Are You a Better Investor Than This 5th Grader?
In elementary schools across the U.S., there is no better stock picker than 11-year-old Rachel Kelly, according to the educational non-profit SIFMA Foundation, which runs a national stock picking contest.
Kelly was told for the first time that she was a national winner live Friday on CNBC's "Squawk on the Street."
Every year since 1977, SIFMA has conducted a nationwide competition called the "Stock Market Game," where U.S. students compete to generate the highest returns in a hypothetical $100,000 portfolio. In 2012, it is estimated that 600,000 students from 4th through 12th grades participated.
At the end of the game, students are encouraged to enter into the supplementary "InvestWrite Challenge," an essay competition. For InvestWrite, students choose the publicly traded company that they deem to be the best long-term investment and explain why.
Rachel's essay was selected from a pool of 20,000 applicants as the best in her group, as decided by a panel of teachers and professional investors.
Kelly's pick: Japanese-based Honda Motor. She was inspired to do so after finding out that her family's Acura was produced by a subsidiary of the firm. After learning this, she explained, "I wanted to choose a company that was well known. I thought about products that I see every day — and cars came to my mind. Honda is a good investment. The stock price has risen over the past 25 years and it is a diversified company."
Arguing in her essay that Honda's diversification makes the company a "safer investment," Kelly also noted that the company is well positioned for rising gas prices and has a culture of innovation, including its work in the robotics space.
In the competition, students analyze economic events and trends, conduct research, and develop investment recommendations, a process SIFMA hopes will increase and encourage financial literacy.
"InvestWrite and the Stock Market Game program require students like Rachel to monitor daily global market activity, business trends, and economic factors that drive investments to determine the growth potential of industries, companies, asset classes, and specific stocks, bonds, and mutual funds," said Melanie Mortimer, executive director of the SIFMA Foundation. "They are asked to make sophisticated, thoughtful recommendations that reflect what is expected of college and career-ready students."
Here is the full text from Kelly's winning essay:
Honda Motor Company is the number one manufacturer of motorcycles in the world and the fifth largest manufacturer of automobiles behind Toyota, Volkswagen, General Motors, and Hyundai.
Honda (HMC) is in the auto manufacturers industry. They sell automobiles, powersports, jets/planes, engines, lawnmowers, pumps, tillers, trimmers, snow blowers, generators, motors for boats, and racing cars. Honda's competitors are Toyota Motor Co. (TM), Nissan Motor Co. (NSANY), and Suzuki Motor Corporation.
Honda is a blue chip company and is a good long-term investment because its stock price gradually and consistently rose over the last 25 years. Other reasons to invest in Honda would be because the company continues to release new types of products such as robots and electric cars and adds to the diversity of its product lines.
Honda created a robot called the ASIMO which stands for Advanced Step in Innovative Mobility. The ASIMO robot was created to assist people. The current robot model can walk, run, dance, turn, reach and grasp objects, carry a tray, push a cart, and even climb stairs and uneven terrain. The ASIMO is also programmed to comprehend and respond to a limited number of commands. In addition, the robot can recognize the faces of a group of individuals. In the future, Honda plans to create a new ASIMO robot to help people in need as well as the elderly.
In response to the world's need to conserve our natural resources, Honda is now selling electric cars. From 1919 to around 2000, gas prices increased from $0.25 to $1.50 on average. During the last 12 years, gas prices have doubled and have even reached prices up to $4 and $5. Based on this, gas prices will most likely keep increasing. Honda manufactures a completely electric car called the Fit EV. When people start realizing that gas prices will most likely keep going up, they will want to start buying electric cars instead of gas (regular) cars. Plus, electric cars are environmentally friendly because the electric cars do not give out exhaust like gas cars do.
The final reason Honda is a good long-term investment is because Honda is a diversified company. They have lots of products which makes it a safer investment. If one of their divisions is not doing so well, it won't significantly affect the overall company sales. Having a variety of product lines creates more ways for the company to make a profit and to be successful, which investors like.
An event that adversely affected Honda's stock price was when an earthquake and a tsunami hit Japan on March 11, 2011. It was the fifth largest in the world since they started tracking information in 1900 and the biggest in Japan in 140 years. Parts of Japan flooded and many households in northeastern Japan were left without electricity and water. On March 14, 2011, Honda suspended their production because the tsunami knocked out power and damaged Honda's manufacturing plants. The stock price dropped from $38.17 to $34.25. Due to a quick response by Honda's employees, operations were only down a brief period of time.
In conclusion, I have learned three things from playing the Stock Market Game. First, I have a deeper knowledge about Honda because I researched the company daily to find the latest news that might affect the company and its stock price. The thing I found most interesting about Honda was the ASIMO robot because I like mechanical things. In the future, the ASIMO robot will be made to help the elderly and people in need. I like this because when there is a chance to help people, I like to help them. Second, I now have a basic understanding of how the stock market works. This will help me in the future to be more prepared when I have to invest money when I have a job. Third, I have also learned that natural disasters can have an impact on companies. For example, I learned how Honda was affected by the earthquake and tsunami in Japan and how the company recovered. Overall, I am glad that I participated in playing the Stock Market Game because I have learned so much and I have had a great experience.