STOCK MARKET SIMULATIONMr. Lange - Economics

INTRODUCTION

Welcome to Mr. Lange’s Stock Market Simulation!

As members of an investment group, you will be competing against one another to see which group can increase their investments the most.

The investment group with the greatest net worth at the end of the simulation wins.

RULES

Each group (three to four members) must come up with an original name for their investment group and elect a team captain. All trades must only be performed by the captain of that team, with the approval of the majority of the team.

Each team begins the simulation with $100,000 in cash.

RULES

Teams may only trade stocks listed on Nasdaq or the NYSE.

All stock values are priced at current market prices.

Teams are not permitted to own stock in more than six companies at a time.

RULES

Teams may not buy stocks priced under $5/share, and only shares of common stock may be purchased. Preferred stock will be designated with a

“pf,” and may not be purchased. Teams are not permitted to have more

than $25,000 in cash at any time. To buy stock, each team must complete

a purchase order form and have it initialed by the broker (Mr. Lange).

RULES

A 2% broker’s fee is charged for all transactions. (For example, if you buy 100 shares of a stock at $10/share, you must pay the 2% of $1000, or $20.)

A team ledger (data on portfolio performance and cash on hand balance) and purchase orders/transactions must be maintained daily.

The team with the greatest net worth at the end of the simulation (value of all shares + cash on-hand) wins.

HOW ARE YOU GRADED?

Completion of all assignments Completion of all daily

transactions/work Final portfolio value

Did you “beat the market”? Success will be rewarded with a

higher grade! (Just like real life.)

FORMING YOUR INVESTMENT GROUP

In your investment groups (3 to 4 members), complete the following tasks: Choose a name for your investment

group. Design a logo for your group. Select a team captain. Get a folder/binder and make sure you

obtain:One “Guide to Stock Listings”One rules sheetOne ledgerThree purchase order formsOne “Research Tips” sheet for the group

GUIDE TO STOCK LISTINGS

52 week high/low What might these indicate?

Dividends Annual dividend per share

Volume Closing Price (Close) & Change P/E

Price-to-Earnings Ratio http://www.reuters.com/finance/stocks

PRICE-TO-EARNINGS RATIO

“What is P/E Ratio” – WallStreetSurvivor.com

Current stock price ÷ Earnings per share

Simply put, it is the price an investor is willing to pay for $1 of a company's earnings or profit.

PRICE-TO-EARNINGS RATIO

A lower P/E ratio may indicate an undervaluation of the stock, and therefore more bang for your buck.

WARNING! It is useful for comparing companies within the same industry, but not for companies across industries. Google’s (GOOG) P/E ratio is 24.33 Walmart’s (WMT) P/E ratio is 15.64 Target’s (TGT) P/E ratio is 15.35

Not a good comparison

Similar numbers

HOW TO CALCULATE STOCKS

Price of stock at market close x Number of shares purchased = Total amount of purchase

Total amount of purchase x 2% (0.02) = Broker’s fee

The same applies when you want to sell stocks as well

MEASURING YOUR PROGRESS

Your group is responsible for charting the amount and value of the stocks you purchase and your overall portfolio worth.

In other words, you will need a table that measures your group’s overall portfolio worth

HOW TO CHART YOUR PORTFOLIO Your ledger has four columns:

Date; Cash-on-hand; Stocks; Total Value “Cash-on-hand” is taken from the

bottom of that day’s purchase order form.

“Stocks” is taken from the sum of the total values of all your stock investments.

“Total Value” is the sum of your cash-on-hand and your stocks.

TEENAGE INVESTORS

High Schooler Makes $300K Trading Stocks on His Phone

20 Top Stock Market Traders Under 20

WHICH STOCKS TO CHOOSE? Brainstorm and discuss:

What would you need to know about a company before you invest in it? Come up with at least ten criteria.

How is your group going to decide on the stocks it will invest in? List all indicators and data you will use to decide who to invest in.

What are your preliminary choices for the stocks you will invest in? Which companies are you currently looking at? Remember, you can only invest in a maximum of six stocks.

RESEARCH TIPS Your investment group will research at least

four companies that you would like to invest in.

Remember: You can’t throw money at the stocks… you have to know who you’re investing in!

Industry = What business sector? Apple = ___________; Exxon = ___________; Wal-Mart =

___________

History = financial and organizational history. How long has the company been around? How has its stock performed historically? Has it

experienced wild gains/losses? What is the financial forecast for the stock?

Technology Energy Retail

WRAPPING IT UP Your portfolio needs to be arranged in the

following order: Ledger P.O. forms in chronological order (earliest

to latest) Research Tips

On your rubric, write your team name, period number, and your final total portfolio value (cash on hand + stocks) at the top.

Circle your portfolio’s market performance score.

Place your rubric in the inside front pocket of your portfolio.

EVALUATION Which stocks performed the best?

The worst? Were there any stocks that surprised

you? For the groups that beat the market

performance, what was your group’s strategy?

What effect did the broker’s fee have on your strategy?

What would you have done differently?