From ‘Stalk Market’ to Stock Market

For many people, video games were a welcome respite during long days stuck at home in the early months of the COVID-19 pandemic. For some of them, intense in-game economics led to a new real-life hobby: stock trading.

The gateway was “Animal Crossing: New Horizons,” a life simulation game that immediately became a global sensation when it was released in March for the Nintendo Switch, and has since been named Game of the Year at the Tokyo Game Show and sold tens of millions of copies. Set on a whimsical island inhabited by humans and cute, anthropomorphic animals, much of the game revolves around resource management and amassing in-game currency. The best method for making a quick buck, most players found, was trading turnips in the game’s “stalk market.”

The most ambitious players soon found themselves pouring hours of research into turnip prices and futures on fan-made game extensions that mimicked analytic tools used for real-world market activities. And then some took their interest to the next level by trading real stocks. 

But while it might be challenging and enjoyable, it’s important for new investors to remember that trading isn’t all fun and games, said Albert “Pete” Kyle, the Charles E. Smith Chair in Finance and Distinguished University Professor at the University of Maryland’s Robert H. Smith School of Business. Downsides in the decidedly non-adorable world of real trading can’t be managed by throwing your controller to the floor or trundling back to your garishly decorated cartoon house. 

The key thing to understand: “Don’t confuse luck for skill and believe you are a good trader because you made money over a certain period of time,” Kyle said. “The main thing people need to look at is that there is a statistical tendency for the market to go up over time, but it’s not guaranteed to go up in the future.”

Most investors, Kyle said, can build wealth with a buy-and-hold strategy. But that may not appeal to everyone. New investors often want to be involved in the market on a daily basis. For them, Kyle offers the following insights:

Don’t fall for momentum. People who are new to markets tend to be “momentum” traders, jumping on board when a rally is already under way.

“Many small investors trade momentum with the wrong timing, though. Either they look for momentum over too short a period of time or too long,” Kyle said. “I would encourage people to not trade with momentum in mind and to rather be more contrarian.”

Learn to live and let go. One of the biggest psychological pitfalls for traders is either taking profits too early or holding onto losses for too long.

“It’s much better to cut your losses quickly or let your profits run for a while to see if you can get an even greater return. If it turns out that it’s not working, cut your losses quickly,” Kyle said. “If you were hoping for that $1 increase and it goes down by 10 cents, consider getting out and maybe going to play golf (or Animal Crossing) instead.”

Talk to the experts. The best thing a new trader can do is open an account with an established broker, Kyle said. Some brokers internalize order flow—filling the order from the firm’s own inventory—which can essentially guarantee you a price instantly. However, the guaranteed price might not be as good as a less predictable price based on not internalizing the order.

“If you find that trading is for you, pick a broker that has low fees. Some brokers give better deals than others, and you should shop around to find one that works for you,” said Kyle. “Be cognizant of trading costs and if you are, you’ll be able to recognize costs when they occur.”