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Stock Market Game Week in Review

Stocks in this article: WFC

The Stock Market Game is a curriculum-based teaching tool that allows students to invest a hypothetical $100,000 online stock portfolio to learn about long-term saving and investing.

Despite the troubling pirate news off the coast of Somalia as well as the earthquake in Italy, there were some positive headlines last week regarding the economy here at home. The markets rallied last Thursday in light of news from Wells Fargo (WFC). The company announced it expects total revenue for the first quarter to grow by an estimated 16% to $20 billion. First-quarter earnings will not be reported until April 22, but the news shot the Dow up 246 points to close at 8,083, and the Nasdaq composite, and S&P 500 also posted positive gains.

Also getting a lot of press last week was the concept of short-selling and whether or not the Securities and Exchange Commission will curb its practice as it is blamed by some lawmakers and executives for deepening the financial crisis and driving down share prices. The SEC voted unanimously to have a 60-day comment period on five proposals, including bringing back an "uptick rule," which allows short sales only when the last sale price is higher than the previous price. Other proposed restrictions would be triggered by a deep decline in the price of a security.

Short-selling operates on the notion that the price of a particular stock will fall. It is not recommended as a strategy for long-term saving and investing. However, because it's in the news, your students may ask about it, so here's a brief refresher: To profit from short-selling, you borrow shares of stock from a broker, sell the borrowed stock, and keep the money gained from the sale. If the price of the stock falls, as anticipated, you buy back the borrowed shares, or "short cover," at the lower price and return the number of shares you borrowed to your broker. Of course not all stocks fall in value when short sold, so the strategy can backfire if the stock value goes up rather than down when it's being shorted. When the market posts a strong rally, the risk of short-selling becomes very apparent.

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