The Missouri Stock Market Game™ 33% Rule and How to Calculate

The 33% Rule or Maximum Equity Rule was instituted to encourage but not force diversification in a team portfolio. The SMG™ is a learning activity intended to encourage students to learn about sound investment strategies even thought the simulation is of a short duration. Putting all one’s egg’s in one basket is not usually sound investment practice.

The 33% Rule or Maximum Equity Rule states that teams can invest no more than 33% of their total equity in any one stock. This affects both buys and short sells because both positions put their equity at risk. Teams do not have to invest in at least three different companies – they could leave part of their equity in cash, earning 7% interest.

If a stock in which the team has invested increases in value to more than 33% of their total equity, no action will be taken buy the SMG™ Program to reduce then number of shares held, but a team can not buy or short sell more of that stock at that time.

How does a team calculate what is 33% of their portfolio?

• Check the Account Summary page for today’s Total Equity.
• Multiply the Total Equity by 2. (Because the teams have 50% margin, or may borrow an additional $100,000 at 7% interest.)
• Multiply that value times 33% (Missouri Maximum Equity).
• The resulting value indicates the maximum value of any security in the team’s portfolio.

For new securities purchases, teams can closely determine how many shares they can purchase by calculating the cost per share and the number of shares wanted.

On a security already in the team portfolio, if the team does not have that maximum invested, they can purchase the remaining number of shares to meet the maximum amount.

When placing a trade, if the requested buy or short sell is above the current 33% equity maximum, the Enter a Trade screen will give a message to the team stating the order exceeded the maximum equity. The order will cancel and move to the Transaction Notes page.