The Aleph Blog » Blog Archive » On Investing Games & Contests

On Investing Games & Contests

I am not a fan of investing games and contests.  Here are my reasons:

  • They are too fast.  Investing is a slow process; games make money far more quickly than markets do.
  • They are biased toward winning.  Many games have a positive bias built into them, returns are far higher than are commonly attainable.
  • Contests encourage undiversified portfolios.  The only contest I have seen that did not do that was the Value Line Contest in 1984, where everyone had to pick ten stocks from ten buckets going form low to high price volatility.  Great contest — I was in the top 1%, but did not win.
  • Good investing is boring.  It is work.  Most of it is not a game, though I will admit there is some game in buying and selling — gotta beat the algorithms at their game.
  • Games are not as robust as the markets.  The markets serve up all manner of surprises, while games typically mimic the past.

Here’s what I can endorse, if done fairly: paper-trading.  As with any sort of self study, if you want it to be valuable, you have to be a strict cop on yourself.  I papertraded a number of times in the 80s, and I always did well vs the market.  My porfolios typically had 40-60 companies, but they always did well.  As a TA in Corporate Financial Management, I would share my ideas with students, who liked my enthusiasm.  The professor was a EMH devotee, who when he heard that my paper portfolio was up 40% while the broad market was up 20%, said, “Oh, you pick stocks that have a beta of two.”  I tried to show him that was not the case, but “you can’t teach a Sneech.”

Paper-trading moves at the speed of the market.  It is close to real.  It shows you how difficult it is to make money.  I recommend it to all of my readers.


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David Merkel is an investment professional, and like every investment professional, he makes mistakes. David encourages you to do your own independent "due diligence" on any idea that he talks about, because he could be wrong. Nothing written here, at RealMoney, Wall Street All-Stars, or anywhere else David may write is an invitation to buy or sell any particular security; at most, David is handing out educated guesses as to what the markets may do. David is fond of saying, "The markets always find a new way to make a fool out of you," and so he encourages caution in investing. Risk control wins the game in the long run, not bold moves. Even the best strategies of the past fail, sometimes spectacularly, when you least expect it. David is not immune to that, so please understand that any past success of his will be probably be followed by failures.

Also, though David runs Aleph Investments, LLC, this blog is not a part of that business. This blog exists to educate investors, and give something back. It is not intended as advertisement for Aleph Investments; David is not soliciting business through it. When David, or a client of David's has an interest in a security mentioned, full disclosure will be given, as has been past practice for all that David does on the web. Disclosure is the breakfast of champions.

Additionally, David may occasionally write about accounting, actuarial, insurance, and tax topics, but nothing written here, at RealMoney, or anywhere else is meant to be formal "advice" in those areas. Consult a reputable professional in those areas to get personal, tailored advice that meets the specialized needs that David can have no knowledge of.

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