Making Money in the Jazz Age

A stock market simulation game from 1918-1933

How Today Works

• What’s the stock market?• Let’s buy some Nike stock• I’ll tell you how the game works• Students INVESTORS• Get your team together• Playing the game: let’s get rich!• What’s this got to do with the Great Depression?

The Basics: What’s a Stock Market?

• Stock markets are places where people buy and sell bits of ownership of a company, called shares, or stock.

• When the price of stock you own goes up, you have the chance to make money by selling the shares.

• KEY RULE: Buy LOW, sell HIGH

How about an example?

• I want to buy Nike stock, which currently costs $20 per share.– How much money do I need to buy ten shares of Nike?– Cost= (Price per share) x (# of shares)– $20 x 10 shares = $200

• A week later, Nike is trading for $40 and I decide to sell my ten shares to Jack. – What is my total revenue (TR) from the sale?– Revenue = (Price per share) x (# of shares)– $40 x 10 = $400

• What is my profit? Profit = (Revenue) – (Cost)– $400 - $200 = $200 made

Let’s Practice Buying Stock

Date (year) Company # of shares bought?

Price per share?

Total cost (TC)

1918 GE 2 $5 $10

1918 FAR 4 $5 $20

Let’s Practice Selling Stock

Date? # of shares sold?

Price per share?

Total Revenue (TR)

Profit = TR—TC

1922 2 $10 $20 $20-$10 = +$10

1922 2 $3

1927 2 $15 $30-$10= $20

$6-$10= -$4 $6

$30

Now Try it Yourself

• Using this info, fill in LINE 5 on your handout. • In 1920, I bought two shares of GE stock for $6

each. • My total cost (TC) was 2 x $6= ____. • In 1928, I sold both shares for $9 each. • My total revenue (TR) was 2 x $9 = ____. • My profit was therefore TR minus TC, or

$_TR__ — $_TC__ = $_Profit_. • $18-$12= $6 profit

How to Play: A Team of Investors

• You’re a team of investors in the 1920s with only $20 to your names– Your mission: MAKE MONEY

• Each team member has a role:– Auctioneer: Team representative; bid at the auction– Broker: Numbers whiz; makes sure your Stock

Tracker and inventory are organized and correct.– Trader: While trading, you move around the

“trading floor”, making buy/sell offers to other teams

How to Play:Auctions and the Auctioneer

• In the first turn, you can buy as much stock as you want from the supply.– After that, un-bought shares are auctioned off until

all are sold. The Auctioneer comes to the middle of the room to represent his team at the auction.

– If you or anyone on your team talks during the silent auction, your bid will not be counted!

How to Play:Trades and Traders

• The Trader’s job: When all the shares are bought, you must travel the trading floor making buy/sell offers to other investors.

• Prices on the board are the market price, but you may make your own deals as well.– Ex: If GE costs $5 a share, you may buy it for $2 if you

find someone willing to sell you the shares.• When you make a trade, take or give the

bought/sold shares and INFORM YOUR BROKER so he can record the trade on the Stock Tracker

How to Play: The Broker

• The Broker’s Job: – Record all your team’s transactions (any time you

buy or sell). – Keep track of your stock cubes! – At the end of each year, figure out your team’s

money and debt (borrowed money). • Remember—the news often affects the

market!

Let the Trading Begin!

• A bell signals the beginning and end of each round.

• You have ~3 minutes each round to fulfill your duties– Auctioneer: Keep your team organized and go to the

auction (if there is one) – Broker: Keep track of your stocks and keep the Stock

Tracker up-to-date– Trader: Move around the trading floor buying and

selling stocks.

World War I Over!

