For Teachers: Lessons on Investing in What You Know

The Stock Market Game Week in Review: Feb. 11-15

Like butter on an English muffin, the credit crisis is seeping into every nook and cranny of our financial system -- last week it was frozen-up student loans. Consequently, fear continues to loom large on Wall Street with no foreseeable optimism in sight. But at some point the hand wringing has got to end and investments must be made, but they should never be made will-nilly --- credit crisis or no.

An article posted Thursday, Feb. 14 by Priya Ganapati of TheStreet.com reminded us of the mantra coined by legendary investor Peter Lynch: Buy what you know.

Peter Lynch used to run the Fidelity Magellan Fund ( FMAGX), which is one of the largest and best known mutual funds in the United States. His simple yet brilliant investment philosophy centered on noticing what is around you everyday. What clothes do you wear? Who do you bank with? What kind of car do you drive? What kind of toys do your kids want? When you answer those kinds of questions, you can compile a list of stocks to research and evaluate. That's "buy what you know," which brings us back to Ganapati's article.

Activision ( ATVI) is a video game producer that recently came out with a game called Call of Duty 4, which Ganapati reported is selling like hot cakes. We at the Stock Market Game don't pretend to know what type of hijinks this merry band of virtual brothers is up to, but many of your students do and they've been buying and playing this game.

So, as your students walk around in their everyday life, you should ask them to observe the world around them and then ask themselves, "Would the companies that make the soda I like or the sneakers I wear or the bicycle I ride make good investments?" Buying what you know doesn't guarantee a winning portfolio, but it's a great way for students to get started and to learn that, however unwittingly, we all are part of our economy and capital markets.

In other financial news last week, Fed Chairman, Ben Bernanke spoke before the Senate Banking Committee and stated that he believed the economy would be "sluggish" this year. To learn more about how the Federal Reserve can impact the markets, log in to the Teacher Support Center and click on the Publications link in the "In the Classroom" section. There you will find a helpful newsletter entitled, "What the Fed Said." As credit woes continue, investors will be hanging on every word Mr. Bernanke utters. This newsletter will help your students understand why.

Theme-based stock of the week: China Natural Gas ( CHNG). With the presidential primary races still in full swing, the theme of change has been filling the air. There's change in the stock market too: China.

This article was written by a staff member of The Stock Market Game.

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