During the 2003-2004 school year, I worked as a Lab Instructor and Assistant Network Administrator at an elementary school. It was lots of fun–coaching a Lego Robotics team, producing the weekly news show, and advising video contest teams in addition to the normal schedule of teaching fifth and sixth grade classes while doing IT support for the teachers (and my supervisor). I have fond memories of many of the units we taught in the lab, but one of them recently came to mind.
At about this time of year as winter turned to spring, we were finishing up the stock market game. One of the teachers had added it to his math curriculum several years prior as a way of adding some real world relevance to adding fractions. Back then, each student started with $10,000 in ‘play money’ and could choose how to allocate it. The teacher would bring in the newspaper every day, the students would look up their chosen stocks (which had prices given with fractions), and practice arithmetic by trying to figure out how much they had gained or lost. They did this for about two months and declared a winner at the end.
By the time I got involved, the unit’s goals had evolved. Instead of adding fractions, we were trying to teach the students to work in teams, use spreadsheets, do good internet research, and make rational arguments about their decisions to buy and sell. Of course, there’s never a good rational argument for short-term stock trading, but I think we brought in a financial advisor from a local bank to talk about the differences between the game and investing for real.
At the time, I didn’t know much more about money than the students. Still, I decided to create a simple portfolio of my own and play along, although I didn’t intend to make any trades. I don’t think we were charging commissions, but I had some vague idea that ‘buy and hold’ was a good strategy. Besides, most of my time in class would be taken up with helping the students and brokering their trades.
I chose just two stocks and split my money evenly. They both belonged to companies that I believed in, whose products I used; I was following the adage ‘buy what you know.’ The companies were AAPL and SIRI. That’s right, I bought Apple with play money in early 2004. At the time, the stock was trading at about $11 per share. By the time the game was over it had gone up a little bit, maybe a few dollars. I remember that I did well when compared against the students.
Here’s the funny thing: at the time I had some money that I was trying to figure out how to invest. I probably could have invested in that portfolio at that time with real money (in about the same quantity). If I had done so, and had the patience and resolve to hold on, those Apple shares would be worth 100 times more now than they were then, i.e. that $5000 investment would be worth half a million dollars.
It’s fun to think about what might have been, but I didn’t invest that way. I ended up putting my money into broad, market-tracking mutual funds. When I learned more, I switched to true index funds with rock bottom expense ratios. Even though I have less money than I would have, I know I made the right decision. For one thing, there were a lot of ifs in my hypothetical path to riches. For another, it’s easy to confuse strategy with outcome but that’s a terrible idea. Apple’s meteoric rise was extremely rare, and there was no way of predicting its meteoric rise back then. If there had been, it would have been priced into the stock already. If I had bought it, I might be tempted even now to think I’m much better at picking stocks than I actually am, which could have led to a distorted appetite for risk. After all, look at the other half of my dynamic duo of stocks: Sirius/XM radio still trades at about $2 per share, about the same as nine years ago.