Grades 9-12
Here’s Your Chance to Make Millions in the Stock Market (Part 2)
Objective
Students will be able to:
- Explain the impact that efficient markets have on attempting to correctly time the stock market and why stocks are treated as long-term investments.
Standard
Standard: 2
- Students will understand that: Effective decision making requires comparing the additional costs of alternatives with the additional benefits. Many choices involve doing a little more or a little less of something: few choices "are all or nothing" decisions.
- Students will be able to use this knowledge to: Make effective decisions as consumers, producers, savers, investors, and citizens.
Standard: 7
- Students will understand that: Markets exist when buyers and sellers interact. This interaction determines market prices and thereby allocates scarce goods and services.
- Students will be able to use this knowledge to: Identify markets in which they have participated as a buyer and seller and describe how the interaction of all buyers and sellers influences prices. Also, predict how prices change when there is either a shortage or surplus of the product available.
Standard: 8
- Students will understand that: Prices send signals and provide incentives to buyers and sellers. When supply or demand changes, market prices adjust, affecting incentives.
- Students will be able to use this knowledge to: Predict how changes in factors such as consumers' tastes or producers' technology affect prices.
Standard: 5
- Students will understand that: Credit allows people to purchase and enjoy goods and services today, while agreeing to pay for them in the future, usually with interest. There are many choices for borrowing money, and lenders charge higher interest and fees for riskier loans or riskier borrowers. Lenders evaluate creditworthiness of a borrower based on the type of credit, past credit history, and expected ability to repay the loan in the future. Credit reports compile information on a person’s credit history, and lenders use credit scores to assess a potential borrower’s creditworthiness. A low credit score can result in a lender denying credit to someone they perceive as having a low level of creditworthiness. Common types of credit include credit cards, auto loans, home mortgage loans, and student loans. The cost of post-secondary education can be financed through a combination of grants, scholarships, work-study, savings, and federal or private student loans.
In this economics lesson, students will be part of an interactive simulation of the stock market from 1920 to WWII.
Procedure
Warm-up
Explain to the students that in Part I of this three-lesson series, the theory of efficient markets was explained. The premise of this theory is that all asset prices reflect their true value based on all currently available information. If an asset or share of stock was truly undervalued, investors would step in, buy shares, and bid up the stock price until it was accurately valued. The converse is also true: if an asset was overvalued, investors would sell the asset and, in the process, force the price down until it also was accurately priced. In summary, you should have learned that there are no easy “twenty dollar bills” just lying around waiting for you to come by and pick them up.
Today you will be given an idea of how difficult it is to time the stock market. I challenge you to become a millionaire. You will be given the chance to make decisions about investing in stocks at various times over the last 80 years. Even if you know some history of the U.S. stock market, you will likely still find it difficult to choose correctly every time. Ask the students “Who thinks they can correctly time the market?”. Have them explain to you what they will look for and discuss as a class.
Modeling
Tell the students that professional investment managers have a variety of statistics they examine in an effort to estimate the relative value of the stock market. Distribute the Key Statistics handout. To help you with your decision-making process, the main ones they use will be given during your trek through time. Read the instructions aloud and review the terms as a class.
Explain to the students that they will participate in a game of Kahoot! to make sure they understand these key statistics. Open and start playing Kahoot! game.
Group Activity
Now, tell the students it is time to start the interactive activity called Can You Be the Next Market Guru?. Students should work in pairs. Explain to them in the following activity, you’ll start with $100 and attempt to accumulate as much wealth as you can by either investing your money in the stock market or setting it aside safely in the bank. When investing in the stock market, your money will be spread among all the stocks in the market rather than placed in any single stock. This is much like investing in a diversified mutual fund. For those who aren’t sure what a diversified mutual fund is, it is simply a fund that pools money from many different investors and invests in a basket of stocks. A single individual often does not have enough money to do this on his or her own. Now click and begin your quest for guru status.
Individual Activity
Once they are done with the interactive activity, have them write down the responses to the following questions:
- How much money did you end up with?
- Did you tend to invest in the stock market or save your money in the bank more often? Explain why.
- Based on the end slide, how did you do timing the market correctly? Why might it be difficult to time the market, based on your experience today?
When all students are done responding to the questions, discuss as a class their answers.
Assessment
Assess students by having them write an exit ticket response (5-7 sentences) to the question below:
- Why might it be a challenge to time the stock market? Give historical examples when able.
Students must hand-in their exit ticket.
Extension
Activity 1
Research Project: Congrats! Explain to the students that they are now going to be investment advisors to you, the teacher. Have students each select a stock company, such as Coca-Cola or McDonalds. Students should locate the following information:
- A graph that shows the historical stock prices of their company from start to current day,
- A brief summary of their company’s services and/or goods,
- Identify at least three time periods when the company’s stock increased sharply and three time periods when the company’s stock decreased sharply,
- Ask students to reflect on potential reasons for the changes in stock based on historical background knowledge and further research,
- Lastly, have students reflect on why it might be a challenge to forecast the company’s next 20 or 30 years of prices and why. Students should prepare a professional report within a word document that encompasses all of the information and recommends you purchase (or don’t purchase) their stock company based on their findings.
Use the Grading Rubric to assess each project.
Resources
Related Resources
Grades 9-12
Does Self-Interest Prevent Economic Justice?
Grades 9-12