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Old 02-16-06, 12:26 AM   #1
ChAnMaN
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Stock Market Game

So im in an economics class and we are starting something called the stock market game. Basicly each team gets 100,000 dollars to pretend to buy and and sell stocks over a 10 week period. All stocks are bought and sold according to real time info from the new york stock exchange, american exchange and the nasdaq
who ever has the most money at the end of the 10 weeks wins.

so the question is...you have 100,000 dollars to buy stock with no risk(except losing the game) and try to make the most money in take weeks. What would you do?
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Old 02-16-06, 12:56 AM   #2
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We've had a BikeForums game going on for several months now. So many people are short-sighted and want the get-rich-quick scheme of "what do I buy right now". I think it's more beneficial to think long-term and develop a strategy that's profitable in both bull and bear markets (you can make money faster in crashes than in bull-markets). The actual stocks you buy at any given moment will be dictated by that strategy...

Personally, with $100k, I would set up a 4-way diagonal butterfly spread with options on gold-futures and forex. With the market-manipulations that's been occuring in the gold and commercial-paper markets, we're going to see some wild volatility in the spot-pricing of gold.

Check out the BikeForums Investment Challenge here: StocksQuest.com - Stock Market Game (No Financial Obligations)

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Old 02-16-06, 12:56 AM   #3
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Are trading costs factored in? Assuming others are also explicitly out to win and trying hard to do so, I think you should consider the following.

Since the object is to beat others and since the timeframe is short, a few rules apply. To give yourself a chance of winning, you must take big risks. Even risks that might be unreasonable with a real world portfolio. Basically, this means you must not overdiversify. A highly diversified portfolio will tend toward the average while a more concentrated portfolio is more likely to stray (for better or worse). Ignore rules for real world investing. Your goal isn't a decent return. Your goal is to hit the jackpot with no regard for risks taken.

If I were you, I'd probably research some companies that are in a volatile situation right now because of some major pending action (lawsuit, merger, buyout, product launch, potential bankruptcy, whatever). Preferably in situations where the end result (good or bad) may be known in the next ten weeks. Preferably a small company, so that the outcome has a greater impact. And sink all the money into 1-3 choices. If things turn out in your favor, you could end up with a huge gain. And if not, well, at least you put yourself in a position with a realistic chance of winning.

Do you get a chance to see others' portfolios? To the extent your competition tends to have diversified portfolios, cut back on your appetite for risk and spread out your money a bit. If they're taking concentrated bets, do the same. You really want to have one of the more underdiversified portfolios. Consider three hypothetical players, Andy, Bill, and Carl. Andy buys $100,000 of company A. Bill buys $100,000 of company B. Carl does what is more prudent in real life and buys some amount of both companies (not necessarily $50,000 each). Carl is guaranteed to lose this game.

If you find yourself falling behind, take bigger and bigger risks to try to hit the jackpot and end up back at the front. If you find yourself well ahead of your competition, lock in gains and diversify to minimize your risks. Or if you can see others' portfolios, start simply mimicking your nearest competitors' choices to protect your lead.

All the above said, I think these games are fun, but not at all a useful way to learn to invest. They're really just a crapshoot. The real problem with these exercises is that since the emphasis is on winning and losing money (even losing a lot) is the same as making a decent return (since in either case, you lose the game), risk management goes out the window. Play accordingly, but be weary of believing you're learning any lessons for real life.
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Old 02-16-06, 12:59 AM   #4
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All the above said, I think these games are fun, but not at all a useful way to learn to invest. They're really just a crapshoot. The real problem with these exercises is that since the emphasis is on winning and losing money (even losing a lot) is the same as making a decent return (since in either case, you lose the game), risk management goes out the window. Play accordingly, but be weary of believing you're learning any lessons for real life.
Exactly! I think these simulations are worthless as far as learning to invest and making actual money in the real-world. The biggest impediment to people making money in the market is emotional control and risk-management (dealing with the downsides). The games never address the big-picture approach, only a small part of money-management, such as short-term immediate gains. In real-life, you have to address taxes, asset-allocation, managing down-turns of the market, changes in regulations, inheritance, etc.
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Old 02-16-06, 01:07 AM   #5
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DannoXYZ, you've been busy editing your posts in the last few minutes! But you definitely have complete agreement from me.

