Successful investors diversify broadly, avoid unnecessary risk and rarely trade. So why are kids getting rewarded for doing the opposite?

Every year, more than a million high-school students across the U.S. learn about investing through stock-picking games. If you have teenagers, they may be playing this spring.

Proponents say these games are exciting and inspire an interest in investing.

We could make drivers’ education exciting, too, by teaching kids to run red lights and crash into brick walls. I suppose you could even argue that might make the survivors better drivers.

Of course, that isn’t how we teach teenagers to drive. Yet when it comes to investing and “financial literacy,” millions of teenagers learn what it’s like to take wild risks, using play money—often amplified with more fantasy money that they borrow—to fire off a barrage of fast trades in turbulent assets.

In the long run, investors who diversify broadly, avoid unnecessary risk and rarely trade are almost certain to do well. In these stock-market competitions, teenagers who behave like that are almost certain to lose.



Emma Freeman, a senior at Lewisburg Area High School in Lewisburg, Pa., won that state’s championship when she was in a ninth-grade economics class taught by Michael Creeger. She turned $100,000 in play money into more than $550,000 in 10 weeks. “I played it as if I was day trading,” she says.
Emma would look up which stocks had just risen the most, then sell them short so she could profit from a decline. “Anything that had jumped up like crazy, when it looked like just hype, we short-sold the crap out of it,” she says.

Emma traded up to 40 times a day. “My friends told me I looked like a madwoman,” she recalls. “I would be staring at the screen and making crazy faces and stuff because it was so intense.”

Last spring, another of Mr. Creeger’s ninth-grade economics students, Zachery Engle, won the state championship. He traded 117 times in 10 weeks.

Zach used about $200,000 in margin borrowing to drive his pretend portfolio up to $583,070. “It’s nice that they let you do that,” he says. “It makes it easier to make money.”

Or lose money—which is why Warren Buffett repeatedly warns investors not to use leverage.

Mark Brookshire, founder and chief executive of Stock-Trak Inc. of Montreal, which provides the stock simulation that Emma and Zach played, says more than 500,000 students participate in grades K-12. Most play only as part of a class, not in a wider competition.

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Teachers can limit the number of trades, restrict margin or prohibit short selling. Outside of state-run contests, says Mr. Brookshire, only 14% of teachers permit margin—so most portfolios aren’t leveraged. Over the typical 10-week course, the average student makes 22 trades.

“Anybody who can turn $100,000 into $200,000 in 10 weeks with what they learned in their high-school class is just lucky,” says Mr. Brookshire. “The next 10 weeks they probably won’t be so lucky. That will be the lesson, that the more you do it, the more likely you’re going to lose. I want them to lose my virtual money before they lose their own real money.”

Ryan Monoski, a former business teacher at Montgomery High School in Montgomery, Pa., has come to doubt that lesson.

In 2016 and 2017, his teams won the national championship in the Capitol Hill Challenge, a stock-picking competition run by the Sifma Foundation, a nonprofit supported by the brokerage industry. His teams also won Pennsylvania’s state championship at least a dozen times.

All these contests “motivate students to take extreme risks that will bring extreme rewards and extreme losses, and that’s not the right way to invest,” says Mr. Monoski, who now runs a stock-picking channel on YouTube.

Like teams from other schools, Mr. Monoski’s students often borrowed money to sell short. They used 50% margin to buy explosively volatile triple-leveraged exchange-traded funds, magnifying daily market moves 4.5-fold.



The Capitol Hill Challenge no longer allows any of that.

However, sessions of the Sifma Foundation’s Stock Market Game, run in all 50 states and played by 600,000 children annually, may permit selling short and borrowing on margin. Teams often own as few as five stocks at a time, not nearly enough diversification by prudent investing standards.

“It’s important to recognize that the simulation plays a small part,” says Melanie Mortimer, president of the Sifma Foundation. “The real focus is the curriculum, which is all about the fundamentals of investing and the capital markets.”

Richard Daly, the foundation’s chairman, says the organization shares concerns that the game might teach children to take too much risk. But, he says, “we don’t want to lose the greater good of all the kids we’re touching that otherwise wouldn’t be exposed” to the stock market at all.

My drivers’ ed teacher taught me to put safety first, and yours probably did, too. That’s what children learning how to invest should be rewarded for. They shouldn’t be proclaimed “winners” for taking huge risks that could encourage a lifetime of bad behavior.

LINK: https://www.wsj.com/articles/w...sjhp_columnists_pos3

Did they pay capital gains taxes and any other associated obligations? Was it just a make believe 10 weeks or were the "Returns" taxed like in real life.

