Monopoly: Trade up using DEBT

 

In my school days, I started playing Monopoly and one day my friends told me that few places or cities are strategically important in the game and that if we have control over them, we can have an edge. If we look at history, for Europeans to have trade relations with India, they were required to pass through Constantinople or modern-day Istambul, meaning whoever controlled the City had an ultimate edge on the trade routes. It is for the same reason that dominating the choke points at the high seas is so important even today. You can look at numerous examples, India deploying huge naval power near the Malacca Strait, Military bases of China, and other powers near the Suez Canal, Russia churning out a lot of nuclear-powered Ice-Breakers and deploying navy near the north pole to claim the Northern Sea Route, etc. We can see a similar strategy is used by a Business Tycoon in India, Gautam Adani, who runs a conglomerate but has a natural edge at running ports. That topic will be covered in another blog, but we can see a pattern here if somebody controls choke points, they dominate the system.

My friends pointed out that a player has the highest probability of landing in/visiting jail. Now, people who have learned probability know that when two die are rolled, 7 has the highest probability followed by 8 and 6, followed by 5 and 9. 

Someone controlling most of these places had an unfair advantage of trapping other players, eventually making them bankrupt and winning the game. That was the first time my eyes opened and I grasped the real meaning of monopoly. Later I read Rich Dad Poor Dad and listened to Robert’s podcasts where he said that Rich Dad insisted on playing Monopoly to learn to trade up from four greenhouses to one red hotel using debt. At the beginning, I couldn’t comprehend what he was talking about. The words echoed in my brain continuously, “four greenhouses to one red hotel using debt”. 

After a few days of thinking hard about the words, I understood them. Let’s say I can build a few houses in a region by putting a mortgage on other less significant properties and assembling the strategic properties instead of waiting until I get a minimum rent from somebody else to land on my place and accumulate the money that I might even lose to somebody else as rent. Remember, what Robert Kiyosaki always says, “Savers are Losers”. This strategy of borrowing money could give me an edge in the game as I got the cash needed to build those properties, anyways the small sums of rent from less important properties were worthless to me, but the only thing that the player should be very conscious about is that, debt can be lethal if not taken care of properly.

As I upgraded the strategic properties, the rent on them increased significantly. For instance, if the rent in just Mumbai city in that game is 50 rupees, if a hotel is built, it could easily give you a rental income of 1500 rupees. The overall building cost for houses and hotels is probably 2000 rupees, but the 1500 bucks you could get from someone as rent can help you acquire more such assets and eventually win the game. Another thing to learn from this game is that cash is trash. If you as a player sold your property at a profit just for cash, you might land yourself in trouble. It is so because you got hooked to a bait, the buyer had thrown. Now the buyer is planning to assemble the properties and bring you down. Unless a property is useless and there is no direct benefit to the buyer, don’t sell. I have been playing this game for a while now, more often than not, the player looking to profit from flipping properties has lost. Once you build a hotel at a place, you will see people giving their money to you as rent and you will expand your empire at dirt-cheap rates because you will then bail out the guys in trouble. Certainly not a nice thing, but it is the way it is and that’s how rich and smart people get richer.

The other skill I learned from the game was negotiating. I along with a friend played this game during placement training. We never liked coding because we were never interested in it, we played Monopoly in the class. He taught me to negotiate deals and how to turn around if something goes wrong, we are far from perfect but, Monopoly has played a major role in the never-ending journey of financial education. Someday for every deal in the game, I could estimate the cashflows much more accurately to price it appropriately. Buy, borrow, build, don’t sell, and expand is the perfect recipe for playing Monopoly.