Did you ever do this during school?
In my economics class, we played a stock market simulation game. We had $100,000 each to "spend" on stocks. We consulted the newspaper, chose companies we knew of, and bought some shares on paper.
Periodically, we checked our progress. Some of us lost quite a bit, but others did really well.
Recently, I signed up for an online version of a stock simulation.
Wall Street Survivor gives you $100,000 to invest. Prizes are awarded for top earners. One person is up to $400,000+. Uh, whoa. I hope he or she is investing real money as well.
My portfolio is down $7,000. The competitor in me is a little bummed, but hey, it’s not real money.
Aside from retirement accounts, we’re not ready to start investing in the stock market. So, now is a great time to play with fake money to get a handle on how it works.
Do you have a fake portfolio? Have you done that in the past?
I played around with a similar online market place called marketocracy a couple years ago. My portfolio tanked! Maybe its time to test a new, more informed strategy…
That sounds like fun! i might give it a try!
Personally, I think that it is a bad idea to practise on such simulations. Unless you invest real money, it is something different. There are no emotions, and investing is all about emotions. Thus, you learn only some basics about how stock market works and how to open/close positions etc. But you are not gaining any serious experience related to investing.
Hi Kacper,
Great point.
This is Kacie’s husband.
I agree with you and Kacie, both. Everyone should try out simulations to learn how to invest and analyze how the market works. Playing with fake money changes a lot of strategy in investing, however, so people should be cautious.
A large part of finance is the management of risk, and studies have shown that long-term investing is most effective. On the other hand, simulations encourage excessive risk (such as investing in penny stocks), and frequent interday trading.
This might be a good follow-up post for Kacie.
Thanks,
Shane
Check out this post from Moolanomy: http://www.moolanomy.com/455/beat-the-sp500-and-earn-real-money-at-updowncom/.
It’s about a site that lets you invest virtually and earn real money.
I’ve been doing the same thing at investopedia.com. I was doing pretty well…. I just looked today and I’m only up by 2% over the past three months. Arg. Maybe I shouldn’t have looked today. It’s fun, though.
I split the initial money between a few companies I knew something about, and I barely ever trade. I have thresholds for how much I’m willing to lose, and how much something can go up before I rebalance. We’ll see how this works as time goes by.
Maybe it’s just my stance but the math will always win over the emotion and that’s my intent with investing as well as why I use these programs with my students.
To kill five week at the end of the year (our curriculum is short), I have my kids create their own portfolios. They pick and trade stocks creating a a good learning experience. We’ll dig into the mathematics of when to sell, not to, and all the other probability behind it.
A few get lucky and make some money but most don’t do the proper research. The downside is they get in the mindset of short term gains. I’d imagine this also true of most folks.
The portfolio’s they come up with are always a hoot.
I play on one called “Virtual Stock Exchange” and it’s both fun and informative about how the market behaves. I started playing over the summer, before the market took a downturn.
I gave it a go and won a little bit of money. I can imagine how stressful it can be with real money at stake.
I tried when I really wanted to invest in one company right then but didn’t have the money. Mine was a one-month simulation. I put all my money into that company and stayed right near the top for two weeks! Then the market started falling. I tried various strategies, and none of them worked consistently for me. So, I took all my money out of the market and started moving back up the ranks!
Then it started seeming like more and more of the other players were cheating by getting real-time numbers from somewhere else when we were supposed to be using the game’s 15-minute-old figures.
The simulation actually helped me. I am now less confident of my ability to guess what’s going to happen next with a company. So now most of my money is in funds (and well diversified), although I still invest some money (which I think of as “play money”) in specific companies that I think will do better in the long term that one might guess from the price.
I could see that it might be dangerous, because if your whole simulation is during a period when the market is rising, you may come to feel invincible. I was lucky that the market tanked midway through. Most of these simulations are very short-term and thus simulate only what it’s like to be a day-trader. To test how most people should invest, the simulation should last at least ten years! Oh, well, some practice can be more helpful than no practice.
It could also be dangerous because when you first start out you probably have less than $100,000 to invest, so the trading fees might be quite a bit more relevant than in the game.