The other day I received an email from a member of the Steps Foundation, promoting their latest fundraising venture, an online stock contest with play money and real stocks. For a $50 entry the biggest portfolio after 1 month (contest starts June 25, though one can apparently enter late, and ends July 26).wins half the money from the total of entry fees (I cannot find the rules on the website, maybe they appear after one has paid, but I know because the email I received had the rules attached). Now the Steps organization looks legit (yes, I did check it out some since scammers are not confined to Nigeria) and their aim to raise funds to support other organizations that actually teach financial literacy by debt counseling and that kind of thing does jive with what I try to do informally with this blog. So I do have some sympathy for their aims.
However, the contest itself exemplifies the very worst way to approach the stock market, as a kind of short term lottery to make the most money in the shortest time. Maybe the Steps people, who are all financial professionals themselves, intend to write something afterwards to say "don't actually try to invest like this in real life, because you will surely lose all your money in a very short time". Given recent market action, the best strategy might well be to sit tight with the initial play cash anyway. That would certainly be a fitting and truly worthwhile financial lesson if it did happen.
Maybe if they modified the rules so that the winner would be the person with the highest Sharpe ratio aka most return per unit of volatility they might provoke some real financial literacy by obliging people to learn about and to consider that important concept and it might be a good contest too, instead of a pure game of chance.
Tuesday, 25 June 2013
Posted by CanadianInvestor at 04:00
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