5 Stock Market Tips Learned From Playing A Game
I’m not a big stock market guy when it comes to trading, but I am someone who follows what’s going on. I have to admit that I’ve pretty much taken numbers for granted, since I’ve always been more of a stats guy than a process guy.
Not anymore. I have figured out many things that are important when it comes to the entire stock market, or trading in general, and I learned these concepts from a game. And this game has nothing to do with playing the stock market, although some of the concepts are the same.
It’s called Empire Avenue, and it’s basically a stock market game that measures one’s social media presence, and figures out one’s net worth. The only difference in how the game starts from the real stock market is that one doesn’t walk in and immediately start selling shares to raise money. That part takes time, although you find some things that happen in the game that happens on the stock market. What you ask? Let’s look at these 5 concepts.
1. If it’s a new business, there’s always someone willing to take a chance and buy those shares, well known or not. Two weeks ago Facebook hit the market and even though it under performed based on predictions, it still made a lot of people super rich and Zuckerberg a billionaire.
In the game, people look for new people to buy their shares because everyone starts with a relatively low price. In the real stock market, there are many buyers looking to do the same thing, acquire a lot of the stock at a low price so they can have a real say in what goes on with the company, or to help the price go up so they can sell it quickly and make a quick buck.
2. Lower priced stocks can be volatile, and the risk might not be warranted. In the game, the purpose is to keep growing your stock price, but it doesn’t always happen. However, there are times when a person might be doing a lot with social media and their price will rise and that brings all the buyers, only to find that within a couple of days they’re not active anymore and their price is dropping like a full bucket from a roof.
In the real stock market, that same type of thing happens. An established business might have a low price and suddenly one day it starts going up. Those who aren’t paying attention will see the price increase and decide they have to buy into it as well. However, if they don’t know whether the price is rising because there’s positive news on the company or because a group of investors have decided to artificially inflate the price so they can sell quickly within a couple of days, they could get taken to the cleaners.
3. If you buy high priced stocks, you’d better be in it for the long haul. In the game, there are a few players who have stock prices that are way higher than everyone else. These are people that show a consistent increase in their price; they’re truly engaged in social media. However, even high priced stocks will drop every so often. When that happens, you lose your money quicker, which obviously drops the value of your portfolio.
The same thing happens in the real stock market. Some companies have stock prices so high that one share might cost you hundreds of dollars or more. If you only have so much in funds it might not be the best choice to blow it all on one or two large shares because if they take a turn in the wrong direction, your investment can disappear really fast. If you needed a quick hit in the positive direction this isn’t a smart thing to do. However, if you’re able to weather the storm for awhile to see where things are going, then these can be very sound investments.
4. You need to research the activity of a company before you decide to invest, or to decide how much you should invest. In the same, people are ranked by how much they play the game and how much they do in social media overall. Some of the top people don’t play the game all the often, but are so prominent on social media that people keep buying their shares. The top people are big on Facebook, Twitter, YouTube, and when people share these things, it inflates their price. The people on the lower end aren’t doing much of any of this, and thus their share prices stay low and their rate is volatile.
In the real world, there’s a lot of research that should be done in companies you’re thinking about investing in so that you’re making sound decisions. One of the reasons we hire someone else to invest for us is because it’s their job to know about the companies they invest our money into. For the big name companies it’s easy to learn what they’re doing almost daily. For the companies in the middle to low range, it’s much more difficult. However, even there you can track 30, 60, 90 days and even a year’s worth of their rate to get a general idea of whether they’re growing, falling or stagnant.
5. You also have to be ready to sell. In the game, you find that you know a lot of the people, or get to know them well. Then, when their stock prices starts to fall, you get hesitant to do anything with it because you don’t want to hurt their feelings. However, it’s all about money, not friendship, so you have to be willing to get rid of it. The same happens with stocks that have paid you well that suddenly start falling. It’s all about how well a stock is working now, not previously.
In the real stock market, the same thing applies. That’s why over the last 3 years so many big name companies have seen their stock price fall dramatically. Initially people were trying to hold onto these stocks, thinking they would turn around like they always did. I’m someone who lost 60% of my portfolio on this type of thing, although I thought someone was managing my money at the time and didn’t start paying attention early enough. Right now I have one vanity stock, Xerox, because my dad worked there, and though it’s price has been flat over the past 5 years, I can deal with it; sometimes it’s hard not to become attached to something.