Invest Like How You Play Monopoly

Monopoly is one classic board game and perhaps the first financial education game many of us played. When I was younger, I loved the experience of collecting rent whenever someone lands on a property I own, especially if there were houses built on the property.

While Monopoly has provided many of us with hours of fun entertainment, the game also offers many valuable lessons like risk assessment and diversification – which can be applied to the world of investing. Below are 4 priceless lessons that not only can help you increase your chances of winning the board game, but also give you some guidelines on successful investing.

1. Start with a Plan in Mind

Everyone wants to be financially free and enjoy their comfortable retirement in later years. However, for that to happen, you will need to crave a financial plan right when you are getting a stable pay check in order to reach that goal.

This is similar in Monopoly too. In Monopoly, imagine the $200 you collect every time you pass “go” as your monthly salary. What happens next is that people may sometimes just go around buying properties wherever they land (like trying their luck in the stock market) with no prior plan as to what they want to achieve.

As the saying goes, “If you fail to plan, you plan to fail”. In the game of Monopoly, the main objective is to secure a colour group of properties and develop them with houses to win the game.

Then again, a comfortable retirement is what most people wish to achieve although it is often overlooked until it becomes a pressing issue. The good news is – there are often many paths for you to pick in order to enjoy your well-deserved retirement after slogging for so long. Stock investing over the long haul is one option you can consider to boost your nest egg in the future.

2. Focus on Competitive Advantage

Mr Orbanes, author of the “Monopoly, Money and You”, said that one of the greatest myths in Monopoly is that the two dark blue properties are the best properties because they are expensive and prestigious.

However, do you know that in reality, the best to own are the three orange properties? They are the most profitable due to 2 sustainable competitive advantages:

  1. Players go to jail frequently throughout the game so they have to pass by the orange properties all the time
  2. The odds of throwing a total of “7” on the dice are the highest, followed by “6” and “8”.  Therefore, there is a higher likelihood of a player landing on the orange property right after they exit jail.

When it comes to your own investments, sometimes all you have to do is zoom in on companies with the competitive advantages and buy them at undervalued prices. More often than not, these companies command significant pricing power and will usually translate into high net profit margins – just like the orange properties.

3. Undervalued Investing

As a rule of thumb, most people start off the game in Monopoly by buying all the properties that they can land on. This gives them the power to negotiate deals with other players later on in the game especially when one player holds on to another’s player last property for the particular colour group.

Thus, at that moment, the value of the last property will shoot up because of its scarcity. After which, the interested party will generally offers a price which far exceeds the amount you paid it for, letting you profit from the deal handsomely.

It’s the same thing in the stock markets. Occasionally, “stock bargains” go on sale due to market fluctuations. A wise choice would be to invest in companies which you know will still be around for the next decade due to their sustainable competitive advantage.

4. Training your Patience

Everyone who has played Monopoly before knows that the game can take several hours. It is common for players not to be too concerned about paying rent during the initial phase of the game, but then fret over landing on the same property towards the end of the game.

Witness the power of compound interest – the 8th wonder of the world. As the game of Monopoly drags on, more money is piled back to developing the houses and collecting higher pay, with the cycle continuing until a winner is declared.

The same strategy can be applied through long term investing. Just take Warren Buffett, the famous self-made billionaire investor, as an example. During his early years of being a money manager, he still drove an old Volkswagen Beetle despite the fact that he was already earning millions of dollars. He said, “Paying $25,000 for a car would come to $958,439 after twenty years compounding at 20% a year – and that is too much to pay for a new car.

The key point here is to be patient and disciplined. Investing over the long term explains the exceptional success by professional investors like Buffett, Greenblatt, Peter Lynch and it makes sense to follow those who have been there, done that.

Foolish Bottom Line

Playing monopoly can be your best financial start point if you haven’t start on your investment journey. After all, you should be glad it wasn’t real money and losing the money wouldn’t feel so bad. In contrast, losing your Monopoly money is actually a good thing—if you can answer why you lost it and come out more investment savvy the next time round.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor James Yeo doesn’t own shares in any companies mentioned.