Also, as DannoXYZ alluded to, if options/futures/other derivatives are allowed in the game, seriously consider being in the derivatives market. Leverage gives you magnified gains and losses, so if you do come out ahead, you're all that much more likely to be at the top.
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Old 02-16-06, 01:41 AM   #6
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Also, as DannoXYZ alluded to, if options/futures/other derivatives are allowed in the game, seriously consider being in the derivatives market. Leverage gives you magnified gains and losses, so if you do come out ahead, you're all that much more likely to be at the top.
Actually there's a lobsided risk-to-rewards ratio with options & futures. In stocks you have even -/+ chances, so -10/+10% annual returns are balanced out (the past 5-years has seen mostly negative returns). With margin, you double the rewards, but also the risks to -20/+20%. However, in options & futures, the most you have to lose is -100%. So a -100%/+500% ratio or -100%/+2000% ratio gives you better odds in the commodities market than stocks.

Very, very few of the people invested in stocks make a living at it, most of them have to work a normal 8-5 job to provide the cash needed to play in stocks. In constrast, the majority of players in the commodities market are actually able to sustain their lifestyle trading futures & options; and a very lavish lifestyle at that...
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Old 02-16-06, 06:44 AM   #7
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Haha I had to do one of those games back in 7th grade. I think my team was one of the last place teams lol.

If i was playing, i might invest in southwest or something.
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Old 02-16-06, 08:38 AM   #8
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Remember when I did this, again, back in 7th/8th grades or something. At the time I think I picked some big names for about 50% of the $ (GM, IBM, etc) and half into the lesser knowns that I had seen a steady rise from in the last 3-4 weeks. In the end I didn't come out on top, but I was in the top 5-6 in the class if I remember right. Of course, this was back when GM was much stronger in the market, and IBM too most likely.
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Old 02-16-06, 10:29 AM   #9
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Ugh, stocksquest...I had to play that game for an economics class in high school. So many people cheated. I think the game is actually about 15 minutes behind real stock market time, so you could just check out how the real stock market did overnight, and buy a bunch of stocks in the game just before markets opened an make a crap load of money. I tried to play honestly, and actually did ok. But stock market crap is boring!
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Old 02-16-06, 10:33 AM   #10
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google pwned me bad. google pwned me bad.

But the stock will go back up. I have faith in it.
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Old 02-16-06, 02:05 PM   #11
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google pwned me bad. google pwned me bad.

But the stock will go back up. I have faith in it.
what? i thought google stock was like the ultimate money maker.
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Old 02-16-06, 02:08 PM   #12
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what? i thought google stock was like the ultimate money maker.
it took a pretty big hit this week i think
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Old 02-16-06, 02:17 PM   #13
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what? i thought google stock was like the ultimate money maker.
Yes, it was, for a period of time, a hot stock. It took a huge hit recently. It's still popular. But there's no guarantee as to whether it's going up or down in the next ten weeks.

In any case, for a ten week period, short term news and market noise overwhelms long term fundamentals. That's why it really is just a crapshoot. Run the same experiment for a year, and you might start differentiating people's results based on their insights and strategies. Run it for 10 years, and you might actually learn something. But even then, put real money in your hands, and your thought process starts changing.
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Old 02-16-06, 02:21 PM   #14
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Will they let you short-sell stocks in the game?
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Old 02-16-06, 02:36 PM   #15
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what? i thought google stock was like the ultimate money maker.

Google is a speculator's stock. It is hugely overvalued, given traditional stock valuation methods. Having said that, it has a good chance of continuing the climb for a semester, so could be a decent buy for the purposes of the game. However, that's likely to be a popular strategy, so the question becomes: can a person find a better bet?
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Old 02-16-06, 04:10 PM   #16
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Hey Danno, thanks for getting this thread up to par with the StocksQuest info.

I gotta start paying more attention to it again. I stopped for a while to start doing better research but never resurfaced with trades.
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Old 02-16-06, 05:43 PM   #17
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Yeah, google is super overpriced but people keep(kept...) buying it. I'm hoping it'll surge again in a bit when their fiber optic high speed googlenet is brought public. In the meantime, I hope they introduce another widget like Google Earth.
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