Monopoly™ is a board game that we are all familiar with since young. When I was a kid, I didn’t really put much thought in it while playing the game. I only knew that there was one objective – to get rich and win at the end of the game. Now that I’ve grown up, and being exposed to finance, I began to have a different appraisal of the game. Recently, I went to a board game cafe and my friends and I spent a good hour there reliving our childhood. You see, there were many aspects of the game that was intentionally designed to teach us certain key lessons in life.
1. You can’t win by holding cash
Cash is king. Cash is liquid. Cash gives you negotiating power. But however, in late game, the value of cash is not as high as it was in early game. Holding cash does not produce more cash, buying assets will!
Try offering cash to someone in return for their property deed, the most probable answer will be a “no”. Even if they said yes, you’ll probably have to pay a huge premium for that “Bow Street” or “Old Kent Road” compared to what they have bought because of the potential future profits that you can gain from the property deed – the value of your cash is hence eroded by time.
2. Having a safety margin / insurance
Safety margin is an important concept to understand if we do not want to be bankrupted in early in the game.
When passing by a street with numerous houses built on the property deeds or when you are near “Income Tax” or “Luxury Tax”, it is always wise to have a safe margin of cash in your hand.
It would NOT be wise to take the risk and put yourself in the spot whereby you land on an expensive property and have to resort to selling your houses and mortgaging assets to fund your debt.
Unfortunately, there isn’t the concept of “insurance” in game. Translating to our real lives, insurance is an important tool to hedge our risks against huge expenses such medical bills, car accidents so that in times of need, we would not have resort to selling our stocks to pay for our expenses – a counterproductive move. The concept of an emergency fund also works the same way!
3. Breakeven point and Return of Investment
Ever wondered why even though you own “Mayfair” and “Park Lane”, the most expensive estate in the entire game yet you cannot win the game? You have built houses and hotels yet you cannot generate cash flow as quickly as those who have build their estates on the orange-coloured deeds or light blue-coloured deeds?
First, lower-value property deeds take a shorter time to breakeven. Once it crosses the breakeven point, any rent earned beyond that will be pure profits – more cashflow to purchase additional assets!
Return of investment also comes into play. Each player is given limited resources. How you put each dollar to work is crucial in determining your fate in the game. You should aim to maximise the profits you gain for every dollar that you put in – this is assuming that the risk is equal which is not true in the real world.
As seen in the table below, even though the ROI for the blue street is the highest, the capital outlay to achieve that ROI is staggering! If we compare that to “Whitechapel Road” with a hotel, the ROIs are similar at around 78%, “Whitechapel Road” takes a much shorter time to complete building and may be a better investment opportunity to start earning more cash per dollar invested.
4. Align your decision with your long term goals
For the lucky ones, you have the opportunity to snag up certain property deeds during early game by landing on empty lots every time you roll the dice. The unlucky ones might get themselves into “Jail” or passing by spaces such as “Income Tax”, “Chance” or “Community Chest”. Worse case they might even land on some player’s property and need to pay them rent! Even when they have accumulated enough cash after several rounds, there may not be many property deeds left for them to purchase.
However, this may not necessarily be a bad thing.
You see, the downside of snagging up SO MANY properties in the early game is that eventually you’ll run of cash. You’ll have a portfolio of low performing properties (collect basic rent only) and cannot invest more to turn them into more valuable lots (by completing the set, building houses). The “unlucky” player, on the other side, will have to try his/her best to complete a set and invest heavily into the complete set by building houses to maximise the cashflow per lot. A fully developed property will have a higher potential of gaining more cash when someone lands on your property in the future.
Ultimately, a balance is important in having the right amount of property and cash resources to achieve that long term goal of having the highest net worth.
5. “Jail” may not be a bad place to be – the idea of doing nothing
As amateur investors, we are very impatient. We think that the stock exchange is a game, and the more we participate, the more money we earn. Wrong. As amateur investors, we have limited capital, every dollar counts. Why waste the money on the hefty transaction fees that erodes your returns.
Sometimes we have to be patient and practise the art of doing nothing. Just like how when we have built a portfolio of cash-generating properties in the game, sometimes we should just rest in Jail and do nothing, collect revenue, prevent ourselves from paying heavy rents to our opponents.
The one who usually wins the game is not the one who usually only owns ONE full set of well-developed property – i.e. all the railways, all orange-coloured properties, all utilities. The one who usually wins the game knows how to diversify his/her risk and build on different coloured property deeds to maximise the chances of other players passing by his/her own property.
Building on properties on different coloured deeds, different streets allow the player to spread out the risk of other players NOT landing on their property. Hence, it is important to not only focus on getting one “winner” set but aim to build a portfolio of “good” sets to increase the odds of winning.
7. Negotiation – Win-win scenario
Sometimes it’s not about just what you want, but also what your opponent wants that matter. When making a deal, you have to present it such that it seems mutually beneficial to both parties. Dig deep and find out what your opponent REALLY needs at that point of time.
For example, your opponent may be low on cash after snagging up several property deeds. You wish to own one of his property deeds to complete your set so that you can begin building your houses.
Now, at this point the most logical thing to do is probably to trade one of your deeds with one of his. But however, he may refuse as this decision will elevate your position and put him at a disadvantage.
However, if you simply provide him with the resources that he desperately needs – more cash to build houses – there is a higher chance that he will make the deal, even if you are using a property deed that he currently doesn’t need. Now, that is a win-win scenario!
8. Passing “GO”
Collecting $200 on “GO” always feels good. But what feels even better is when you do not have to depend on that $200 for your purchases anymore. When your rental income exceeds your “salary” , you can simply live on your rental income, reinvest and not depend on that $200 salary like how you did early in the game. Get my drift?
9. Controlling resources – buying till there are 0 houses.
Time is of essence when it comes to late game. There are only 32 houses in the game. If you do not grab the opportunity to build houses in time, you may lose the chance to advance in the game.
One strategy that we can use when we are leading is to build 4 houses on each of the property deed that we own and not upgrade it to a hotel.
By the time our opponent catches up, he may not have the opportunity to build houses on his properties incrementally – he would have to fork up a large capital to build a hotel directly should there not be any more houses available. It will deal a great blow to his cash balance. Being able to build slowly is an advantage that most players do not see.
Simply put, utilise the opportunity that is given to you early in life, and leverage it. So that you can maintain that edge you have over everyone else.
10. Generating cash flow from one, invest in another.
As previously mentioned in 3., some properties take a much shorter time to breakeven the the others. A simple strategy to build your empire rapidly is to set up your cheaper property deeds early such as the orange-coloured street, building cheap houses and hotels to generate high cash flows from these units and subsequently use them to invest in more expensive houses and hotels in more premium streets such as the green-coloured street.
You thus have consistent cash flow coming in from the cheap mature estates in your portfolio, you use these cheap cash flows to invest in more profitable projects and reap even higher cash flows in the future – putting money back into good use!
Similar to “Monopoly™”, we also have our financial end goals that we would like to achieve in life. Buying a house? Buying a car? Getting married? Retiring on investment income? With proper planning and execution, we are able to achieve these goals! Only when we meet these financial goals, we will be able to achieve true liberty!