The class was economics. It was one of those classes where many people used to catch up on sleep because the concepts being taught were completely foreign to anything they had ever learned before. While I was not the most interested in economics, the class was completely worth it because for the last 15 minutes of class, we all got to go down to the computer lab and pretend we were real investors with our portfolio of stocks. Learning a company’s ticker symbol, trying to fathom what it meant if a company had market cap of $30 billion, and becoming lost in the meaning of a P/E ratio were a few of the experiences I faced in that computer lab.
After several weeks, my team’s portfolio was doing great. It was one of the top teams in the state even. I was gaining confidence in my abilities to pick winning stocks (also known as luck) and I wanted to invest some real money. I came across this company called Superconductor Technologies (SCON) (probably from googling “hot stocks”) and I learned that it would soon enter the Chinese market and I probably thought “there are billions of people in China. How can it not do well?” I convinced my Dad to let me buy some actual stock in the company, so I took $100 and bought 10 shares in Superconductor Technologies. Finally I’m a real investor!
But then disaster struck. This is the stock chart of the S&P 500 over the life of game.
As you can imagine, my portfolio (along with everyone else's) in the “The Stock Market Game” soon tanked. For many, that was the end of investing. It was just a game and the game was over. If that was a person’s first exposure to investing, I imagine people took one of three routes after that: 1) They saw how the market dropped substantially and will be scared to invest any money when they have real money to invest, 2) They learned a little bit about what “investing” was about and when they have real money to invest, they will become traders, constantly buying and selling stocks because that was their only exposure to "investing", or 3) The game will intrigue them and they will want to learn more about the markets and investing. I took route 3. I’m sure I was in the small minority.
Let me just say that if “The Stock Market Game” was a person’s only exposure to the stock market and they have journeyed down routes one or two, then it’s an absolute travesty. Let's discuss the pros and cons of this game:
Pros:
1. Exposure to the stock market, different companies and important market terms - if there is any point of this game, this should be it. People need to know the basic building blocks before they even think about investing.
Cons:
1. It teaches investing the exact opposite of how it should be taught - this game encourages high risk trading over a very short period of time. A team gets rewarded if they are one of the top performing teams in the area and state. However, there is no penalty if you lose every dime you invest. What is that teaching people? Investing is not an activity stretched over a few months. It's an endeavour stretched over several decades. How a portfolio performs over a two month span is essentially meaningless in the grand scheme of things. Investing education needs to focus on having a long-term approach. There is no room for a high-risk, high-reward gambling game in this education.
2. Each team is given too much cash to invest - the great majority of people do not start investing when they have $1 million or even $100,000. Most probably start investing a few $100. Wouldn't it be better if kids were taught where and how they could start investing a few hundred dollars? Granted imagining you have hundreds of dollars to invest isn't as fun as imagining yourself with a millions dollars but this should be about realistic investing and not some fantasy game.
Obviously I think the cons outway the pros. I'm not sure how a teacher who understands the basic of investing could endorse this game. Oh did I mention that wall street endorses a lot of the stock market games that I've seen? Well of course they do! It means grooming young investors to become naive investors which puts more money in the hands of the big banks.
So to wrap things up, the stock market game that is played in schools all over the country is not a good learning tool. It is actually doing the opposite by teaching kids how to gamble with their money through high-risk, high-reward trading. If a teacher really wants to teach kids about investing they should focus on indexing, diversification, and compound interest. A teacher should encourage their students to read essays/books/speeches by Warren Buffet and John Bogle. These teaching will create the true building blocks for a life of investing.
