and Financial Markets Association Foundation. She won $100 and a trophy almost as tall as she is.
“I’m going to put it in my savings account,” Callie said of the prize money. “I will do something good with it when I grow up. Maybe put it to buying a house.”
Her winning description of PE Ratios and Beta values continues a tradition started in 2008 by another TJ fifth-grader, Caroline Hersh, whose essay comparing the bottom lines of apparel labels Ann Taylor and Abercrombie and Fitch won a top prize.
Both girls were part of teacher Jeff Brown’s QUEST program for gifted and talented students.
“He pushes them to keep going and keep reaching… We couldn’t ask for anything more,” said Callie’s mom, Betsy Sundin. She works as a consultant for Johnson & Johnson and her husband Glen is a sales manager.
Glen said Callie thought investments were boring on the first day of class. But then students started playing the Stock Market Game, in which they invest a make-believe $100,000.
“When we traded the stocks, it was really interesting,” said Callie, presently ranked as the state’s No. 1 skier in her age group.
“She bashes every gate” in the Slalom, said her mother, adding that Callie gives “400 percent” to everything, from lacrosse to organizing a drawer to shoveling the driveway.
“She’s just one of those kids that gets it. But she’s completely humble about it,” said her teacher, Jeff Brown.
Callie spent an entire class helping another student with his PowerPoint presentation, he said. “The first words out of her mouth every day are, ‘Can I help you?’ You will read about her one day.”
Normally, Callie would insist on wearing shorts and sneakers to school for her Friday gym class. Her mom, knowing about the surprise announcement, did not want her daughter dressed that way for the award ceremony. So she asked Callie to dress for an after-school dinner to celebrate her 11th birthday.
The ruse worked; Callie did not suspect a thing until Nancy Kahn from SIFMA started describing the winning entry from the stage.
“I couldn’t believe it. I’m really excited,” said Callie, whose sister Mackenzie attends the Frelinghuysen Middle School.
Nancy said Callie’s essay edged out 20 finalists state-wide. Now more than ever, Nancy said, “kids have to learn at an early age to manage money.”
Judging from Callie’s essay, one senses she is on her way:
Always remember what the famous investor Warren Buffet said, “Wide diversification is only required when investors do not understand what they are doing.”
Callie will become the fourth generation from her mom’s family (the Mitchells) to graduate from Morristown High School, in 2018.
That is, if she doesn’t skip high school and go straight to Wall Street.
CALLIE SUNDIN’S WINNING ESSAY:
Gains Exceed Your Losses
In 1792, or 300 years after Christopher Columbus discovered America, the first five securities were traded in New York City. Two of those were bank stocks while the other three were government bonds. Ever since that day, stocks have been traded in different countries and continents all around the world. Currently there are over 3,620 companies listed on the New York Stock Exchange. With so many different companies to choose from, how in the world can investors choose the best one? To complicate matters, that does not include the 5,000 other companies in the NASDAQ and the American Stock Exchange. The key to a well-balanced portfolio is to buy a variety of dividend yielding stocks, invest in companies in the different sectors, and balance levels of risk.
Cha Ching! That is the sound an investor hears right after a dividend payment from Walt Disney is deposited into their account. Dividend yields are a great way to show lots of diversity in an investor’s portfolio. If an investor were to hold a company’s stock for a certain period of time, they are “rewarded” by the company in the form of a dividend payment. Even if the stock that an investor invested in is down for a whole month, the company is still paying money to the investor. Lots of investors invest in companies that offer dividends because they are guaranteed to get paid. With this increase, investors can reinvest their profits into the same company or a different one. Dividend payments are a great way for all investors to increase their portfolio values.
Diversity through sectors is definitely the most important strategy an investor can use in order to have a diversified portfolio. A portfolio without sector diversity is like a cup of hot chocolate without a marshmallow. In all, every publicly traded company is divided into one of the twelve major sectors depending on the type of business or service provided. Within each sector, companies are further separated into industries. According to morningstar.com, the best performing sector is the consumer goods sector with a 31% gain, while the biggest laggard is the utility sector with a 1% gain. It is best for an investor to purchase stocks that are in different sectors because if an investor invests in stocks that are all in the same sector and that sector, or industry is down 2% for the day, he/she is likely to lose money. To avoid such an experience, an investor must purchase stocks that are in different sectors to balance the losses in one sector with gains from another sector. For an investor to truly state that they have a diversified portfolio, he/she must have used sector diversity.
Before looking for a new stock to invest in, conservative or aggressive, is one of the many questions that investors ask themselves. Investors answer this question depending on what they are trying to make money for and when the money is needed. Perhaps an investor is 35 and saving up for her child’s college fund that she will need in ten years. She might want to target stocks with a beta volatility reading of around 2. Beta volatility readings can give any investor an idea about the volatility for a particular stock. Investors can also use PE Ratios (PE) to help manage risk. Varying PEs within a portfolio is a really smart choice to make.
It’s a real tough decision that every investor has made and will have to make into the future. However, using dividend yields, sector diversity, and risk indicators can make the process easier. Always remember what the famous investor Warren Buffet said, “Wide diversification is only required when investors do not understand what they are doing.” Dividend yields are such a fantastic way to reinvest in stocks and earn money just by holding a company’s stock. In sector diversity, an investor should never buy two stocks in the same sector unless the sector is doing great. By using risk indicators, an investor can purchase a stock that will give them the money they need by the time they need it. Many investors are determined to find the perfect stock, but for now let’s keep this puzzle a mystery.