Good Essay About Simulation Project Paper

The stock market works pretty much like a jungle. If a person does not know which way to go or what the right things to do are, then chances are that person is going to get lost. In the stock market, however, being lost equates to losing money, often a huge chunk of it. Suppose that an individual fund manager was entrusted with $250,000 worth of client’s money. The client who entrusted this fund expects that he would be able to generate at least a 14% return over the next year. This example is somewhat similar to the stock market simulation project we were involved in. if the fund manager assigned to handle the portfolio fund is not even aware of what he is doing, then the money that was entrusted to him would surely get burned.
In the stock market simulation project we had, I learned that all that matters are these two things: trading experience and trading instincts. My trading principle dictates that anything else besides these two things are just noise—noise that hinders me from being able to ride the stocks that are sure to fly over the coming weeks, months, or even years. Unfortunately, the only way to have the experience and instincts is to trade.
As someone who has this kind of trading principle, being involved in a stock market simulation project can be a good start for anyone who has not experienced getting his feet wet in the market yet. By being engaged in a stock market stimulation game such as the one that we played for this semester, I believe that one will be able to learn a lot of things. For one, majority if not all of which are students of the course, would be able to learn the basic things about trading such as how to login to an online stock market trading platform, how to execute buy and sell orders, execute margin calls, short orders, among other things. They may also be able to learn how to read charts and financial statements published by their stock market broker in their trading platform or website.
And most important of all, they get to develop the right mindset when it comes to playing in the real market . The stock market simulation project shadowed the exact movements of the market. If, for example, the S&P 500 Index dropped 3% during the morning, the same thing happens with the equivalent S&P 500 Index in the stock market trading simulation platform. Of course, when it dropped, players, including me at some point, which were invested in S&P 500 companies (specifically those who were hit by that minor dip) lost money, at least in paper.
I guess the real purpose of stock market simulation games like these is to get the students’ feet wet when it comes to trading in the stock market. If that is the case, then I would be able to say that it did a good job. By the end of the first month, majority of the portfolios assigned to us were green—which equates to a gain and not a loss, thanks in part to the present bull market and in another part to the policies and principles that we learned from our previous courses and subjects which we successfully applied to this simulation.
However, one issue that I find interesting about this stock market simulation game is that it made one of the hardest parts in trading a somewhat easy hurdle to overcome for the students—that is taking risk and being fully invested. Taking risk and being fully invested, especially at this point when the stock market indexes are making new all-time highs can be very hard to do because it takes guts . The main reason behind this may be the fact that the students were not using real money in the simulation and even if they were using real money, they would still be using other people’s money in their trades—which means that should their positions get a gain, all that they would get are commissions; and should their positions suffer a loss, then they would have nothing to lose. This scenario created by the simulation environment, basically encourages the students to take risks. Anyone would surely be encouraged to take risks and stay invested in the market knowing that they are not using real money to begin with.
This may be both a bad and a good thing for the students. For one, it is a good thing because they get to learn one of the hardest lessons to learn in the market: knowing how and when to take the plunge and buy positions and of course to take risk. What makes this a bad thing about the simulation project is the fact that takes away the emphasis on the principles of conservative trading. Surely, the market’s future direction will not always be upwards. There will come a time when the market’s direction would point downwards and if by that time the students still have not learned the principles of conservative trading, then their previously green positions may easily turn into reds; that is, from gains to losses. Knowing when to buy positions and knowing when to actually sell them is perhaps the most important thing that traders cannot afford to forget. Unfortunately, the second lesson is something that may be very hard to learn from a simple stock market simulation such as this one.
The best way to learn this is to have real stock market trading experience and develop the right instincts. In order to have that experience and instinct, the students must use real money in buying and selling positions . There is of course no guarantee that they will reach Bill’s target return of 14% but at least, they will be able to know the feeling of having his or his client’s money get burned as a result of not doing his homework: reading more about and analyzing the market. The students may also be able to learn how to invest in less risky assets such as corporate and government bonds, preferred shares, among others, so that they may be able to turn in a gain even though the market for stocks are experiencing a downfall.
In summary, I believe that this stock market simulation game, which aims to help Bill, a 36 year old client (fictional) who has $250,000 to spare for his investment portfolio, manage to have a long term average rate of return of 12.8% a year to a max of 14% per year over the next 29 years, will help the students develop the basics and the right mindset in stock market trading. However, I doubt that it will help us develop the necessary skills in order to have the experience and instincts that most real stock market traders already have.

References

Kale, P., Dyer, J., & Singh, H. (2002). Alliance Capability, stock market response, and long-term alliance success: the role of alliance function. Strategic Management Journal.
Sinha, S. (2013). 10 Golden Rules of Investing in Stock Markets. The Economic Times.
Tuchman, M. (2013). Best Investment for Stock Market Beginners. Forbes.