17: The Magic of Compounding

My father taught me about investing from a very young age so that I could understand and participate in the magic of compounding. In today’s episode, I am sharing how we can teach our kids and the next generation about finance by exposing them to the subject and getting them started early. Listen in as I share some of my own childhood stories, the journey to educating my own children about investing, and why you should take your children to the Berkshire Hathaway AGM.

Investing the Templeton Way with Lauren Templeton is a podcast that explores the world’s most intriguing investment topics from the overseas markets to mastering our own minds. Gather investment wisdom and educate yourself as you listen to interviews with exclusive managers, executives, and entrepreneurs on a wide range of engaging topics.

Investing at a Young Age

When I was a young girl, my father got me started in investing. When I purchased a stock, he would hang the stock certificate on the walls of my bedroom. This highly influenced my view on the stock market as a place to buy and own fractional shares of businesses versus trading pieces of paper or today, digits on a screen.

Now as a mom of two girls, I am constantly thinking about how to involve them with investing and the qualities that come with financial literacy. These qualities include saving, thrift, delayed gratification, and more.

As I think back to what my own father taught me, I am reminded of how often he talked about the magic of compounding and the stories he shared.

The Ugly Christmas Tree

One lesson that stands out relates to Christmas. As a child, I always wanted a really beautiful Christmas tree—as opposed to the tree we would traditionally cut down in the woods at my aunt’s house. I obsessed how the tree we brought home was not beautiful like the full and symmetrical trees we drove by on the lots around town.

One year, my father gave in to my pleas. He took me to a Christmas tree farm and told me that I could pick any tree I wanted. I picked out and proudly showed him the perfect Christmas tree, but then he offered me a deal. He would either buy that pricey tree for me or he would give me the same amount of money to invest in the Templeton Growth Fund, which was compounding at around 15%. He then shared how to calculate the amount of money the fund would offer if I held it there until I was 65. Astounded by the amount of money that could follow, I took the investment!

He continued to provide this scenario with nearly every purchase I wanted to make as a kid. I have taken the same casual and frequent approach with my own children. Whenever we shop or travel I speak to them about the companies we see and ask them what like about the business and whether it is very profitable. When they become interested in a company, I also encourage them to buy a share and assist them with the purchase.

Take the Kids to Omaha

One way that I’m ensuring that my children are exposed to investing and can understand the magic of compounding is by taking them to the Berkshire Hathaway AGM in Omaha. I wrote a piece about taking kids to Omaha last year, but as we approach the event this year, I wanted to encourage you if you’re on the fence.

Over 40,000 investors in Berkshire Hathaway from all over the world gather in Omaha to attend the Berkshire Hathaway AGM. Alongside the event, other events and meetings take place that are also interesting.

My oldest daughter went for the first time at 6 weeks old (something I don’t recommend). My husband and I had just released our book, Investing the Templeton Way. We were invited to join for a book signing, so it was hard to say no. Over the years, both of my girls have been to the Berkshire Hathaway AGM, and when asked about attending this year, both of them wanted to return!

The Benefit of Taking Your Kids to Berkshire Hathaway AGM

Now when you take your kids to the Berkshire Hathaway AGM, you have to be reasonable about what your kids can tolerate. After doing this for a few years, I want to share what I have found to work best. We typically fly in on Thursday and the first thing I do on Friday is go to admissions to pick up our passes (you can get them mailed ahead of time if you prefer).

Once registered, I take the girls to walk the convention center, which is our favorite part. Some of the companies that Berkshire Hathaway owns with shops or displays in the convention center, incude:

Dairy Queen
See’s Candies
Justin’s Brands
Brook’s Sports
Net Jets
Geico
BNSF Railway
Fruit of the Loom
Clayton Homes

The fund dynamic for kids (and adults) in the convention center is the opportunity to talk about the businesses, and let them engage with products and displays, and of course, enjoy some candy or a Dilly Bar while walking the floor.

Saturday is the big event. With 40,000 people attending, it is crowded; so you will find professional investors and shareholders including Mohnish Pabrai and Guy Spier lining up at 4:30AM to get a seat on the floor. That would probably not work for kids. Fortunately, because of the big screens, there is not a bad seat in the house. If you are only attending a portion of the meeting with your kids, make it the morning portion because it is more entertaining for them. If you are looking to keep your kids entertained during the business discussions or Q&A, a tablet could help.

Additionally, there is also a great children’s book titled, The Oracles Fables: Lessons for Children Inspired by Warren Buffett, by John Prescott and Tom Kerr. They are typically there signing copies of their book. A few lessons highlighted in the book include:

Price is what you pay, value is what you get.
Never risk what you have and need for what you don't have and don't need.
The best thing is to learn from the other guy’s mistake.
The most important thing to do when you find yourself in a hole is to stop digging.
Pick out associates whose behavior is better than yours and you'll drift in that direction.
Be fearful when others are greedy and greedy when others are fearful.
It takes 20 years to build a reputation and five minutes to ruin it. If you think about that you'll do things differently.
Forecasts may tell you a great deal about the forecaster; they tell you nothing about the future.
Risk comes from not knowing what you're doing.
Don't pass up something that's attractive today because you think you will find something way more attractive tomorrow.
Someone sitting in the shade today because someone planted a tree a long time ago.
If you're in the luckiest 1% of humanity, you owe it to the rest of humanity to think about the other 99%.

These are great lessons for kids, delivered through the vehicle of Berkshire Hathaway.

For lunch, we typically leave to have a box lunch in the convention center.

Financial Literacy Concepts to Teach Your Young Kids

When it comes to teaching your children about financial literacy, there are a few concepts that are important and should be considered:

Compounding
Opportunity Cost
Delayed Gratification (Patience)
Thrift
Saving
Frugality

One benefit of the Berkshire Hathaway AGM is the straight-forward communication style of Warren Buffett and Charlie Munger. It is easy enough to follow that even children can engage. Financial literacy is important for children, and any time they can consume valuable lessons with relative ease, it is a benefit.

To help you plan your trip, I will leave you with some of the things we have enjoyed or heard rave reviews on in Omaha on our trips as a family: