As a professor of finance and economics, the greatest challenge I face teaching portfolio management to future financial advisors is not explaining concepts of risk, diversification or valuation. It is convincing them that financial markets are not simply places to make bets.
Most finance students understand the distinction between investing and gambling. They simply don't find it a compelling one. They grew up watching internet celebrities who made fortunes in
In their teenage years, they witnessed the rapid expansion of legalized sports betting, which made wagering on football games, March Madness brackets and live in-game events as normalized and easy as ordering dinner on their cell phones.
More recently,
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Long odds, high hopes
Students tell me how they've traded meme stocks and shares of companies in bankruptcy proceedings, where the odds of success were heavily stacked against them.
They may know that the trading surge during the Hertz bankruptcy in 2020 illustrated how speculation can eclipse fundamental analysis. They may be aware that in South Korea millions of retail investors recently poured into highly leveraged single-stock ETFs in search of amplified returns and that when some of those ETFs collapsed, regulators were forced to intervene.
Yet it's the rare success stories,
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Old-school finance education
For generations, finance students learned that capital markets exist primarily to allocate capital. Investors provide funding to businesses. Companies use that capital to develop products, hire employees, build factories, conduct research and create economic growth. Savers participate in that growth by owning productive assets over long periods of time.
Students were taught about the time value of money,
But while the basic finance curricula remain, today's students are less interested in lectures on strategic asset allocation, diversification and long-term compounding. To many, disciplined investing is just too slow and flat, while speculation offers the excitement and possibility of rapid wealth. That mindset, more than any misunderstanding of financial markets, is what makes teaching portfolio management increasingly challenging.
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Prediction markets have their place
There are reasonable and compelling arguments for prediction markets. The aggregation of information from thousands of participants produces forecasts that are often more accurate than polls or expert opinions. These can be valuable to both long-term investors and short-term traders who provide liquidity, facilitate price discovery, transfer risk and help markets incorporate new information more efficiently.
My concern is not that prediction markets exist. The problem arises when speculation becomes the preferable form of investing. Young adults have been encouraged to view
To many of my students, disciplined investing is just too slow and flat, while speculation offers the excitement and possibility of rapid wealth. This increasingly short-term mindset requires more than teaching optimal ways to construct a portfolio; it requires reshaping how students think about investing.
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Discipline, patience, defined objectives
To get them to appreciate the science and mechanics of portfolio construction, students must first recognize that investing is not simply trading, and that frequent trading is rarely a successful long-term strategy for the retail client.
They must understand the limitations of a mindset built around predicting short-term winners and begin to appreciate why professional investors emphasize discipline, risk management, patience and clearly defined investment objectives over the excitement of the latest trending trade.
Will I teach my students about prediction markets? Absolutely. But I will also tell them that decades of evidence demonstrate that disciplined investing and tactical speculation can be successful. I'll impress upon them that whether it is old-time investors like
If students leave my classroom understanding that the greatest wealth-building advantage is constructing a well-diversified portfolio and following a disciplined investment process over decades, then they will have learned the valuable lesson I hope stays with them long after graduation.
