For many, the ASX Sharemarket Game is a first introduction to investing - and that's a great shame. Each year over 70, students participate.

If you wanted to design something that taught young minds the essence of poor investing, the ASX game would be a great starting point. Rope in a few thousand students and in a few years we can stop worrying about the blessed school fees. In a country where little attention is paid to financial education it seems churlish to pick on one of the few programs that attempts to address this shortfall.

The problems start right out of the box. The next game, due to start on 21 August, runs for 10 weeks. So why does the ASX Sharemarket Game let them put the same amount into four speccy gold stocks to learn about investing?

Time and again studies reveal that the more people trade, the worse they do.

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High volume traders pay more in transaction costs broking fees and tax and tend to make more emotional, less effective decisions that adversely affect performance. Nevertheless, the game is riddled with the temptation to over-trade. Students can buy and sell up to 20 times a day. The diversification rule is just as misleading. That suggests a portfolio of just four stocks is adequately diversified. But it gets worse.

If you want to learn how the company makes money, its strategy and growth possibilities, you have to go elsewhere. First, ignore all those big, steady stocks that have been growing for decades and paying dividends.

What you want are companies in volatile sectors that have a chance of skyrocketing in 10 weeks. Think mining, energy and biotechnology - companies that might be on the verge of a big gold discovery or a new treatment for cancer.

Picking 10 stocks that double in price is more difficult than picking only four. Invest in the bare minimum number of stocks. Purchase four stocks, hold them for 10 weeks and hope for the best.

Finally, do not hold cash. You were more lucky than most, not smarter. Do not mistake luck for skill. And if you lost? Sign up for free. View the discussion thread. InvestSMART Publishing Pty Ltd holds Australian Financial Securities Licence AFSL The content of this website is general in nature and does not take the personal situation of any user of this website into consideration.

Past performance of any security or financial product is not a reliable indicator of future performance. InvestSMART Publishing Pty Ltd encourages users of this website to view investing as a long-term pursuit. This website and its contents are protected by copyright law. All the copyright in this website and its contents is reserved.

Sharemarket Game - ASX

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