Monopoly and Investing

I believe most if not all of us have played monopoly at some point in our lives. In fact, I still have a very old set back home. This boardgame has been around as long as I have been (and longer) and has continued its popularity throughout generations.

For the suakus souls who have NEVER played monopoly before, this is a boardgame where players move along the squares on the boardgame onto the path of wealth and glory. You are given a sum of money to kick off the game and you collect money when you pass go (provided you do not get thrown into jail). Along the way, you are able to buy property and build houses and hotels to earn rental income. The winner is the one who owns the most assets at the end of the game.

There are some basic truths in Monopoly which resonate well with Investing:-

1) Property is arguably the best form of physical asset. When you invest in an asset and develop houses, hotels and township (aka own all the properties with the same colours), you are able to charge more rental income. Prime districts are also able to command higher rents. The poor player (tenant) who accidentally lands on your properties have no choice but to pay you rent. This is a universal truth since time immemorial. In the olden days, the landlord is able to “seize” the farmers’ harvests and get rich and fat without lifting a finger.

2) Besides property, Utilities and Railway stations are the next best assets in the money game. The main reason is “monopoly” (no pun intended). In Buffet-speak,  Utility and Rail companies own moats which are impenetrable. Everyone has to use them and has to pay whatever ridiculous sums they are charged for usage. It is extremely difficult for users to complain as Utility and Rail are strategic industries which hire lots of people. Should profit margins even decline slightly, these employees face the unnerving prospects of redundancies. Governments also tend to sympathise with the Utility and Rail companies and rarely question their intentions to raise fares or charges.

3) The path to richess contains pleasant surprises but also lurks with danger. Sometimes, you have to take chances and could end up either richer or poorer. If I am not mistaken, the probabilities of becoming poorer are theoretically higher (you can count the Chance and Community Chest cards to verify). Also, have you ever wondered why the “Pass Go and Collect $200″ and Jailhouse are located in the same square on the board?

Principles that childhood games teach us …