You've landed on the dreaded "Go directly to jail. Do not pass go. Do not collect $200." You may be locked up for three turns, but even from your perch behind bars, you can pick up skills on how to become a smarter investor.
Monopoly, that beloved board game you from your childhood, provided hours of entertainment, but it may also have taught you valuable lessons on risk assessment, timing and diversification--all useful tools for investing in the real world. In the eyes of Philip Orbanes, there's no better financial starting point.
Orbanes, author of the new book "Monopoly, Money, and You: How to Profit from the Game's Secret of Success," has spent more than 30 years judging the United States and World Monopoly Championships. He knows how the game is played; now, he's sharing his knowledge of its intricacies to show what investors can learn from a few hours spent handling multi-colored money and building little green houses.
U.S. News spoke with Orbanes about what Monopoly deals and stock trades have in common, how consumers can avoid bad investments if they apply what they learn in Monopoly, and who stands to profit most from playing the game. Excerpts:
What motivated you to write the book?
Having had the experience of judging the United States and World Monopoly Championship for more than 30 years, I noticed the winners went on to have financial success in the real world. When I went further and looked at the value of monopoly in teaching young people about financial discipline, I thought this is something that should have a lot of interest--because it works.
Trading properties with other players is a key component to the game. Can this teach you how to effectively negotiate?
I think Monopoly is the first and perhaps most significant training ground kids get in learning the importance of the art of negotiation and how to do it. It's the safest way imaginable to learn the impact of financial dealings, because you don't lose real money if you make a mistake. Along the way, you pick up how to be an appealing trading partner--meaning you don't rub people the wrong way when brokering a deal--and at the same time be able to get a little more out of the deal than your opponent does.
I think a lot of my friends won because they rolled the right numbers on the dice when they needed to, or someone seemed to make Free Parking their second home. How does luck factor in?
Monopoly is reflective of the impact of chance in real life. The game is more significant in teaching life lessons than a game like chess, where there is virtually no luck. No matter how much control we think we have over each day, or each fiscal year, in reality we don't have control over all the unforeseen events that will happen.
Timing is seldom under your control. For example, there may be a time you want to buy a new home in six months, but lo and behold, the home becomes available today and you're not in the right financial position to buy it. You have to know when the window of opportunity is closing. In Monopoly, real estate is the same way: You land at a property you may not want to buy yet, but you realize you have to put it up for auction, which may be a risk you're not willing to take.
What's one of the most important investing skills people can learn by playing Monopoly?
Monopoly requires you to have diversification. You want to buy a blend of properties; don't put all your eggs in one basket. One lesson is you're going to need one color group you need to develop, but that probably is not enough to win the game. You're in good shape if you have utilities and railroads to earn cash to fund your Monopoly.
It's the same thing in real life. You don't want all your money in one stock; if it tanks, you're out of luck. With diversification, you don't put yourself at risk for something painfully negative if one stock crashes.
You write in the book that many successful people you know view money like a scorecard--the more points they earn, the more they feel they're succeeding. Is that a good way to approach your finances?
One of the toughest things in life is to set a long-term goal and stick to it. If you get out of college and know your goal is to be financially independent by age 65 and peg a number to that, say, $1 million, on day one you know where you have to go. If you see every $1,000 you tuck away as a point, that type of thinking works. I think it keeps you focused on going straight toward your goal and not getting sidetracked by something that's tempting but off-target, like an expensive vacation or a fancy car.
You mention in your book you've seen some highly successful workers--doctors and lawyers--earn a hefty salary but they still fall into debt. What can Monopoly teach people about debt?
It teaches you debt can control your life. If you owe $10,000 in credit card debt, you not only owe the principal but you're paying a stiff fee for interest. Suddenly, you're not working for money--money controls you. Now, in Monopoly, you have a credit reserve in a mortgage value. Let's say you have 10 properties, so you have 10 opportunities to lean on the bank for setbacks or if you want to mortgage properties to bankroll more investments. But when you mortgage a property, you lose its income. So now you owe the bank a lot of money and you have no money coming in. The same can happen in the real world.
[Read: 5 Investing Mistakes to Avoid.]
Can people use their own house rules, or do you have to play by the book to learn how to be a better investor?
You have to play by the rules. For example, a lot of people play you put all the money that would otherwise go into the bank for penalties into free parking. While that's a lot of fun--and we all love hitting the jackpot--the point of the game is to bankrupt your opponents. Putting more money up for grabs extends the length of the game; you're really just giving players who are down and out an easy way to get picked back up financially. Most people in the real world who are in debt don't have that opportunity, so you want to keep the game as similar to the real world as possible.
In your book, you equate the winner of the game to the player who nurtured and grew the best nest egg. What are some commonalities between them?
Everybody starts Monopoly with $1,500, which just so happened to represent the average family income in 1935 when it launched. As a starting point, if you nurture the $1,500 through wise decisions, you'll turn it into $6,000, $7,000, maybe $8,000 by game's end. The symbolism there is if you make wise financial decisions in Monopoly, your initial nest egg multiples by four or five times, which is similar to what you do with human capital: You begin with your starting salary at your first job, and save and invest that money to work up to a nice nest egg.
You mention in the book handling money in Monopoly triggers a range of emotions. Are they similar to ones investors experience?
Yes, although I think in Monopoly they're shared more publicly. We gnash our teeth if we lose money, or we complain. On the other hand, we feel terrific if we've done something well. It dramatically improves our level of confidence and security if we invest well. Just like in the real world, our emotions can affect our investing strategies.
I know when I played Monopoly as a kid, I usually lost; let's blame it on my misguided faith in the top hat. What lessons can you take away from the game if you aren't the winner?
Well, the first is to be glad it wasn't real money. Then you have to ask yourself, 'How did I lose it? What determined my money was taken from me?' Allow that instinct to carry over into your own life. You should realize someone else always wants your money. Losing your [Monopoly] money is actually a good thing--if you can answer why you lost it.