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The Annual Stock Market Game, Part 2.

We’ve all heard and maybe even been guilty of using the phrase “kids are like sponges”, but is this a true statement? In my experience, “kids are like sponges… …for about 30 seconds”. I am not a professional teacher, but I am an amateur parent, and I’ve found that if you want to teach something to kids, it needs to be fun and quick. By the way, most grown-ups are the same way, but that’s another conversation.

I have managed to trick my kids into learning more about the stock market than they realize with simple conversations about business and companies, as well as easy but fun activities like The Annual Stock Market Game.

You can do the same with your kids or students and customize it to YOUR group’s attention span. I have a simple (cheap) trophy made for the winner, which means we needed to run it annually. It might take me until the next year to get around to ordering the trophy, therefore annual contest.

We run the game from Labor Day to Labor Day to coincide with the school year.

Rules of the game are simple:

Each child chooses two stocks to hold from the beginning to the end of the contest period – no changes.

Assume 50% is invested equally into each stock. We assume you buy the open of the first day and sell the close of the last day. Don’t forget to include any dividends earned as well.

If you aren’t used to finding this type of information, you can go to Yahoo Finance and use the “historical prices” tool.

2018-2019 marked the fifth year of our annual contest. The first four years, only the three youngest members of the family participated. (If interested, part one of the story can be seen by clicking here).

Proving that kids are quick learners (don’t worry I won’t say it), the three youngest kids were finally old enough to realize that Mom and Dad had NOT been playing the game. Year 5 would mark Year 1 for Mom and Dad.

Trophy Count

2014-2015 Annabel

2015-2016 Max

2016-2017 Annabel

2017-2018 Max

2018-2019 proved to be a very difficult period for stock market investors, and that held true with our game. Only 1 of us had a positive return while the S&P 500 which returned 2.8%. It was especially tough sledding for “the boys”, Mom and Annabel would take the top two spots in the contest and provide incredible drama on the VERY LAST DAY of the contest, August 30th.

You see, one of Mom’s two picks was Ulta Beauty (ULTA). Public companies listed in the U.S. are required to report financial results four times per year. Ulta reported quarterly earnings results the evening of 8/29 that disappointed investors, and the stock dropped from $337 at the close on 8/29 to $237 at the close on 8/30.

That’s a ONE DAY drop of almost 30%, enough to push Mom from 1st place to 2nd place, giving Annabel bragging rights for the next 12 months.

Here are the picks and results:

1. Annabel +6.8% - Microsoft (MSFT) and Amazon (AMZN)

2. Mom -0.8% - Ulta Beauty (ULTA) and Facebook (FB)

3. Henry -16.1% - Amazon (AMZN) and Netflix (NFLX)

4. Max -31.2% - Amazon (AMZN) and Mylan (MYL)

5. Dad -32.6% - Micron (MU) and Abiomed (ABMD)

S&P 500 +2.77%

As I was quite certain would happen when I was “invited” to participate, I find myself on the other side of the contest unsure if I should be proud or embarrassed.

Going over the results as a family, in addition to having a good laugh about Dad, “the professional”, we had a great discussion about “risk”.

Lesson 1

Individual stocks are much riskier than indexes or funds. How often do you hear about the whole market dropping 30% in a day? Answer: Never. The worst day for the S&P 500 in history it was down 20.5% on October 19, 1987, a day known as Black Monday. 30% down days for stocks happen – not often – but they happen.

If you are going to own individual stocks instead of or in addition to owning diversified funds, be willing to accept the pain of being wrong. Don’t make big bets on individual stocks.

The bulk of your investments should be in diversified funds or index funds of some sort, and 99% of us should get professional advice allocating that portfolio. That being said, I see value in buying the stocks of companies that you understand and feel will be able to grow their earnings significantly. It does come with more risk and you have to be willing to accept it.

That’s why we play this game with the kids. There is no money at risk, but we talked about “what if it were real money? How would you feel if your $1,000 was worth $700 or $500?”

Lesson 2

Quarterly earnings reports can REALLY move a stock price. The announcement can cause wild fluctuations up and/or down in the stock price as investors react to the new information.

If you are considering purchasing a stock, you want to know when they are expected to report earnings. Some investors avoid buying a stock too close to an earnings announcement for fear of being whipsawed by the stock price reaction. Other investors may want to take advantage of the announcement and buy ahead of it if they think the report will be good.

Expectations are a driver of so many aspects of investing, from the numbers behind a company and its stock price to the emotions and our behavior as investors. At the most basic level, if you are going to own individual stocks, you should have an expectation for wild price swings, especially around an earnings report.

In the end, we had a lot of fun picking our stocks and looking at the results.

If you are a parent or teacher, I encourage you to play a similar game with your kids. It is so simple to do, and you don’t need to know much about stocks. You can even narrow the pool down to a smaller list of companies if you like.

I wish the kids spent more time on it, but they don't because it isn't their passion. That's ok.

Investing doesn't have to be your passion for you to be successful. In fact, you might increase your odds of success the less you think about and change your investments. It may prevent you from carrying so much emotion.

As a family, we spent less than 30 minutes total on this contest all year long. 15 minutes at the beginning picking stocks – 15 minutes at the end talking about it. Other years, we’ve looked at it more often, but it has never been a time-suck.

We keep it really simple, but the kids still learn the lessons. It is quick and easy – which fits my family’s attention span.

If you would like to see a quick video of our "announcement ceremony" - click here to check it out on YouTube.

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