From time to time people have raised questions about the advisability of stock market and investment competitions for students. Most recently, Jason Zweig, Wall Street Journal writer, did a column on the topic (“Should We Teach Teenagers to Trade?”). He ended the May 9th, 2015 essay with the words, “If your own children are studying the stock market in school, you had better ask them what they have been learning. They might need to be deprogrammed.”

As a high school teacher who has used stock games for many years, I feel that Mr. Zweig and others have raised important questions that are deserving of an extended answer from a teacher’s perspective. Let me give it a try…

The two to three week stock market course is now complete and the students are more than a little ready to have some fun and see if what I have been teaching them really works.

It’s Time For The Stock Game

I believe that the stock competition is a very specific INVESTING PROBLEM that has two central elements: It has an extremely short investing window and high risk strategies tend to get rewarded.

With real life investment dollars, risk management is a cornerstone. In a game where there is no penalty for losing, minimizing risk is hardly a rational plan. Because my students have a good understanding of risk, tools, and strategies, when I explain the options and rules of the game they are well prepared to compete. But on an almost daily basis I am reminding them not to confuse real life money with game money.

It appears to me that the large majority of kids in investing competitions have not been shown how to win. Approximately 8-% of participants end up within + or – 5% of the S&P 500 return at the end of the game. I would consider that to be highly frustrating for both the teachers and the students when they see other schools making returns that sometimes are well above the change in the indices.

The GOAL is to help my students come up with a strategy that has a CHANCE TO WIN. Would you rather have your child buy a couple of blue chip bank stocks that have zero chance to win the game, or would you rather have her take either the long or short position in oil related stocks and have a chance to finish among the leaders? (And if she gets clobbered by taking the wrong side of her oil bet and loses half her money, don’t you think that can possibly be an even more valuable learning experience than winning the game?)

Hillary Clinton made a 10,000% return in 10 months in 1978-9 investing in cattle futures. George Soros reportedly made $1 billion in a single day in 1992 shorting currencies. Most of Bill Gates wealth was not built by diversifying by by owning a billion shares of one company, Microsoft.

Some pundits may not like students being exposed to these kinds of stories. It might teach them to take on dangerous risk levels. But if we balance this with stories of Enron, Bernie Madoff, and the Dotcom bubble, wouldn’t this be a far more interesting and intellectually honest stock market course? When some of my teams inevitably make decisions that crash and burn, why am I not able to use those as teaching moments on how not to invest?

Let’s lighten up on the students. It’s a game. Have some fun. Play to win. If you perceive we are in a bear market and you think the best strategy is to sell short – just do it… even though, in real life, this technique may cause you to lose more than your initial investment. If you think the best game strategy is to use margin – just do it… even though Jim Cramer says you are not allowed to watch his CNBC program if you engage in such high risk behavior.

Stock Competition Supporters

While I am aware of the fallacies of “appeal to authority,” I think that providing a list of some of the organizations that support the stock competition might have some value. (Since I’m from Oregon, my examples will lean in that direction.)

I believe it is entirely possible that there is a fallacy in the criticism of the schools and teachers who have students who participate in the investment competitions. While it is possible that there are some poor teaching practices going on somewhere in the country, I have not seen this and the game skeptics have provided no evidence that this is actually happening. Most of my colleagues and I would welcome a critic to sit in on a class or two to see how stocks are actually being taught.

At a more personal level, after multiple mind-numbing college stock market and investment courses (I was a finance major), I was fortunate enough to encounter a professor who turned stocks into a game which was more challenging and interesting than anything I’d ever encountered in a classroom. That teacher opened doors for me and enriched my life. I am enjoying being that teacher now.