Introduction
Going into the project our group was extremely excited about the opportunity to trade using a simulation stock market that uses live information without the risk of losing money. The stock market can be extremely volatile and difficult to navigate, therefore, having practice before we used our own money to invest in stocks was a huge benefit. We were able to use the knowledge and experience we learned from this simulation and apply it to investing in our own personal accounts. The stock market experience was one of many mixed emotions. There were numerous times that we had a stock that greatly decreased in price and looked hopeless, yet days later, the stock had increased in price significantly.
Simulation Experience
When investing in stocks, one method we evaluated was barriers to entry of that specific industry. For example, when we invested in Veeva, a “Cloud-Based Business Solutions for the Global Life Sciences Industry” the industry showed high barriers to entry (Veeva). Do to the many barriers Veeva experiences little competition in their field. The business they are in makes it extremely difficult for other companies to succeed. Veeva hosts most healthcare companies’ information by storing it on their cloud, making it extremely costly and time consuming for health care companies to switch their information to another company. This helps Veeva control the market while they also rank in the top 10% of the healthcare technology industry. Other stocks that we strategically chose to invest in were Apple and Amazon. We picked these stocks because their share prices consistently experienced steady growth over the years. The one stock that turned out to be a good investment was one we purchased based off the name alone. Because of the popularity of Lululemon, we decided to invest. Overall, the experience in the stock market was definitely one to remember. There were days when our portfolio was in second or third place and the market was easy to read, yet there were other days when our portfolio looked hopeless and a significant amount of our stocks decreased in price. Having this simulation allowed us to find stocks that are good investments, leading us to purchase multiple of them in our personal portfolio as well. While there were many ups and downs during the stock market experience, it was an experience we will all remember and has given us knowledge to help benefit our future.
History:
The first U.S. stock exchange, Philadelphia Stock Exchange, is not as widely known as exchanges such as Nasdaq and the New York Stock Exchange (NYSE); however, in the 1700’s it proved rather powerful (Sharper Insight). The NYSE shortly followed and rapidly surpassed the other exchanges, both domestic and foreign, to become the most powerful exchange in the world (Sharper Insight). While globally, many countries had their own exchanges, many lacked the strict regulations and guidelines that companies desired, leading them to list their company on the NYSE (Sharper Insight).
The stock market has experienced large booms and great devastation since its beginning. In 1929, the stock market crashed leading to the beginning of the United States’ Great Depression. This crisis occurred almost simultaneously with the crash of the London Stock Exchange (LSE). The magnitude of these two powerful exchanges crashing impacted the economies of not only the United States and London, but all countries that had companies listed upon the exchanges. After a long period of recovery, the exchanges were headed in a positive direction, but it took years for investors to regain confidence. Similar to the crash of 1929, the Global Financial Crisis occurred in 2007-2008 (Sharper Insight). While the impacts of these large crashes have been detrimental to many investors, the market has seen steady growth.
While the NYSE has been around since the 1700’s, the other US exchange, the Nasdaq, proved to be extremely innovative and greatly affected the way trading had been done. The Nasdaq changed the way trades were conducted in its entirety. While the NYSE had brokers on the floor, communicating with one another and performing trades, the Nasdaq was the first exchange to be completely electronic. The exchange no longer had a need for a physical trading floor as all transactions could be performed remotely.
Economic Factors that Drive Prices Up and Down
There are numerous factors that determine how prices are impacted. A main driver of stock price is the economic performance of the company. For companies that are experiencing growth, they are likely to experience changes in their stock price. This also applies for many companies in specific industries as well. For example, the technology industry has been growing for years, and many companies in that industry are experiencing increase in their stock prices. Companies also tend to see increases in their stock prices around times where their products tend to be popular or a new product is expected or just released (Sharper Insight). For example, one of the companies that we included in our portfolio, Apple, usually sees an increase in stock price around the time that they announce a new product, and around the time that they release that product. For example, when the new iPhone X launched on November 3, 2017, there was an increase in stock price. The stock went from trading at about $167 on November 1, one day before the phone launched, and then rose to about $176 just one week later, five days after the phone was released. An alternative example is the retail industry. The retail industry and department stores have been experiencing a decline in profits for quite a while due to the introduction of companies like Amazon, who primarily sell products online. Some companies in these industries have experienced significant decreases in stock prices for years. An example of this is Sears, whose stock was above $40 in 2015, and is now trading at about $4, which is a steep decline for a short two-year period.
Current Events that Affect the Stock Market
While it is often debated whether or not the stock market is being impacted by Donald Trump’s presidency, it should be noted that the Dow gained 257 points immediately after Donald Trump’s election, but it also decreased leading up the election as uncertainty about the future presidency loomed (Top 10 events). Another current event that has impacted the stock market was when Britain decided to leave the EU (Top 10 events). This sent the stock market down, as investors feared what this could mean for the economy, as Britain would no longer be backed by the European Union. Another extremely recent event that is impacting stock market investing is the rise of cryptocurrency like Bitcoin. Bitcoin has surged in worth and popularity during just the past couple of weeks, and it is definitely changing the way that some people invest.
Conclusion
Our group enjoyed participating in this stock market simulation for numerous reasons. We learned about the potential risks and rewards that come with participating in the stock market. Additionally, we enjoyed the chance to work as a group and collaborate our ideas about what stocks we should or should not buy. As we have previously mentioned, we all have our own personal portfolios, and this was good practice for us to learn more about the stock market before getting older and investing a significant amount of money. By then end of the simulation, our portfolio had grown to over 9%, and we were very proud of this accomplishment. Some of the stocks that did the best for us were Bitcoin Investment Trust as well as Delta Air Lines. Bitcoin was a very good short-term investment for our group, and it had a very high return. Additionally, Delta, while its return was not as notable, did provide us with a dividend, which other stocks did not do. The stock that hurt our group’s portfolio the most was our stock in Wheeler Real Estate Investment Trust. At the end of the simulation, this stock was down 10.4% from when we purchased it. Our stock in Comcast and Teucrium Commodity Trust also hurt our group’s performance. We also learned a lot about how to decide what stocks to invest in. We used resources like Fidelity, Zacks #1, and paying close attention to current events to decide what stocks may be good for us to invest in. Overall, participating in this simulation has provided us not only additional skills and knowledge but also more confidence when personally investing in stocks.