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Hat tip to Brian Page for pointing out this simulation and for coming up with great ideas of what to wrap around it. The IPO Roller Coaster let's students experience what it feels like to invest in popular Tech IPOs (initial public offerings). Since these IPOs are the first time the company's stock is trading on a public exchange, they experience pricing volatility as investors try and figure out the underlying"value" of these companies.
Brian suggests starting with this video from our Video Library to provide context so students can discern differences between saving, investing and speculating. On to the simulation...The simulation is quite simple with minimal explanation required:
Your students will click on the "Start trading!" button and then will click again when they think it is a good time to "BUY" the stock. 60 days of stock prices take about 15 seconds to proceed on the screen and then the simulation tells you whether you bought at a price LOWER than the first day's stock price. If so, you WIN! Of course, whether you really win or not is based on how the stock performs not in one day or 60 days but over the long-term and whether you can sell at a price higher than what you bought it at. What I like about this simulation is that it gets you thinking you know the pattern, just wait to buy AFTER the IPO, and then throws a curve ball.
I created a worksheet (IPO Roller Coaster) that students should complete as they play the game. I discovered that the IPO price in the game is actually the price at the end of the first day of trading. I went back and researched the actual IPO price which is the price that most individual investors will NOT be able to get. (Long story short: high net worth individuals who are customers of the banks usually get those prized shares at the original IPO price). Individual investors get in after the initial "pop" that you see in the first day trading in these shares.
As an extension activity, you can have the students compare the 60 day returns on these IPOs, assuming they buy in at the end of first day trading price and hold for 60 days, with the returns on the S&P 500 index over the same 60 day period. Yahoo Finance can provide the historical prices for the S&P 500 (I already input the dates into the spreadsheet). This helps students understand the concept of relative return or how a stock performs in comparison to an index.
Questions:
Key takeaways that Brian emphasized after students completed simulation that are consistent with his investing unit:
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Tim's saving habits started at seven when a neighbor with a broken hip gave him a dog walking job. Her recovery, which took almost a year, resulted in Tim getting to know the bank tellers quite well (and accumulating a savings account balance of over $300!). His recent entrepreneurial adventures have included driving a shredding truck, analyzing executive compensation packages for Fortune 500 companies and helping families make better college financing decisions. After volunteering in 2010 to create and teach a personal finance program at Eastside College Prep in East Palo Alto, Tim saw firsthand the impact of an engaging and activity-based curriculum, which inspired him to start a new non-profit, Next Gen Personal Finance.
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