Here’s Your Chance to Make Millions in the Stock Market (Part 2)
Students will be able to:
- Explain the impact that efficient markets have on attempting to correctly time the stock market and why stocks are treated as long-term investments.
In this economics lesson, students will be part of an interactive simulation of the stock market from 1920 to WWII.
Explain to the students that in Part I of this three-lesson series, the theory of efficient markets was explained. The premise of this theory is that all asset prices reflect their true value based on all currently available information. If an asset or share of stock was truly undervalued, investors would step in, buy shares, and bid up the stock price until it was accurately valued. The converse is also true: if an asset was overvalued, investors would sell the asset and, in the process, force the price down until it also was accurately priced. In summary, you should have learned that there are no easy “twenty dollar bills” just lying around waiting for you to come by and pick them up.
Today you will be given an idea of how difficult it is to time the stock market. I challenge you to become a millionaire. You will be given the chance to make decisions about investing in stocks at various times over the last 80 years. Even if you know some history of the U.S. stock market, you will likely still find it difficult to choose correctly every time. Ask the students “Who thinks they can correctly time the market?”. Have them explain to you what they will look for and discuss as a class.
Tell the students that professional investment managers have a variety of statistics they examine in an effort to estimate the relative value of the stock market. Distribute the Key Statistics handout. To help you with your decision-making process, the main ones they use will be given during your trek through time. Read the instructions aloud and review the terms as a class.
Explain to the students that they will participate in a game of Kahoot! to make sure they understand these key statistics. Open and start playing Kahoot! game.
Now, tell the students it is time to start the interactive activity called Can You Be the Next Market Guru?. Students should work in pairs. Explain to them in the following activity, you’ll start with $100 and attempt to accumulate as much wealth as you can by either investing your money in the stock market or setting it aside safely in the bank. When investing in the stock market, your money will be spread among all the stocks in the market rather than placed in any single stock. This is much like investing in a diversified mutual fund. For those who aren’t sure what a diversified mutual fund is, it is simply a fund that pools money from many different investors and invests in a basket of stocks. A single individual often does not have enough money to do this on his or her own. Now click and begin your quest for guru status.
Once they are done with the interactive activity, have them write down the responses to the following questions:
- How much money did you end up with?
- Did you tend to invest in the stock market or save your money in the bank more often? Explain why.
- Based on the end slide, how did you do timing the market correctly? Why might it be difficult to time the market, based on your experience today?
When all students are done responding to the questions, discuss as a class their answers.
Assess students by having them write an exit ticket response (5-7 sentences) to the question below:
- Why might it be a challenge to time the stock market? Give historical examples when able.
Students must hand-in their exit ticket.
Research Project: Congrats! Explain to the students that they are now going to be investment advisors to you, the teacher. Have students each select a stock company, such as Coca-Cola or McDonalds. Students should locate the following information:
- A graph that shows the historical stock prices of their company from start to current day,
- A brief summary of their company’s services and/or goods,
- Identify at least three time periods when the company’s stock increased sharply and three time periods when the company’s stock decreased sharply,
- Ask students to reflect on potential reasons for the changes in stock based on historical background knowledge and further research,
- Lastly, have students reflect on why it might be a challenge to forecast the company’s next 20 or 30 years of prices and why. Students should prepare a professional report within a word document that encompasses all of the information and recommends you purchase (or don’t purchase) their stock company based on their findings.
Use the Grading Rubric to assess each project.