Founder of simulated stock market confronts decision among three different long-term growth strategies.
Currently the hottest fad in town, Wall Street Games Inc. must choose among three long-term growth strategies
Last October, bull-marketers were taught an expensive lesson in complacency. But at least one investor closed out that infamous month with an impressive gain. Taking long positions in Blockbuster Entertainment, MCI Communications, and Microsoft, then hedging with a short position in IBM, a gutsy 21-year-old improved his personal stake by nearly 20% in one month. Not bad for a beginner -- except that the certificates involved had no more negotiable standing than houses on Boardwalk.
His -- and millions more -- ersatz shares are held in computerized safekeeping at the offices of Wall Street Games Inc. (WSG), a newly founded corporation in Wellesley, Mass. The company's own stake is expected to produce about $460,000 in sales for fiscal '88, its first full year; for '89, a 360% leap to more than $2 million is projected. And no play dough this: those numbers represent genuine coin of the realm.
Via the 12-person trading room of WSG, would-be investors get a vivid feel for the techniques of investing in stocks by actually going through the steps. Every month, WSG's computers disgorge a ranking of the winners and losers among the 3,000 or so players of its initial product, a game called The Blue Chip Edition. It's not a game in the joy-sticking sense of the word, though. That shibboleth comes from its creator's belief that Wall Street itself is "the greatest game in town'; therefore his should be second greatest, since, as art does life, WSG imitates the authentic version.
And therein lies its essentially solemn mission: to educate the masses -- or, perhaps more often, the classes. Under WSG's aegis, novices and students learn to play the market like the big boys, only they don't lose like the big boys. Of course, they don't win like the big boys, either, but perhaps celebrity -- a mention in the newsletter WSG mails to players -- is its own reward.
As fanciful as the concept is in practice, it was far more so in the spring of '87, when the simulated brokerage operation existed only in the agile mind of Timothy A. DeMello, then a real six-figures-a-year stockbroker in Boston. That March, 27-year-old DeMello quit an L. F. Rothschild vice-presidency to work out the details of the intricate product he envisioned. Between then and September, when WSG's first product was declared ready, DeMello designed the aspects of interactive play, enlisted a software expert to execute them, hired a suite in a mainline suburb of Boston, set up a toll-free phone line and an electronic call distributor, leased a battery of computers, hired a battery of workers to run them, and raised enough money through a private offering to pay for it all.
Why spurn real life for make-believe? "I was tired of those news items that said Mrs. Jones lost her fortune because she didn't know what she was doing and some broker supposedly misled her," WSG's founder explains. "How come she didn't know? It was her money." Concern for widows and orphans aside, DeMello, an '81 graduate of Babson College with a B.S. in finance, founded Wall Street Games mostly because he was inspired by business heroes such as Ray Kroc and Fred Smith who had been inducted into his alma mater's Distinguished Academy of Entrepreneurs. "I wanted to get involved like they did, but when I got out of school I didn't have enough money to start my own company. So I went into the brokerage business," DeMello relates. "After six years I decided it was time -- but what to do? I noticed that most entrepreneurs didn't start things they knew nothing about. Well, I knew financial markets.'
As it happened, a number of colleges -- Ohio State, Texas Christian, and Babson among them -- were considering courses in which business students handle a portion of the college's endowment as a learning experience. But since only a few students at a time could do the hands-on managing, that left millions more still learning the hands-off textbook way. A rightable imbalance, DeMello was alert to note. "On the one hand, here were these investors who needed to be educated, and on the other, students who needed a practical education. I looked around the office and wondered what would happen if I were to duplicate this stuff. Let everyone get burned or make fortunes, receive statements, initiate phone calls, talk to brokers, order stocks -- only don't use actual money. If I could deliver a stock-trading product at the right price and make it realistic, the market was sure to buy it.'
The idea found embodiment as a slender box the size of a typical computer-game package. For a hefty $99 retail, you don't even get a pair of dice, only an 800 telephone number, a stock-symbol guide, and $100,000 in bogus buying power. Yet at first DeMello toyed with an even heftier price, hoping potential users would recognize value in the lessons that lay behind it. However, he conceded, to launch the concept "I had to have a product that was priced under $100, because no matter how great it was, it wasn't going to find a mass market at anything higher.'
A player dials in during the market day, asks for quotes and last-sale prices, buys or sells, and rings off. WSG's computers are networked both to a database for posting and retrieving customer information and to a roof satellite antenna that pulls in up-to-the-minute stock-market prices from the NYSE, the Amex, and NASDAQ. The system automatically logs activity and generates statements, which the postman brings every month in bright green envelopes that won't get lost in the detritus of workaday mail.
But why not simply buy a newspaper, note your stock picks, and see how they come out later -- a savings of some $98.50? "People have been trying that for years," DeMello scoffs at such cut-rate competition, "but they lose concentration. If you've just been given $100,000, you have to keep doing something about it. You need a regimen. You need to talk through the procedures. If you write it down from the paper, are you going to bother to figure out your daily interest on a margin loan? You have to be hit with a statement every month. We give you the discipline.'
At the end of the summer, when The Blue Chip Edition was ready to ship, DeMello coached his two-person (now five) senior staff, "Let's not spend money on advertising until we find out who our customer is. For all we know, it could be 10-year-old kids who end up playing this thing." (A few do, it turns out.) With no promotional to-do, WSG threw open its doors on September 1 and waited to see who walked in. "The strategy was, let's hope it generates some publicity. All we did is declare it available.'
