Stock-picking competitions can be fun. But the ones used as educational tools in high schools and universities raise some concerns.
The time frames are very short, limited to the school term or less. In the case of the National Secondary School Stock Market Competition, they have been as short as two months or so. Such contests are usually won by betting everything on one or two very risky stocks and hoping Lady Luck intervenes. In other words, they encourage a speculative, “bet the farm” endeavour.
There is, of course, more to investing than this. Other aspects include asset allocation, diversification, cost minimization and long-term horizons. Indeed, academic studies say these factors influence returns more than stock picking.
Then there is a sizable body of research that says stock markets are efficient and impossible to beat over the long run, especially after trading costs are factored in. This suggests more emphasis should be placed on passive investing and choosing index funds.
As John Bogle writes in The Battle for the Soul of Capitalism: “When we should be teaching young students about long-term investing and the magic of compound interest, the stock-picking contests offered by our schools are in fact teaching them about short-term speculation.”
READERS: Are student stock-picking contests harmless fun, or are they rewarding out-sized risk with victory?