Shelly and the Man in the Black Suit

I've noticed that many children's books encourage reading. Yet, we should ask whether our youth are learning about the proper concepts given today's economy. With the realities of a new millennium, we must prepare our youngsters for the inevitable world they will be entering...a world of:

• Credit default swaps
• Derivatives
  
• Fraud

And, while a toddler usually does not have access to the resources required to benefit from such things, we should take care to plant a seed early in life. Take, for example, a tale for the young investor...

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Shelly and the Man in the Black Suit

Shelly sold sea shells by the sea shore in the mornings. In the afternoons, Shelly took the money she earned selling shells, and purchased thumb tacks. When she had accumulated enough tacks, about once every month, Shelly threw them onto a nearby bike path and then hid behind a big rock and watched the cyclists ride over them. No one knows why she did this, she just did, and she was very good at never getting caught.

One time a man in a black suit approached Shelly on the beach. He said:

"I'll take 100 shells please."

Shelly was exhilarated. No one had ever purchased so many shells at once. After he paid her, he lifted his sunglasses and said:

"This is a tidy profit...enough for enjoyable evening, am I right?"

Shelly smiled brightly and nodded, lost for words.

Indeed, that evening, Shelly threw the tacks onto the bike path and hid behind her rock. Sure enough, after a few minutes, a bicyclist rode over them and the tacks blew out both of his tires. Shelly smiled. She heard the man say something like: "hm, the tacks usually aren't here until Saturday."

Then, as the man began patching his tire, Shelly noticed something far off in the distance. Peeking over her rock, she saw hundreds of bicycles storming toward her. The remote bike path somehow became a major thoroughfare. Shelly ducked behind her rock and waited in anticipation. This would be a fine display.

Despite the silly man's yelling and arm-waving, the stampede of bicycles rode directly over the massive bed of tacks. The sight was incredible. There were arms and legs flying all over the place and wheels rolled and bounced all the way down to the water's edge. Before long the path could not even be seen beneath the large pile of handle bars, frames, pedals, helmets, water bottles, and cyclists. It was a veritable bonanza for Shelly, who was accustomed to a catch of not more than one or two cyclists a night.

After the police cars, fire trucks, and ambulances finally left, Shelly emerged from behind her rock and enjoyed the most pleasant summer rest she had ever had.

The next morning, Shelly sat on the beach with her shells as she always did. She was delighted to see the man in the black suit approach her shell stand. This time, he purchased 200 shells! He said:

"Did you spend yesterday's profit wisely?"

Shelly smiled broadly and responded: "More so than I ever could have expected."

"Well good." The man lifted his sunglasses. "I hope this one suits you just as well."

That afternoon Shelly purchased a large bag of tacks...more than she had ever seen at one time. Then, she stood on her rock to get a good view. Sure enough, way off in the distance she saw the herd. This time, there were thousands. She poured the bag onto the path and hid behind her rock, beaming with anticipation and excitement.

Shelly never had to worry about acquiring money for however-many tacks she needed until she was sentenced to prison for life. The man in the black suit lived happily ever after.
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The sensible investor knows that Shelly is an integral risk minimizer while investing in credit default swaps, but especially, the sensible future investor.