In which #1 is irritated by DC1’s public school teaching the “stock market game”

DC1 is in Gifted and Talented Pullout this year, and one of the things that they do is participate in a competition called the Stock Market Game.

As an economist and someone with a personal hobby interest in personal finance, the stock market game irritates me SO MUCH.  The criteria for winning is to be the team that has made the most money picking hypothetical stocks after a set time period.

The way to win this game is to be in the extreme tail of the normal distribution.  Of course, that’s also how to get the lowest score.  Essentially, the game rewards risk-taking, punishes diversification and fails to punish losing gambles.  Since it is a winner-take-all game, there’s no benefit to going for a middle-of-the-road strategy.  You’re going to lose just as hard in the middle of the pack as you would taking enormous chances and being the lowest ranked team.  So you might as well gamble and hope for that upside.

Of course, with real investing there are real losses to taking on risk and losing.  This game equates being the second highest scoring team (or really, the fourth highest scoring team) with being the lowest scoring team.  Anybody who aims for the more sure middle is going to lose because some other teams took risks.

Also, there’s a reason that real stock market investing is a long-term game, not a short-term one.  Games that praise short-term gains and ignore the long-term may even discourage investing because they show the market to be much more volatile than it actually is over a long time horizon.  Of course, that may be better than kids growing up to invest their retirement assets in the extremely risky portfolios that have the likeliest chance of winning this kind of game.

I’m not the first person to complain about this stupid school-sponsored game.  Here’s confessions of a stock market game winner.  Here’s someone at the WSJ complaining about how it teaches exactly the wrong lessons.

(And, just in case you’re a new reader:  You should invest in low cost broad-based index funds for long-term investing.)

Have you ever played the stock market game?

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45 Responses to “In which #1 is irritated by DC1’s public school teaching the “stock market game””

  1. nicoleandmaggie Says:

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  2. Alison Says:

    Thank you for this; I was just looking at resources to teach preservice teachers about teaching economics. Having them try to design a stock market game with good incentives will be perfect.

    • nicoleandmaggie Says:

      An interesting design question…

      I think it would have to take into account the actual downsides of risky investing and not have a winner-take-all outcome. If you have enough resources, you can give everybody an endowment, so they have something to actually lose.

      Then maybe something could be done by giving people a random 30 year period. Or maybe something more structured where they’re given a certain date, told how long they are investing for, and a choice set based on what was available at the time.

      It’s hard to say. It would be neat to see what people come up with.

      • Rosa Says:

        It would be interesting to just let the kids invest in different ways and then argue for why theirs is the real winner. Give them an idea that some people have intrinsically different risk tolerance, different resources (“my brother’s in the other class and they did an index fund so I knew I could go higher risk because he’ll share with me”), etc. Maybe even let some of them choose a defined benefit pension plan at the beginning.

      • Debbie M Says:

        You’re reminding me of a historical simulation game I played in the eighth grade where we split into four groups that each ran a plantation for a year. (Also too short for proper conclusions.) We chose what crops to grow (cotton, tobacco, indigo, and/or rice, I think) and what kind of labor to use (employees, indentures servants, or slaves). Then they talked about what happened during a real year in the past (with flooding–good for rice–and a slave revolt).

        Maybe they could choose sectors and then choose several different years and see how that would have worked out.

      • Alison Says:

        Thank you all for these ideas. And of course a lot of what I’m trying to teach them is that they are responsible for asking these questions and probing the implications of their activities.

  3. Leigh Says:

    I remember doing this in grade 8 I think? The winning students had picked some penny stocks… :P

  4. anandar Says:

    We did the exact same thing 30+ years ago, you’d have thought there would be improvements in this game by now! I had a rather ditzy group of girls on my team, I guess we thought it was cool to fail to put time or thought into the project, and yet we came in 3rd for our region (we went to an award ceremony of some sort!). Definitely reinforced for me the risks of stock picking– I knew we could just as easily lost it all!

  5. SP Says:

    yes, I “invested” in Barnes and Nobel. The winner of the game invested in penny stocks. I don’t recall learning about index funds at that time.

  6. Taylor Lee @ Yuppie Millennial Says:

    I never did this in school, but my parents had me trading stocks on my own account when I was 13ish. Definitely did not learn best practices (my parents still mostly gamble on the stock market), but did manage to beat S&P the few years I did active trading. Thanks, Chinese telecom.

  7. Revanche @ A Gai Shan Life Says:

    We never did this but I had a friend whose parents had her pick stocks in high school and she picked Apple so that worked out pretty well for her. She does regret selling some of it around 2004, she figures she could have funded a pretty nice dinner at French Laundry if she’d held onto it for ten more years.

    Of course there was my dad who insisted on trying day trading and mostly lost money doing it. That’s not exactly a huge surprise given his track record :/

  8. chacha1 Says:

    I can’t imagine a worse “game” to use, to teach people about economics, than the stock market. Most people behave like gamblers when given the opportunity to pick their own investments, and this just reinforces that type of behavior. Why can’t they assign something like Primero Dinero? My Dad gave me that sometime, maybe my early teens.

