Fantasy Stock Investing

This is a guest post by Robert, who lives in Calgary and works as a financial advisor retired at 34. He is married, has three kids.  Robert and his wife then plan to return to school and become teachers, eventually living and working overseas.

I just found out that Junior Achievement leads half-day classroom instruction to teach young people financial literacy in school. I volunteered to participate, and I learned that for grades 9 and 10, they run an Investment Strategies Program. I asked to hear more about the program, while I was in their offices for training.

The woman from JA told us a bit more about the investment simulation. It is six weeks long, and it begins with a financial professional teaching the students about investing. After that, they have access to real time stock market information, they have the ability to place fantasy trades with $100,000 (and up to $50,000 margin), and they have six weeks to try and win.

Apparently, the JA staff are running the competition amongst themselves currently. Our trainer had started out doing well, but the market has turned south. They can’t see each other’s portfolios during the competition, but they will compare and contrast at the end of the contest period. That aspect would be a part of the formal teaching in the schools. She was able to tell us what strategy the woman who is currently in first place has followed: she has neglected her account and allowed it to sit in cash, collecting 2.5% interest. (I’m not sure where they’ve found an interest rate that high for a period of just six weeks.)

As we looked through her account, it was obvious that she hadn’t followed any particular strategy. The stock market data they had access to comprised the NYSE and the Nasdaq. She had opted for mostly Canadian companies and other familiar names, choosing mostly oil & gas producers and big banks. I was particularly interested in how she decided to split the money between the 25-30 companies she owned. Basically, she just bought 100 or 200 shares of each name, regardless of price. Her biggest regret was RIM, which had fallen from $17.25 to $16.50. One of the other attendees consoled her, explaining that she had paid $72 for RIM, using real money.

There are two main problems with encouraging young people to play the fantasy stock market in this way. First, they need to understand what stocks are, why people buy them and, most importantly, what various strategies work. Second, a period of six weeks is far too short to be able to draw useful conclusions from the experience. This is my main criticism. Stock movements over periods of less than 3 – 5 years tend to simply reflect the overall movement of the market. After three years (sometime longer), the market value of a stock can be expected to better reflect its intrinsic value.

I don’t mean to discourage teaching financial and investment knowledge to young people. I will certainly take my feedback to those responsible for the program. But the comments are valid for many people who are just starting to invest, and who may decide, after a bad experience of a few weeks or a couple months, that investing is just not for them.

When have you decided to call it quits after a short period? Have you ever been rewarded for patience through market ups and downs?

7 thoughts on “Fantasy Stock Investing”

  1. I would be worried that the students who get big gains over the six weeks would then think that they can continue to get big gains with real money. It is like another form of gambling but since you are “investing” and not playing poker or VLT’s you may not realize this.

  2. When your wife and I were in elementary school (grade 7 or 8) our class did a junior achievement program. (I am the earlier commenter who went to school with your wife!) We did mock trading of stocks and she and I came out the most ahead at the end of the time frame. Our prize was a ticket to the Blue Jays game each. 🙂
    Stock market investing is not something I have ever done as an adult.

  3. Back in 1964 we did something similar at school at the age of about 13-14. It gave me a slight interest in the stock market that none of our family ever knew about or had. I did realise doing it that one could lose as well as gain.

    I have done extensive trading options on index futures with no consistent positive results so gave up on it. I have had more success with a few trades on shares but my risk management strategies stopped me again. If I was going to enter the market again it would be to provide me with a cash flow from dividends on solid stocks.

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