LESSON FOUR

LESSON FOUR

The results are in and Canyonville Christian Academy (that's us) swept 1st, 2nd, 3rd, and 4th places in the spring 2008 Oregon Stock Market Game. Nearly 300 teams were entered in this competition sponsored by the Securities Traders Association of Portland, Oregon Council on Economic Education, Portland State University, et al.

1. Canyonville Christian Academy $182,881
2. Canyonville Christian Academy 168,814
3. Canyonville Christian Academy 141,882
4. Canyonville Christian Academy 141,301
5. McLoughlin High School 122,019
6. Canyonville Christian Academy 120,580
7. Jesuit High School 117,027
8. St. Mary's Academy 116,583
9. Crow High School 113,515
10. McLoughlin High School 113,497

In the 10-week, on-line, stock picking competition, each team begins with a hypothetical $100,000 cash position. Trades are real-time, short selling and margin trades are part of the game, and no stocks under $5 are allowed.

Note: The winning entries by CCA all made 40% to 80% in just over two months -- approximately two to four times what any other school was able to achieve in this difficult market. This is CCA's 16th win in the past 17 games we've entered -- a streak that dates back to 1996 and includes every kind of bull, bear, and doldrum market.. (The game is contested twice each school year - fall and spring.)

Now, to learn something from this year's spring game:

In the early days this year's contest (February and early March), the stock market was in free fall largely precipitated by the sub-prime credit problems. What I teach my students is to UNDERSTAND THE DIRECTION OF THE MARKET AND GO WITH IT.

When the market is on its way from 14,165 (Oct. 9, 2008) to 11,740 (March 10, 2008) - a sickening 2,400/17% plunge - the best place to be is hiding in cave with minimal exposure to stocks. Of course,
in a stock game, the object is not to preserve your capital. In a game you must be out there trying to hit home runs. So my advice to my students is to find stocks that are crashing - and sell the farm short.
(I also teach the kids that in real life short selling is inappropriate for most investors most of the time. But that's a topic for another blog.)

A corollary to the above rule ("understand the direction...") is the farther the market goes in one direction, the more careful you must become. The turns in the market are sometimes quick and provide massive dangers and opportunities. After the 11,740 low, the next day the market was up 417 points (March 11)
and has since moved up more than 1,000 Dow points.

Among the stocks that students picked for short selling during the down market were (with their 52-week ranges): Pulte Home (42 to 8), ETrade (26 to 2) and Ascent Solar (26 to 6).

How do we know what the direction of the stock market is? I merely have the students look at a graph from Barrons, Wall Street Journal or online. Most times the direction is clear from the picture presented by the graph. If the market direction is confused, then you get to choose. A more conservative investor or trader might consider the sidelines while someone who is more aggressive and willing to take risk would probably lean more towards being in the market.

But fighting the trend can cost you serious losses, or cause you to miss serious opportunities. And if you are ever in a stock picking competition, swimming against the current will probably land you somewhere in the middle of the final standings - or worse.