So after a few months of running the International Bank of Chan Fund, we have decided to reset the game. The game became stagnant because people weren't making trades any more. The main shortcomings of this first game was:
- Long timeframe. A game that spans one year is far too long, and if you make a mistake along the way, you're pretty much dead in the water. Although this is realistic, it's not fun.
- Unlevel playing field. The game wasn't exactly fair because you could borrow money to buy stock. However, the interest rate for that borrowed money was far too low. I wanted to boost the interest rate costs as the Federal Reserve raised interest rates (just like in real life), but the game didn't allow it, so it wasn't fair. This gave an unfair disadvantage to investors who didnt borrow money to invest.
- Not enough cash. With $4,000, it was far too difficult to build a diversified portfolio. So, many people (including myself) were taking on way too much risk and developing bad habits.
To address this issue, I've restarted the stock game with new rules which should encourage more activity. Some realism is sacrificed, but it makes the game more fun, and hopefully keep people more interested this time around.
The last game was also super difficult because the summer was absolutely horrible for the stock market. The markets are better right now, so hopefully it'll be a much more enjoyable trading session.
In this new game, you start with $10,000 which does make it possible to build a diversified portfolio. Basically if you pick five stocks in five different sectors, you've got a diversified portfolio. In addition, I've disabled borrowing money in the game, so everyone has exactly the same amount of buying power available. Lastly, the game runs for four months at a time, so the investment timeline is shorter. Hopefully this will generate more trading.
With more money to start with, hopefully people will be more sane about their investing since they have more money to spread around. Although, some bad habits die hard, and I still see some people putting all their eggs in one basket.
If you want to join, simply go to
MarketWatch. I offer a quick two-part tutorial about picking stocks, and sources of information,
part one and
part two. There's a school of thought that believes half the battle in investing is being in the right sector at the right time. What sectors is absolutely sucking right now? Natural resources, manufacturing, industrials! What sectors are rocking right now? Financials, healthcare, retailers, and technology. If you're absolute newbie and want a model diversified portfolio, this is what I would recommend picking up and price targets:
Verizon (VZ) - Low risk, buy it soon as it'll easily go to $40/share easily, maybe even by next week. Verizon is a telecommunications company that works well during a slowing economy. People aren't going to give up their cellphones and telephone services just because the economy gets bad. That's a quick 5% return. This stock should gradually move up.
Johnson & Johnson (JNJ) - Low risk, this is the classic defensive stock to own when the economy is slowing down. Hold on to this one and it will gradually move up. This will be your stronghold, and it will weather the storms of the stock market.
Apple Computers (AAPL) - Medium risk. Buy it if the stock ever pulls back in price. This is something worthwhile to keep up until Christmas is possible, but remember, if you have a huge gain, you need to sell some to lock in some of your gains. It's easily going past it's old 52-week high of $86.
Gamestop (GME) - High risk. This is the company that owns EB Games. We have a huge upgrade cycle in the video game arena as we've got the Nintendo Wii coming out, Nintendo DS Lites are selling like hotcakes, PS3 is coming out soon, and Christmas is approaching. In addition, the ever addictive World of Warcraft is coming out with a hugely anticipated expansion pack in November. Gamestop sells all these games, and they are essentially the arms dealers in the game console wars. Get in on this action before the stock exceeds $50/share. This is part of the retailer sector with some exposure to tech.
Darden Restaurants (DRI) - Medium risk. Ahhh, Darden Restaurants, home of the Olive Garden and the Red Lobster. This is a massive restaurant chain and a good long-term investment. It plays off the fact that Americans have less and less time, so they're eating out more.
So, that's the model portfolio for a newbie. It's a relatively low-medium risk portfolio with a little excitement coming from Gamestop and Apple Computers since they both should be high flyers. Please do your homework on these stocks first, and don't buy it all at once. Watch the prices, and buy low, sell high.
Good hunting all.
Standard disclaimer: this does not constitute as financial advice, these are merely the opinions of the author. What we cover here is only suitable for our virtual stock exchange which is merely a game. We are not responsible for any losses or gains you may incur in real life. Please consult a investment professional for investment advice.