The outcome might be different.

DK. Most contests do not involve taxes. I would hope that the teacher covered that.

That's the wall street people wanting kids to accept taking big risks so they can clean them out in the future. All the "free" trading apps aggregate data in real time and sell it to hedge funds so they can take advantage of it.

Stock picking doesn't work
Market timing doesn't work

Now the stupid app ads are encouraging kids to invest in socially relevant or politically favored companies. Yeah, that always turns out well...

Broad diversification into multiple asset classes is the only long term strategy that works.

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I think the Reddit Wall streets bets is a good example of what you are talking about.

I was think about the real life day trader guy who made $200,000 on $7,000,000 in trades and owed $500,000 in taxes.

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I did a lot more trading in my retirement accounts since I did not have to concern myself with taxes.

Check out Steve Bigalow if you want to learn abut candlesticks and trading. He has Thursday night sessions that he teachers candlesticks starting at 8 PM :

https://stephenbigalow.com/events/

If you think stock picking doesn't work, Warren Buffet would disagree.

If you think market timing doesn't work, George Soros would disagree.

Both are outliers obviously but their process worked for them. Stock picking worked for people that bought MSFT or AAPL or Google or TSLA early and held on for the ride as well.

I think you would agree that tactics Soros and Buffett can employ don’t transition well to the average investor. When Buffett makes a move the market reacts to him on some levels. You don’t benefit from that. They both have deep enough pockets to weather timing the market incorrectly. You don’t.

I don’t think the OP said stock picking doesn’t work. I read that this game encourages riskier picks and rampant trading. Neither of which are actually the lessons you wan5 to teach an investor using real money that they have to live off some day. The game also allows using leverage which Soros and Buffett can do but would leave you penniless.

Big picture. If it makes the market interesting to young people that otherwise would never have learned about the market until later in life if ever, then that is good. If they think using play money, leverage, and risky and rampant trading is how to do it, well then the wrong lesson is being taught. Dollar cost averaging is boring and wouldn’t get much enthusiasm. This is fun. If that gains interest tempered by teaching “this is sexy and fun, but this is a better long term way for the average human” then great.

The time value of money is a hard concept to teach to 16 year olds.

Everyone's a genius until they're not. Real money taking real losses is what puts traders on tilt and can lead to a tailspin. Offering these classes in a bull market is like offering free crack cocaine to people with addictive personalities. If schools want to teach about money, teach the basics. 6 month reserves, emergency funds, power of compound interest (how it works for and against), dollar cost averaging, etc.. This is right on par with teaching casino table games and IMO has no business being there.

ETA: If the teacher is showing them charting, technical analysis and candlestick patterns then that's fine. But simply saying "here's play money, good luck!" is going to do more harm than good.

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Read the article more carefully. Here is a quote:

We could make drivers’ education exciting, too, by teaching kids to run red lights and crash into brick walls. I suppose you could even argue that might make the survivors better drivers.

quote:

Originally posted by ZSMICHAEL:
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Read the article more carefully. Here is a quote:

We could make drivers’ education exciting, too, by teaching kids to run red lights and crash into brick walls. I suppose you could even argue that might make the survivors better drivers.

I read the article carefully enough. I am stating my opinion on it as someone who does this for a living.

Ok it is your opinion. Fair enough. You a broker or finanical advisor?

quote:

Originally posted by ZSMICHAEL:
Ok it is your opinion. Fair enough. You a broker or finanical advisor?

Just an individual trader who's now semi-retired and learned all the lessons the hard way.

The other games kids play, e.g. shoot'em'ups on phone, atblet or computer have about as much to do with actual warfare as the stock picking games have to do with investing. I hope that the teachers are instilling a sense of proportion and prudence, although I doubt it. I hope the students are perceptive enough to be able to distinguish games from reality, but again.... Basically, I think that the only way to learn life's lessons is to live them.

Maybe it is a matter of extremes......if you can at least get kids to know what a stock, ETF, Mutual Funds are, they won't be afraid of making decisions with their REAL MONEY in the future.

I used to watch co-workers that would invest their 401k money in the "Guaranteed" investment option. The one that paid them maybe a 2% return (at that time).

I think stock slices/Robinhood, etc is a better thing to do. Set up a Roth for them, fund it w. some chore money/other earnings, and let them play with real money, with tax shielding.

This game, made in 1963, is how we screen people in our family for emotional, financial and mathematical intelligence.

Apparently I must be a genius, because I have some souls in my pocket. Also apparent, some people don't understand this is a blood game....

What they are teaching is gambling. Destructive and addictive.