Investment Game Tactic is not a good investment model Gary Silverman


Alex was an intern in our offices many years ago. He was taking an investment course at Midwestern State University where one of the assignments was a semester-long investment simulation, in other words, an investment game.

While the money was fake, it used all the real life investment choices and tracked what might have been the performance. He invited me to participate since the game was open to students and their friends.

For four months, he and I “played” daily at the market. The financial trainee against the financial sage (a name I gave myself) against the rest of the class and their friends. He and I slowly drifted away from the rest of the field, jostling between first and second place.

With only a day to go, Alex had taken the lead, and nothing was going to get me past him. At least nothing normal. But since I was the wise one, I wasn’t limited to normal.

While the rules didn’t allow buying on margin (a way to leverage your investments), they said nothing about buying a security that itself had built-in leverage.

So with that day left I sold all my positions and bought a 3x leveraged equity fund. If the market was going up I would be first, if it was going down…let’s just say I really needed the market to go up.

He increased.

Alex graduated and then earned an advanced degree at Texas Tech. He is a successful Certified Financial Planner with his own business in the Phoenix area. But even if he did quite well, he can’t take this victory away from me.

That said, the lesson I want my readers to take away is to not do what I did. Well, unless it’s a game, then I don’t care.

But in real life, that’s a really bad idea. You occasionally read the story of a person who took the last money he had, bought a lottery ticket and won. You don’t read all the people who took the last money they had and lost.

With leverage, you can win big, but you can also lose big. I guess if you have money that you don’t care about at all, and you could otherwise go to a casino to turn it into entertainment, then of course leverage your wallet. But at least one casino might offer you a drink. Brokers don’t do that.

Meanwhile, in real life, the Securities and Exchange Commission is investigating the gamification of trading at some brokerages. They try to make investing fun. But behaviorists will tell you that doesn’t make a person a better investor…just a more active investor.

No problem for fun, just remember that investing is much more than a game.

Gary SilvermanCFP® is the founder of Personal Money Planning, LLC, a Wichita Falls retirement planning and investment management firm and author of Real World Investing.


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