Most of us have played Monopoly at some time or another. It is one of those games that we probably love to hate. We love it because it is a good way to pit our wits against other players. But any enthusiasm we may have for the game starts to wear a little thin after a few hours. It can sometimes be a test of endurance.
Some people do take Monopoly seriously, though. It seems that one group of players were so competitive that the game lasted for 70 straight days. That takes perseverance to the extreme. Some players might even analyse which of the properties on the Monopoly board could produce the highest returns.
I am an occasional player since it was popularised in the 1970s. It is an easy game to play but a hard one to master. That is probably one of the many similarities that I have noticed between Monopoly and investing. Buying shares is easy, but mastering investing can be a different matter.
That is not to say that picking shares should ever be decided by a throw of the dice or the turn of a card. But the similarities between Monopoly and investing are noteworthy. Here are some of them.
Playing to win
The primary objective of Monopoly is to drive your opponents into the ground by bankrupting them. Each decision we make should move us a step closer towards our goal of wiping out our opponents.
For example, if we own low-rent property groups, then it can be a good idea to build as many properties as we can afford. This will effectively restrict the availability of houses and hotels to owners of high-rent properties. Contrary to popular beliefs, cheaper assets do serve a purpose.
When we invest in shares it is a good idea to set clear objectives, too. Of course, we don’t want to grind other stock market investors to dust. Nevertheless, we should still set achievable targets for ourselves.
A useful target might be to beat the market average, which is the very least that we should try to do. If we can’t even do that, then we might be better off investing through an index tracker that will mimic the performance of a particular index.
A winning strategy
It is important to have a strategy from the outset, if we are to achieve any of our objectives. In the case of Monopoly, I’ve noticed that some players like to buy upmarket properties while others may prefer some of the less expensive ones.
I have a soft spot for the railway stations, which represent good value for money. These stations have some of the highest hits, which means they get landed on most. They may not deliver the highest paybacks, but they can be slow and steady earners.
They are good cash generators, which should never be underestimated. Whether we are playing Monopoly or investing in shares, a steady income stream can provide us with the necessary resources to pay bills when they are due or to make acquisitions without having to dispose of assets.
No one-size-fits-all strategies
Successful stock pickers have clear investing strategies, too. This helps them identify what shares to buy and which ones to avoid. Like Monopoly strategies, there are many investing styles to choose from. We must find the one that suits our personality best. There are no one-size-fits-all strategies because we are all different.
For instance, we might have a fondness for dividends. Therefore, an income portfolio might be appropriate. This strategy involves assembling a portfolio of shares that pays regular dividends from a wide variety of different industries. The aim is to produce an annual income from the fifteen or so shares that can rise at more than the rate of inflation.
Others may like value shares. They are only interested in shares that are unloved by the market. Value investing was first proposed by Benjamin Graham. One of the proponents of value investing is Warren Buffett, who has successfully adapted Graham’s original idea to help him identify companies with long-term sustainable prospects.
Growth investing is another popular strategy. These are shares in companies that can grow their profit at a faster rate than the market. Generally, these companies don’t pay dividends. Typically, they need every cent of cash generated to grow their business.
A well-balanced portfolio should have some of each strategy. The way that we apportion income, growth and value investments is entirely up to us. It can be tailored according to our risk tolerance, our age and how quickly or slowly we want to reach our goal.
Skill vs luck
It would be remiss not to mention luck. Every Monopoly player knows that luck can play a big part in any game. But playing the percentages can improve our chances considerably. For example, it may be worth staying in “Jail” when most of the properties between “Jail” and the “Go to Jail” are fully developed. By staying in “Jail”, we could avoid landing on these properties before an opponent lands on ours.
Luck can also play a part when picking shares. However, skill generally wins out in the end because luck will desert us one day. Sadly, it can take several years to discover whether we are any good. But we can still make good long-term returns from shares by opting for an index tracker instead. That should leave us plenty of time to improve our Monopoly skills.
Note: An earlier version of this article appeared in The Business Times.
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Disclosure: David Kuo does not own shares in any of the companies mentioned.
