Why do stock-market contests continue to exist? I even had them in my high school Economics class, as if they were a useful learning tool. The goal is always to have the most money within just a few months. Since it’s always done with fake money, there is no punishment (like say, poverty?) if you lose everything. Only the top 0.01% win, and the rest lose. How is this applicable to real life at all?
I was reminded by how much I dislike such fake contests when I read about how CNBC’s Million Dollar Portfolio Challenge ended with a whimper. A quiet announcement revealed that waitress who’d never owned any stock before beat out 377,000 other participants to win the $1 million prize. But what got the most attention was the fact that people figured out a loophole in the system (being able to trade after the markets had closed) and cheated their way to great gains.
What have I actually learned? First,such short-term stock picking contests are about luck, not skill. A slot machine pull would be both faster and easier. Second, there will always be people trying to cheat the system, and many will get away with it. I find it very hard to believe that the SEC catches the majority of insider trading or other short-term manipulations of the market (you know, like Mad Money guy Jim Cramer used to do.)
I continue to ignore short-term variations of the real stock market as a result, and I often urge my family and friends to do the same. It feels like a lost cause though, as watching stock market gyrations has become America’s new favorite pastime and water-cooler material.
Added: The Motley Fool also has a nicely written article on what they term the CNBC’s “Portfolio Challenge” Fallacy.