Tumultuous would be an understatement in describing this week's action in financial markets. Bank writedowns and a poor jobs report had the bears growling as the Dow ( DJI) fell more than 600 points this week. Meanwhile, the "R" and "D" words have started to appear with frequency in the Wall Street lexicon. And while there is an election underway, R and D do not stand for Republican and Democrat, they stand for: recession and depression -- thus creating a teachable moment.
Cramer: We're in a Recession!
Down markets are a fact of life in the investing world, and while we haven't had a depression since the 1930s (and are unlikely to now), recessions are a part of the normal business cycle . Stock markets tend to be leading indicators, which means they attempt to predict the future economy. The market's success at this is less than prescient. There's an old joke on Wall Street that says the stock market has predicted nine out of the last three recessions. But the market's inaccuracy is beside the point. Markets are driven in large part by perception -- if people believe a recession is coming, stock prices will fall. And right now, people believe there will be a recession. So as you begin this semester you should expect that in the short term, many of the stocks students buy will have significant downside risk , which is why it is imperative that we stress research and the long-term benefits of saving and investing. If you have yet to introduce your students to the "What is a Company ?" and "What is a Stock ?" lessons, you should know that these are the natural starting points for using the Stock Market Game (SMG) in your classroom -- both are available in the Teacher Support Center . However, if you've already covered this ground and are looking for appropriate lessons in a quaking market, you should return to first principles. One of the bedrock foundations of SMG is to teach students to save and invest for the long term. In the Teacher Support Center , the core lesson, "How Money Grows Over Time," teaches students about compound interest and the Rule of 72 -- these are excellent demonstrations of long-term investing philosophy. SMG core lesson " Earnings and Dividends " can help students understand that there are ways to make money with stocks other than relying solely on price growth. It also helps students evaluate the fundamentals of a company, which is always critically important, but particularly so in a down market. Similarly, core lesson "Buy, Sell, or Hold" helps students to research and evaluate the companies they invest in. "The History of the New York Stock Exchange " -- a non-core lesson -- gives students an understanding of the ups and downs of markets.
Cramer: All Signs of a Classic Bear Market
Specific LessonsFor elementary school and eighth-grade, middle-school social studies teachers: In the Teacher Support Center under the "Publications" section, specific social studies units can be found by clicking the "NYC DOE Social Studies" links. For math teachers: All of SMG's core lessons contain a math component in the SMG curriculum guide: "Math Behind the Market" which is also available in the publications section of the Teacher Support Center . The "Intermediate" version is for middle school and gifted elementary school students. The "Advanced" is for high schoolers. Have an awesome semester!