  9. Ana Says:

    Yup, I remember doing this, too. And it DID scare me away from investing at all for a long time.

  10. oldmdgirl Says:

    We did this game too in 7th or 8th grade. I think I talked about some similar issues that you bring up with my parents who both worked in finance. I think I picked a diverse portfolio and lost to someone who picked penny stocks. Oh well. I don’t recall being terribly traumatized by the experience, but I do see your point.

  11. ralucacoldea Says:

    I would just show the kids an amount of really good candy at the begining and add/deduct from that based on how their stocks are going. At the end of the game, they get pieces of candy they have remaining. It would have to be good candy though, something that they would mind losing. And I would physically show them how I remove the candy from the losers pile and add it to the winners’ pile. And I would deduct trading costs. One piece of candy per trade :P. Sure it might scare them for life from investing, but at least they would not make costly mistakes latter on. Also, I would keep a pile for myself, where I’ve invested in the low cost index stocks and compare it to their piles at the end.

    • First Gen American Says:

      The candy thing sounds fun except they don’t allow candy or cupcakes or cookies in our schools anymore. Maybe you could substitute homework passes, or actual dollar bills. I like the idea of having something tangible in the end which would temper some of the risk taking.

    • nicoleandmaggie Says:

      Short term fluctuations are irrelevant for long term investing though. People should be putting retirement investments into stocks and bonds.

      • ralucacoldea Says:

        Sure, but if you make this a year-long project, you could at least make sure that they get a decent interval and they get some dividends, experience some fluctuations and just generally get some exposure to the stock market mechanisms.
        For example starting the classes with reading the financial press and see how the headline impact their stocks. And come back 2 months later and see if the changes are still there or if it was just a storm in a teacup. I think that would help more than just telling everyone : “just buy this vanguard index and forget about it”. Having them experience why it’s better to just buy and forget and how fees eat up your candy would make them more educated on the matter.

      • nicoleandmaggie Says:

        the way to do stock investing is to set and forget for a period of at least 5 years, not sure they would get that lesson from any short term experiment. The “winners” would learn that risky investment is good and the “losers” would learn never to touch stocks because you always lose. Neither of those are good lessons.

      • ralucacoldea Says:

        I’m sure there are more ways of doing stock investing than that :).

      • nicoleandmaggie Says:

        Yes, there are lots of ways to gamble. One can also go to Vegas. Also lots of ways to get low returns, like keeping money in a low interest savings account.

        Long term investment is best in a diversified mix of stocks and bonds based on your risk aversion and your length of time investing. Short term investment should stay out of the stock market unless you are risk seeking.

        On average, active traders do worse than the market.

      • Rosa Says:

        ooh! You know, we do have a lot of historical data for the stock market. You could have randomly chosen starting dates and show the effect of the same decision over long periods of time – even different prizes for 1 year, 5 year, 25 year, and 50 year totals. It might also be helpful to have a few NPCs – Mrs. Shoebox Millionaire with the savings bonds, Mr. Rockefeller with the inherited wealth.

        That would give an extra advantage for the smartypants who look up historical events too.

      • nicoleandmaggie Says:

        That would be pretty cool. And you could play the same game multiple times to see how your strategy works over different say, 5 year time periods. (1980-1985 vs. 1930-1935 vs. 1990-1995 etc.)

  12. ralucacoldea Says:

    This absolutely good advice. However, in my opinion, this does not promote understanding how the stock market *works*. How do prices on the market are formed? How do companies return value to investors? Why do they do it? Do they do it?
    Critically thinking about the stock market, teaching students to evaluate an investment opportunity is incredibly important in my oppinion. Sure, Vanguard is a good choice at the moment. But would it be a good choice if their fees would go from 0.25% to 1%?
    Teaching students to focus on the value they’re getting for their invested cash will help them become more aware in their other investment decisions. Like buying a house(for renting or living in it) or accepting part of their compensation in stocks instead of just plain cash.
    Knowing what is the value for which you are paying is not gambling. Is a critical life skill.

    • nicoleandmaggie Says:

      But no short-term stock market game is going to teach those things. Simulated in-class exercises focused on each take-away point might, straight up lecture and problem sets would, but not a year long stock market game. The focus is on the wrong thing and the take-aways will be exactly wrong.

      (Not to mention that details like fees etc. don’t matter if you’ve decided the stock market is too risky to put money into. Or if you’ve decided penny stocks are the only way to go.)

      • ralucacoldea Says:

        I cannot comment on what the take-aways are, since I not in that class and I do not know what the teacher teaches.

        I only know what I will do, if I have a kid I need to teach about money. I have learned economics in highschool with lectures, problem sets and the like. It did not work very well for me for me, or for my colleagues for that matter. Maybe I had a bad teacher or maybe I was a bad student, but I would wager that nothing beats actual experience.

