The short version
- I knew nothing about finance and investing until I started paper trading.
- Paper trading helped me understand how markets and investing worked.
- I found myself fascinated with the stock market and changed my career from writing about politics to writing about finance.
- If you don't know how to invest, paper trading is a great way to learn how. You can paper trade using a virtual broker or simply jotting down stock picks with a pen and paper or in Excel.
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Paper trading helped me understand investing
I majored in journalism in college, and one of my electives was business reporting. At the time, I wanted to be a politics reporter and only took the class to understand more about how election funding worked.
I was very skeptical that I would like the class or even get a decent grade.
On the first day of class, our professor announced that there would be a contest. Each student would pick a portfolio of three stocks for $1,000 each, and the person with the highest returns would win a subscription to The Economist. As a poor, debt-ridden student, I was always happy to get anything for free.
We were given a week to pick our stocks and participate in paper trading. Paper trading is stimulated trading that mimics current stock market trends without using any actual money.
I was 20 years old, knew absolutely nothing about the stock market, and had no idea how to create a portfolio. The Lehman brothers crash was still fresh in my mind; I was in high school when the Great Recession hit, and my parents nearly lost my childhood home. So I didn't exactly trust the stock market.
But I knew a few things: everyone around me was watching Netflix, people drank Budweiser regardless of whether there was a recession, and people will always need consumer staples like toilet paper made by Kroger.
I submitted three stocks that I thought were random picks at the time. Over the next three months, I watched those stocks rise and fall daily, and I tried to piece together how it all worked.
More: How to invest in stocks
How I went from dreading my finance class to making a career writing about investing
On the last day of class, the professor announced the portfolios that had increased the most over the past three months.
My portfolio of Netflix, Budweiser and Kroger won. It saw an 8.5% increase in just three months.
I was shocked. I picked those stocks with barely any thought. I just based my choices on what I thought was popular with other students at the time.
But I realized my picks weren’t as random as I had thought. Other people thought the same way I did, which caused a rise in the price as demand outstripped supply. Watching my “fake” stocks rise every day got me excited, and I found myself reading more business news. I even picked up a few analyst reports, despite not understanding much of what I read (that would come years later).
Now, somehow, those numbers during the news market reports didn’t sound so strange.
I finally cracked the code and started to understand how markets work. My curiosity was piqued enough that I decided to sign up for a second class on business journalism and ultimately got my Master’s in financial journalism a few years later.
More: How to invest in the S&P 500 index
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If you don’t understand investing, give paper trading a try
While paper trading didn’t make me an expert in the investing world, it helped open the door for me to find out more.
Paper trading allowed me to trade risk-free without the fear and intimidation I felt before. It made me realize that the markets weren’t this big scary world full of men in top hats. Instead, investing is a mix of common sense, math equations, and a bit of luck.
And while I still don’t consider myself an expert in investing, I’ve learned how valuable investing and growing your wealth is.
So if you don’t understand how the stock market works, I highly recommend you try it yourself. Most stock brokers now offer virtual trading accounts where you can make and track your stock picks free of charge.
However, you can even paper trade with a good old-fashioned pen and paper — or an Excel doc. Just write down your picks and track them for as long as you like to see if you can come out ahead. You might surprise yourself and find you enjoy it!
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