Lesson 2.16, one day. Slides 1 to 11. Every price is from page 2 of Handout 02.14 - The Gilded Age Market Kit.md. Do not mention the boom or the crash anywhere.
Do now
- All $1,000 in one company. It drops 50 percent. What is your total now?
- Now: $1,000 split evenly across five holdings, and only one of them drops 50 percent. What is your total?
Teacher notes
3 minutes. Answers: 500 and 900. Then the eggs.
Same eggs, different morning
- Twelve eggs in one basket. Drop it.
- Twelve eggs in three baskets. Drop one.
- Which investor eats breakfast?
Teacher notes
Image: two drawings: one basket on its side with cracked eggs everywhere; three baskets, one tipped, eight eggs still safe.
Do it with the real (plastic) eggs first. Then the slide.
Diversification
- Money spread across companies with different risk levels, and the bank.
- So they do not all fall on the same news.
- 1873: the railroads fell by almost half. Oil and gas rose, because people still needed light.
- The bank never cares.
Teacher notes
Image: the price table's Round 1 column drawn large: RAIL with a down arrow, OIL and GAS with small up arrows, BANK with a flat line.
Students copy the definition to the journal's My notes page.
Two pies
- Pie 1: one slice of 90 percent, a few slivers.
- Pie 2: six slices, none bigger than a quarter.
- Pie 1 wins the leaderboard in a boom and sits at the bottom in a panic.
- Pie 2 never wins big and never loses big.
Teacher notes
Image: two pie charts side by side, labeled with tickers.
Rebalancing
- Your pie changes shape on its own when prices move.
- Rebalancing: sell a little of what grew, buy a little of what fell, so the pie looks the way you chose.
- It is not panic. It is not chasing whatever went up last. It is regular upkeep, like cleaning your room.
Teacher notes
Image: a pie with one slice grown too big, an arrow, and the same pie trimmed back to even.
Three Portfolios and a Shock
- Three investors, $1,000 each, bought in 1882 at the Round 2 prices.
- A, the bet: all of it in ELEC and RAIL.
- B, the vault: most of it in the bank, the rest in GAS.
- C, the spread: the bank and all four companies.
- The shock: the Panic of 1893, the prices you lived through two days ago. Then Part 2: hold everything to 1901. Rank them twice.
- Pairs, calculators. 12 minutes.
Debrief: the Panic of 1893
- A: $480. Lost $520.
- B: $988. Lost $12.
- C: $776. Lost $224.
- Which one would you want in a panic?
Teacher notes
Image: three bars, 480, 988, 776, with a storm cloud above.
Debrief: held to 1901
- A: $1,465. Gained $465.
- B: $1,097. Gained $97.
- C: $1,294. Gained $294.
- Which one would you want in a recovery (when prices climb back)?
- You do not know which is coming. That is the real situation.
Teacher notes
Image: the same three bars, taller, with a sun above.
Round 5, 1911. My own pie.
- Sketch your pie from your Round 4 holdings on Entry 5. Label the slices.
- If one slice is bigger than half: rebalance, or hold and say why.
- Add the bank's 3 percent first. Fill the column: RAIL 65, OIL 60, GAS 32, ELEC 55, STEEL 45, and two new lines, AUTO 20 and RADIO 6.
- Question from the dispatch: the government broke up the biggest monopoly in the country and its owners got richer. Why?
Teacher notes
Image: a Model T on a dirt road beside a farm, 1911.
10 minutes. Read the Round 5 dispatch after the totals are done. Four minutes of trading. Ask at the desk: what is your biggest slice? Say nothing about the next two rounds.
Entry 5
- What I did (use the word rebalance or hold). Why. What happened.
- My biggest slice is ___ percent, and I am comfortable / not comfortable with that because ___.
- My total at the bell, in dollars.
Teacher notes
4 minutes.
Closure
- Exit card: diversification in one sentence, in your own words. Then: my biggest slice is ___ percent.
- Three investors read the sentence.
- Tomorrow: another round.
Teacher notes
4 minutes. A sentence that only says "buy more stuff" is "needs more." Keep a straight face about tomorrow.