students perform the necessary due diligence. The students are encouraged to research companies they are familiar with. At the formal meetings, Baker provides the kids with analyst reports on the stocks. Based on the research–and what the students already know about the companies–the team members are asked to defend stocks. This includes breaking down why they think the company will do well, calculating the price-to-earnings ratio and the earnings growth rate, examining the company’s competition, and determining what risks would be associated with investing in each company. To help the kids learn these concepts, the board members relate them to what the youngsters know best: basketball.
At the most recent meeting, Neverson explained price-to-earnings ratio using the salaries of two pro ballplayers, Michael Redd of the Milwaukee Bucks and Dwyane Wade of the Miami Heat. “[In 2006] Redd scored 1,416 points and Wade scored 1,397,â€ said Neverson. “If you divide their salary [adjusted for the number of games each played] by the total points they scored, Redd is at $6,053 [per point] and Wade is at $1,710. So, basically, this is saying that Michael Redd is earning a lot more relative to Dwyane Wade. Is that fair?â€ Some of the students say yes, while others say no.
“The point is that Wade is a much cheaper player to have on the Team because not only are you paying less, but he adds the same value to the team. As an investor, you want to make sure you’re getting value for your stocks.â€ Henske of the Money-Smart Kids program says, “You’ve got to be able to relate this stuff to things that kids get, and if basketball is what these kids understand, then I can’t think of a better way to teach them about money.â€ Baker also created a glossary of terms he dubbed “shockismsâ€ that help make investing relatable to students. The terms have triple meanings–one in business, one on the court, and one in the real world. For example, in business, a “mulletâ€ is a person who consistently makes bad investments. On the court, it is someone who always tries to do what he is incapable of. In the real world, it’s “a dumb fishâ€ that lies on the bottom of the ocean waiting to eat fish that swim into its open mouth. Peter Bielagus, a financial coach for young people, says the idea of “shockismsâ€ is terrific.
“Parents and teachers often start out with what kids should do, when they should be starting out with what kids will do,â€ says Bielagus. “Do they love finance? Mmm, not really. But they do love basketball, so they will understand basketball, and they will understand terms that are like basketball terms.â€ Out of the four basketball teams he’s played on, Demetrie Martelly says the Shock Exchange is his favorite. “It’s pretty interesting,â€ says the 14-year-old, who was adamant about investing in clothing designer Prada at a previous investment meeting.”Coach Baker introduced me to stocks and investing and I really got into it.â€