Cashtoons

Boomer's Bubblegum Ice Cream Stand

December 20, 2020

True or False?

It is okay if you don’t really understand what investing is or what investments you are buying. You can just hire professionals to know all that stuff. For you, investing is like magic… Alacazam! and this:

magic money

Becomes this:

more magic money

False.

not magic

Picture waiting out a Wisconsin winter. The field across your road has turned into an ice rink using only a hose and Mother Nature’s wintery weather. Snow drifts billow ever higher on the sides of the street as plows moan and scrape.

You are forcing your arm into your fifth layer of clothing when your friend calls up and tells you about a vacation playground where 60-degree weather is cold and people sport sandals all year round. What’s more, this undiscovered slice of heaven is going for next to nothing. Unfortunately, everyone and their mother wants to get some of this prized real estate. This is your chance! This time next year, you could spend your holidays in a place where the sun is hot and the drinks are cold, stacking your presents under the sway of a glittering palm tree and basking in the balmy glow of the evening sun. Act now or miss out!

paradise

What do you do? It’s a no-brainer! Buy that land while you still can! Right? Well, that’s what a lot of people did during the 1920s, prior to the Great Depression. From all corners of the United States, people clamored to buy land in undeveloped parts of Florida. From their homes in Michigan, North Dakota, New York and so many other states, Americans looked out onto frosty landscapes and dreamt of a tropical paradise. It seemed that everyone was rushing to purchase what they imagined to be a haven of golden sands and sparkling waters sight unseen. Word spread. The price of the land went up as more and more people wanted to buy it.

“Prices for bare plots of land were doubling and tripling, seemingly overnight… Land sales caused small riots where crowds literally threw checks at the developers — in such numbers that they had to be collected in barrels.” Bubble in the Sun: The Florida Boom of the 1920s and How It Brought on the Great Depression

Later when that sight was seen, buyers realized that their vacation get-away was actually a swamp, perfect for alligators and insects but not particularly appealing to anyone capable of paying to recoup the price of the purchase.

swamp

This ruined a lot of people’s savings and helped bring on the Great Depression. A time when a lot of people lost much of their money, and many ended up out of work. If you want to know more about this difficult time I recommend What Was the Great Depression?

The lesson here?

You want to know what you are buying. This goes for any kind of investing. The better you understand what you are buying, the better the chances that you won’t chalk it up to mumbo jumbo, bippity boppity boo that will make you rich in the end… somehow.

Let’s get a good look at a common way to have your money work for you: buying stock

Buying stock means you are buying a piece of a company.

We can picture buying a piece of pizza.

pizza

Or a piece of candy.

candy

But… what does it mean to buy a piece of a company?

Maybe Boomer can help us out here:

ice cream stand

Two years ago, Boomer perfected his bubblegum ice cream recipe! He decided to start his own business. Using the birthday money he had saved, Boomer bought a used ice cream cart and all his secret ingredients. He hooked the chain of his bike up to an ice cream churn. Instead of riding around the block, he road his way to an amazing scoop of ice cream. After 2 years of getting the word out and long summer days in the park, the whole neighborhood now turns out to celebrate the beginning of summer with Boomer’s ice cream. He will even get a booth at the fair this year.

standing in line

You buy a share of stock in Boomer’s Ice Cream Stand. What do you own? Well, there are the things you can see, like the refrigerated cart that holds the ice cream or the pile of ingredients in Boomer’s fridge. Even boomer’s bike which he uses to churn the ice cream. Do you own one of the wheels on his bike? How about some of the sugar used to make the ice cream? Oh, even better, does Boomer have to tell you his secret recipe?

The short answer is, no. You will not be able to make Boomer’s ice cream at your house. You cannot take parts of his bike. If everyone decides to give up ice cream tomorrow and Boomer goes out of business, you will probably not be first in line to get the refrigerated cart or any other equipment owned by the business.

handing money

All those excited ice cream lovers in line are ready to hand over their money for a scoop of bubblegum goodness. If you own stock in Boomer’s stand, some of that cash is yours. You don’t get the money directly from the customers. The more ice cream people buy, the more money the business has. The more money the business has, the more your piece of the business is worth. We will take a little break from visiting Boomer for our holiday posts, but we will come back to see Boomer again in the new year.

Sources

sources

What Was the Great Depression? Paperback – Illustrated, December 22, 2015

I read this book with my son when he was about seven years old. He enjoyed it a lot, and I learned something too. I recommend this series, though parents should keep in mind that this is nonfiction. There are no graphic photos, but these books report true events which don’t always show the best of humanity. You may want to peruse the books before giving them to your kids depending on their age.

I found the excerpt that I used here from a section of this book, Bubble in the Sun: The Florida Boom of the 1920s and How It Brought on the Great Depression, posted by MarketPlace, where economists are storytellers and learning more about money is painless and even fun. This one is not intended for kids, but they might like it depending on their age and interests.

https://www.marketplace.org/2020/01/17/what-if-florida-caused-the-great-depression/


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