Wall Street Fight Club
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Several years ago, I hired a tutor to teach my son about investing.
It was during the summer break. I opened a Robinhood account with $500 and told the coach to come each morning and explain how to buy low and sell high.
The plan was to spend half an hour before the opening bell browsing Yahoo Finance to find stocks that had positive news or showed signs of momentum.
I naively assumed they would select stocks like Google or Microsoft after a vigorous discussion and allocate a prudent amount to a position.
Instead, the mentor steered my son to volatile small caps and encouraged him to go all in.
Every morning they would dump the entire portfolio into a single company whose shares traded between $1 and $1.5 and ride that donkey for a couple hours before closing it out.
Astronomic gains were followed by catastrophic losses. My son’s mood swung wildly. He was up! He was down! He panicked when he couldn’t close a position that was in freefall.
By the end of August, my son had turned the initial nut of $500 into about $450.
The best part of the exercise was that they kept a journal with the rationale and a score for every trade. One day they rated their decision to buy NanoViricides Inc. an “F.”
Flash forward to today and my son is putting that training to use.
He’s joined the investing club at school. Each student starts with $100,000 in fake money. They are competing to notch the best performance before mid-December.
It’s gamified and highly addictive. Earlier this week, he ended one day ranked 11th out of 134 participants. Of course, he started that same day in the 114th slot!
My son got off to a slow start because he picked stocks with solid prospects.
His performance picked up when he started piggy backing off the trades put on by members of the class who were outperforming.
Without knowing it, he was tapping into both momentum-style investing and copycatting, a Wall Street strategy in which you monitor what others are doing.
He also discovered short selling and started betting against stocks. Given the volatility of many of the small caps, it’s hard to outperform unless you are both long and short.
He pointed out that one of the top performing students recently went long Trump Media & Technology Group, profiting from a run spurred by some political polls.
It’s a great example of how what he’s learning goes way beyond stocks.
It was a good investment to hire that tutor a few years ago.
At the time, my son wasn’t that interested in the simulation. But he is now.
I realized that – as a trader on Wall Street might say – I wasn’t wrong, just early.
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