Talking Stocks with 5th Graders at Matt Elementary School

This morning I met with Mrs. Carnaroli’s 5th graders at Matt Elementary School in Cumming, GA.  They are learning about investing and the stock market by competing against each other, and thousands of other students in Georgia and across the country, in a stock-picking contest called the Stock Market Game.  They are given an imaginary account with $100,000 to invest as they see fit.  They decide what stocks they like, make the simulated trades, and the team that makes the most money during the eight week period wins.

The students are very smart and very competitive.  They asked a lot of challenging questions.  The most surprising questions I received pertained to the Great Depression.   I didn’t expect to be discussing economic history with 5th graders!  (And the answer, in case you’re wondering, is “No Virginia, this is not another Great Depression”).  The one question, every team asked me was, “What stock is going to do the best between now and April 17 (which is when the competition ends)”.  To which, I replied, “I have no idea what a particular stock is going to do in the next five minutes, but I am very confident concerning its five year outlook.”

I think the Stock Market Game is a marvelous exercise.  It helps youngsters to think analytically and critically, it tests their decision-making skills, it gives them an opportunity to negotiate with others and develop an investment policy as a team. It also gives them instant feedback on their decisions. This is probably one of the most interesting periods in stock market history to be participating in this competition. 

Here are some suggestions I made to Mrs. Carnaroli’s students:

1. The way you get money to invest is to spend less than you earn.  If you don’t save money, you will not be an investor.  All other lessons regarding investing rest on this one foundational pillar.

2. Diversify.  This protects against long-term losses and reduces volatility.  I explained that investing was like a baseball game.  One asset will be hitting a homerun, another will strike out, and a few others will make it to base.  Over the long-term (in my example 9 innings) you only need to hit singles to win the baseball game.  Of course, the nature of their competition is very short-term (the equivalent of half an inning) and much more speculative than a typical investor’s strategy might be.  They were interested in hitting home runs, not singles.

3. Buy companies that you know and like (i.e. you are familiar with the products they sell), that are profitable, and that trade at a reasonable valuation.  Apple was a very popular holding with the students, as well it should be.

The Stock Market Game ends in three weeks.  It is a great introduction to how the stock market works.   My only criticism of the game is that it treats investing like a homerun derby rather than a long-term disciplined process.  However, I recognize that students need to start somewhere and this is a great experience for them.  They are learning a lot and they are really enjoying themselves.  

What would be really fascinating is if the students revisited how their portfolios have done in one year, three years and five years from now.  That would be the most valuable lesson they could learn from this competition.

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