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Analysis of the Stock Market Simulation

Essay by review  •  December 15, 2010  •  Essay  •  1,296 Words (6 Pages)  •  983 Views

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Analysis of the Stock Market Simulation

There are many risks that people take in their lives. Yet, investing in the stock market is one of the riskiest things to do. All the money that has been saved over years, possibly saved over a lifetime, could all be lost in the blink of an eye. The Great Depression was triggered by the most well-known stock market crash in history, another crash happened in 1987, and one could happen any moment. However, people invest to make money and through this simulation strategies and a basic understanding were compiled to get a perspective on the risk and tasks involved in investing.

Although not one of the high-ranking people in the class, the outcome of the simulation was not a bad one. I lost about five-hundred and seventy dollars. Yet, I could have done much worse. If I had invested the money in a CD or a savings account, rather than in the stock market, I would never have lost any money to begin with. In a CD or a savings account, there is a fixed interest rate and so your money always increases. There is also a fixed rate of return, whatever money you put into the bank, whenever you want to take it out it is there. Yet when investing in the stock market there is not set rate of return. In the simulation, my rate of return on the stocks that I invested in was -3.43% (for six months). Even though I lost money, I did better than I thought I would have done in the simulation. Going into the project I knew nothing and I adjusted and began to understand and succeed towards the end.

While investing in the stock market at the beginning of the simulation, I would pick well-known companies, such as Wal-mart or Exxon- Mobil, to invest in. Yet, as the simulation continues and I kept dropping the rankings, I decided a change of pace was necessary. To make sure that I was investing in the right stocks, I would view the portfolio of the person in first or second in the rankings and invest in whatever investments seem to work for them. In some cases they worked for me and in some cases they turned out not to be so good. Usually, the person in first or second place was able to cheat the system and split their stocks. Since I don't know how to do that, they would sometimes split the stock that I had invested in, so for me the stock wouldn't do me any good and I would usually loose money. However, I did this with the Alkermes Inc. stock that I invested in and it made a profit.

I would short sell stocks in the same way. I would view portfolio's in the ranking's and invest in companies that were not doing so well and short sell their stock. For the person that had bought the stock it did not turn out well, but, for me, I made a profit. Sort selling always seemed like the best investment for me, because you were happy when the company did poorly. For me, it happened that short selling turned out alright because the company that I invested in has done poorly. Yet, it does not always work that way and I learned that through this simulation. If the company's prices increase, that is bad if you short sold it because you actually loose money.

Not every investor invests in the right thing all the time. For me that was Exxon-Mobile. There was not a day that I saw the prices rise. They kept dropping and dropping. The one day that the prices seemed to be turning around and I probably should have sold my stock, they dropped again and I lost more money. The healthcare company that I invested in did not turn out too well either. Sometimes the prices went up and the day change was finally green, but they never went high enough for me to make a profit.

If I could start this simulation over, I would learn all there is to know about the companies that I am investing in before I invest in them. I would look at there past history (at least within the last year) and use that to help me decide to invest. I would also learn how to split stocks. Although that is cheating the system, it would give me twice as many shares for the same price and help my simulation. I would probably

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