At my school, world history is divided into two years: one year of ancient (up to 1600) and one year of modern (picks up with European absolutism and revolution). I’m proud of the way our curriculum transitions between the two. The last quarter of the ancient course deals with European’s Renaissance and Reformation, setting the stage for the modern course. The course starts to become more conceptual, introducing economic innovations such as the joint stock company. This activity is a class-long simulation of how a joint stock company works, and it illustrates investing principles such as portfolio diversification to boot.
In this turn-based simulation, students are given currency that they can spend (on candy) or save (and invest in a joint stock company). The joint stock companies are entities that pool investor resources to send a voyage off to India or China. These voyages are risky, and the risk is simulation by drawing cards from a deck. Each card is labeled with a boon or a disaster that could befall a voyage. If the voyage draws a certain number of good cards in a row, that voyage is deemed successful and the shareholders get paid out.
The simulation proceeds as follows:
- Turn 1: Students get a paycheck – five gold pieces (I use fake currency that I make from construction paper).
- Turn 2: Students get the opportunity to buy candy. I ask each student to bring in a bag of Twix/Mars/Snickers etc.
- Turn 3: Students get the opportunity to invest in a joint stock company. I set a minimum amount that the company needs to raise to send a voyage off – for example, 80 gold pieces. Students need to pool their money to raise the necessary capital. I usually assign three or four students to be company CEOs – they each have a company, and have responsibility for keeping track of each student’s contributions, and assuring that the money adds up to exactly the right amount. If the students have a successful voyage, they will receive a payout that is a fixed multiple of their original contribution – for example, voyage that cost 80 gold pieces would return 160, divided proportionally amongst the investor. “Success” is defined by chance – in this case, drawing a certain number of “good” cards in a row.
- Each CEO records their investors with me – I keep track of this in a spreadsheet.
- I get the students settled down, and then draw the cards for each company’s voyage – for example, Company A get three draws, then the cards are replaced and shuffled and I draw for Company B.
- Pay out the investors in the successful companies. Once the payouts get large, I write checks instead of paying in fake currency.
- Repeat the round, with two modifications: 1) Increase the price of candy to simulate the inflation that accompanied the Spanish hauls of precious metals, and 2) Modify the terms of the joint stock opportunities to have increased risk, but with increased reward.
I use this powerpoint to guide each turn, and this spreadsheet to keep track of investors, record their contributions and payouts, and calculate risk based on the ratio of good to bad cards in the deck (here is a copy of all the cards I use) and the number of draws.
At the end of the activity, ask students to count up how much money they have. For the richest students, ask them why they were successful. You might cover such strategies as:
- Saving instead of spending. Students who just bought candy didn’t have much to invest.
- Portfolio diversification. Students who divided their investments among two, three, or even four companies mitigated the risk of one of their voyages sinking.
Not many people know how the stock market works or why companies offer shares. This simulation doesn’t teach the supply-demand component to share pricing, but it does explain how the concept of shares emerged, providing an important foundation for later studies of capitalism and communism. The activity is also a very concrete, experiential way to teach an abstract concept.
This simulation always goes well for me – the kids are into it and learn a lesson that they unanimously agree has real-world applicability. You can expect to get a lot of questions about investing and business, and may even learn of a few students who (with their parents’ sponsorship) already dabble in investing themselves.