13 December 2018 09:39:26 GMT

The Third Rock Forum - Economics

Article Title
Barclays' Fantasy
Author
Nick
Topic Section(s)
Where is the Devil?
Economics
 
Submitted : 29-11-2010 14:52
Amended : 10-11-2014 12:15
Status : Approved:  
Likes : 0
Dislikes : 0

Barclays wants to help the public to improve their understanding of investments. That’s what they say themselves.  “Barclays is committed to helping customers to improve their understanding of investments.”

To this laudable end, they offer everyone the opportunity to manage a ‘fantasy’ investment portfolio which costs nothing, involves the player in no risk, and even offers the chance of winning £25,000 prize money.

Who could object?  Here is a chance to play the market, learn how the system works, without risking any money.

Barclays then explains the differences between a “fantasy’ portfolio and the real thing.  The first three distinctions are straightforward.

  • When investing for real you can actually lose money, since the value of investments and any income they produce can go down as well as up.
  • Past performance is no indicator of what might happen in the future. So no matter how well your funds perform in the game, there's no knowing how well - or how badly
    - they could perform if you decide to invest for real.
  • In real life, investment funds are designed to be held for the medium to long term - that is, five to 10 years. Holding them for a shorter period increases the risk that you could lose money, although in reality you could still lose money if you hold them for longer.

It’s the fourth and final distinction, the throw away caution, that, in effect undermines the overt purpose of the game.

  • In this game, the investment funds you play with do not carry the full transaction costs. This means that returns within the game will look better than they would in real life.

Why has Barclays not included the full transaction costs?   Is it because transaction costs are a major source of revenue for stockbrokers and the main reason why most stockbrokers and ninety percent of managed funds perform less well, from the investor’s point of view,  than simple tracker funds (unmanaged funds that simply follow the market or a section of it).

If Barclays really wanted to help “customers to improve their understanding of investments.”, surely they should include one of the main
factors, if not the main factor, that will determine the success or failure of their investments if they take their chances in the real world.

Replies