        When your candy gets eaten in fees, you will experience actual pain and risk adversion. That’s when a good teacher can expose the hidden perils of high cost active management and explain about low cost options and why you should take them.
        When the 2 stocks you have chosen both tank at the same time, you will learn about diversification. This can be taught badly or well, but it’s not the problem of the students doing the investment and/or of actual investment, it’s the fault of the teacher.

        I’m guessing you are objecting to the fact that the investing is actually made fun and exciting by a game, when in fact investments should be made with facts over feelings. But the thing is, the people I know who actually make money investing are the ones that enjoy the process. Not in a “Ah, I’ll buy this stock because it’s name sound funny and it’ll be good for a laugh!”, but in the sense that they do enjoy it as an activity. They use math, yes, and value actual cold facts over feeling. But they also enjoy the process of comming up with that math. And they enjoy it, in part, because they understand it and because they have become good at it.

      • nicoleandmaggie Says:

        You could easily teach fees in a single in-class simulation that is focused on the effects of fees. That could be fun and exciting and not provide the wrong take-aways. It could even use candy, though it doesn’t have to.

        The majority of people who do active trading in the stock market fail to match the market. Even without fees they fail to match the market (fees exacerbate the problem). They would be better off doing passive investing and matching the market. Emotions make people make bad decisions in trading. When I get access to the computer and some time I’ll see if I can dig up one of the books that talks about that (with evidence etc.) since I think we’ve talked about it before on the blog. Some of them beat the market, but fewer than half do. Yes, many of them still make money because on average you’re going to make money on the stock market over a long time period, but you make more money on average if you are fully diversified and don’t trade much.

        And yes, that lesson could also be taught in a focused simulation, but it would have to use the market over a long time period, not a year. A simulation could do that. You’d need at least 5 years to use the actual market and that’s a long time spend when students are moving in and out of districts.

  13. Alison Says:

    This has been a very useful discussion. I think I will start by having the students decide what things are most important to teach ABOUT the stock market, and then design short of long term activities to teach each thing.

    • nicoleandmaggie Says:

      That’s a really good idea.

      They may not know themselves — many of my masters students don’t really know much about stock market investing or saving for retirement even if they majored in a related social science in undergrad. A lot of people think investing is harder than it actually is. (Returning students generally have a much better idea than those straight out of undergrad.)

      Here’s a link to that book on investing mistakes people make: http://amzn.to/2hvogb4 But there are plenty of shorter articles available online.

      • Alison Says:

        Thanks! There’s a huge range in the class, but a lot of them are basically starting from nothing (and may then wind up teaching personal finance classes).

      • nicoleandmaggie Says:

        if you’re in a state that has a personal finance requirement, you might be able to piggy-back on their required items (which usually don’t involve understanding fees or long-term vs. short-term investing, sadly, but do often involve understanding compound interest… I’ve been pleasantly surprised with what DC1 has been getting in math class this year– better than what I got in middle school)

      • Alison Says:

        Yeah, they keep changing their mind about whether personal finance is better taught by math or social studies teachers. I’m not trying to cover enough to cover all the required items, but just to look at a few topics in enough depth that they get over their sense that economics is scary math/graphs that make no sense, and begin to see how it links to other subjects they’re more comfortable with. And to teach them to go beyond “I want to teach them about the stock market” as a teaching goal. They have a terrible habit of finding activities that are on the right sort of topic (ie “an engaging activity requiring them to follow the stock market”), and then paying no attention to what the students would learn from the activities.

      • nicoleandmaggie Says:

        DC1’s social studies class is a LOT like that right now. They do lots of activities without clear learning outcomes. They’ve spent the past 3 weeks engaging in “production”– essentially making crafts– to “sell” next week. But they didn’t have any control over inputs and what a long time making crafts… Also they elected a “president” and the “president” got to decide what “jobs” everybody in the class has which seems like teaching about a communist dictatorship to me rather than a society (and might actually work as a society in a class of 20 students rather than an actual country). It’s all very odd.

      • Alison Says:

        Yeah, that’s frustrating and discouraging, but I’m afraid I’m not surprised. With our students (who may or may not be typical) it seems to be a combination of thinking that “learning about production” IS a learning outcome, and a deep-seated belief that they aren’t supposed to tell the students what to think. Which is how they tend to interpret any attempt to make them articulate *what* the students are supposed to learn *about* production— that would be being political, and not letting the students think for themselves. They are deeply discomfited when I tell them they can design a “how does barter work” activity to show how well it works or highlight different types of problems with barter, and that how they design the activity commits them to a point of view.

        We’ve got a team from history, political science, and the college of education working on it, but it’s slow. And it will be a while before we see if this changes how they behave in the classroom.

      • nicoleandmaggie Says:

        Haha, I can definitely see that being what’s going on here. We get that with our MA students too. Fortunately as an economist, I feel really confident about telling them what they have to believe (usually things involving structure, ex. how to do cost-benefit analysis) and what they can allow people to have different opinions on (ex. weights of different costs and benefits).

  14. How to keep a gifted kid challenged | Grumpy Rumblings (of the formerly untenured) Says:

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