November, 1918 The Finest in Finance Since 1889

Stock MarketName Price ChangeGeneral Electric (GE)

$4 --

Farming, Inc. (FAR)

$3 --

American Bank (AMB)

$7 --

Prohibition Begins18th Amendment Bans Alcohol

December, 1920 The Finest in Finance Since 1889

Stock MarketName Price

General Electric (GE) ▲

$1

Farming, Inc. (FAR) ▲

$2

American Bank (AMB) ▲

$2

Name Price ChangeGeneral Electric (GE)

$5 ▲$1

Farming, Inc. (FAR)

$5 ▲$2

American Bank (AMB)

$6 ▼$1

Broadcasting Live!GE Opens One of the First Radio Stations in the Country

April, 1923 The Finest in Finance Since 1889

Stock MarketName Price ChangeGeneral Electric (GE)

$7 ▲$2

Farming, Inc. (FAR)

$4 ▼$1

American Bank (AMB)

$10 ▲$4

Banks Lend Money to Investors

June, 1926 The Finest in Finance Since 1889

Stock Market

New Rule! You can borrow money to buy stock.

You must pay the bank back before the end of the game, or else go broke!

Name Price ChangeGeneral Electric (GE)

$11 ▲$4

Farming, Inc. (FAR)

$6 ▲$2

American Bank (AMB)

$13 ▲$3

Babe Ruth Sets Home-Run Record

November, 1927 The Finest in Finance Since 1889

Stock MarketName Price ChangeGeneral Electric (GE)

$13 ▲$2

Farming, Inc. (FAR)

$8 ▲$2

American Bank (AMB)

$16 ▲$3

High Tariff Discourages International TradeFarm exports expected to decline

December, 1928 The Finest in Finance Since 1889

Stock MarketName Price ChangeGeneral Electric (GE)

$16 ▲$3

Farming, Inc. (FAR)

$10 ▲$2

American Bank (AMB)

$20 ▲$4

Market Crashes! Stocks Drop by 33%

October, 1929 The Finest in Finance Since 1889

Stock MarketName Price ChangeGeneral Electric (GE)

$11 ▼$6

Farming, Inc. (FAR)

$4 ▼$6

American Bank (AMB)

$13 ▼$7

Federal Reserve Fails to Act—Collapse of Banking System Feared

December 1931 The Finest in Finance Since 1889

Stock MarketName Price Change

General Electric (GE)

$5 ▼$6

Farming, Inc. (FAR)

***Farming, Inc. is bankrupt. All FAR stock is now worth $0.***

▼$4

American Bank (AMB)

$7 ▼$6

F.D. Roosevelt Sworn in, Promises Action and a “New Deal”

March, 1933 The Finest in Finance Since 1889

Stock MarketName Price Change

General Electric (GE)

$2 ▼$3

American Bank (AMB)

***American Bank is bankrupt. AMB stock is now worth $0. ***

▼$7

And that’s the game!

• Calculate your final fortune:– Sell your remaining shares of GE for $2 each– Add how much cash you have– Subtract the amount of money you borrowed

(i.e. pay back your loans)• Who got rich?• Who went bankrupt?

Reflection (H)

1. Did the stock market go up or down during the 1920s? Was this good or bad for you as an investor?

2. How did the news event “High Tariff Discourages International Trade” affect the stock market?

3. In 1931, the Federal Reserve failed to prevent the collapse of the banking system. The next year, one of the companies shut down. Which one shut down?

4. Did you borrow money during the game? If so, were you able to pay it back?

Reflection

1. Did the stock market go up or down during the 1920s? Was this good or bad for you as an investor?

2. What happened to your stocks in 1929? 3. In 1931, the Federal Reserve failed to prevent the

collapse of the banking system. The next year, one of the companies shut down. Which one shut down?

4. Did you borrow money during the game? If so, were you able to pay it back?

Causes of the Depression

• People over-speculated on stocks, using borrowed money that they could not repay when stock prices crashed.– How did this play out during the game?

Causes of the Depression

• The Federal Reserve failed to prevent the collapse of the banking system.– What happened to American Bank when the news

reported that the Fed wouldn’t help them?

Causes of the Depression

• High tariffs discouraged international trade.– Retaliation: Since we made it hard for other

countries to sell goods to us, they made it hard for us to sell goods to them.

– Before tariff» American rice: $5/lb.» Chinese rice: $3/lb.

– After $3 tariff on Chinese rice» American rice: $5/lb.» Chinese rice: $6/lb.

Summary

• The Great Depression had three main causes:– People over-speculated on stocks, using borrowed

money that they could not repay when stock prices crashed.

– The Federal Reserve failed to prevent the collapse of the banking system.

– High tariffs discouraged international trade.