Simulated investing brings real-world knowledge and expertise

“You are hired by the Red Hawks Foundation. Its money comes from donations of Ripon alumni, and its investment proceeds are used to support important capital improvements such as the renovation of the J.M. Storzer Athletic Center at Ripon College.”

I told this to my students in my Investment Analysis class at the beginning of this semester. “As fund managers, each two of you will work as a team to manage a $1 million fund,” I told them, and with that I could definitely see excitement in the students’ eyes.

Investment Analysis is a senior-level business management and economics class that introduces financial markets, investment tools, portfolio theory and models and investment techniques. One of the challenges faced by the students in this class is to fully understand how complex investment products work. In addition, the modern portfolio theory we focus on throughout the semester is very quantitative in nature, which poses more challenges to students.

In order to overcome these challenges, I let students manage their own portfolios in an online investment simulation. To help them develop the sense of responsibility as fund managers in a setting as close as possible to the real world, the students are treated as fund managers hired by the hypothetical Red Hawks Foundation. They are fully responsible for formulating their investment strategy, selecting securities, executing trades, and tracking and reporting performance in their simulated investment accounts.

All the asset prices in this investment simulation are based on real-world data, and the only simulated part is the money the students manage. Students can invest their funds into a wide variety of financial assets ranging from more conventional choices like stocks and bonds to more advanced investment vehicles like options and futures. The students love this type of practice and get really excited to apply things they learn in class to the real investment world. They also love competing to move up their fund’s ranking in the class.

Throughout the whole semester, I give a series of assignments to students for practice in their accounts. For example, when we study futures, students are assigned to trade futures on crude oil in the following week. After they finish the assignment, we sit down and discuss their trading experience. This practice greatly increases students’ interest in learning. They know that if they simply invest into a financial asset without fully understanding how it works, they probably will “screw up” their investment. In addition, students write weekly journals to keep track of their portfolio and turn a final research paper that discusses their investing experience.

“It is great chance for us to get our feet wet,” one student told me about her experience of this simulating practice. “This is the best way to learn about this class, and it helps us understand concepts better by experiencing it.”

Students have great fun practicing investment skills in their simulated investment accounts. This valuable experience will help them better prepare for future careers in the financial industry and help them make better investing decisions throughout their lives. One thing I always remind students is: Don’t be afraid to make mistakes when you use simulated accounts. You learn from mistakes.

Peng “Roc” Huang
Associate Professor, chair of the Economics Department

Posted March 12, 2015 in Faculty.

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