Repost from WSJ: Go Directly to Success: Monopoly’s Lessons

I really thought this article from this weekend’s Wall Street Journal was great:


Go Directly to Success: Monopoly’s Lessons

In real life, as in the game: Stay diversified, acquire railroads and don’t fall for pricey prestige properties.


There must be something special about a near-octogenarian board game that still makes headlines. This week’s big Monopoly news: Facebook fans voted to replace the playing piece shaped like an old-fashioned iron with one in the form of a cat.

As a longtime judge of Monopoly championships, I’ve figured out a prime reason for the game’s staying power. For most of us, it provides one of life’s first opportunities to handle money and practice the art of negotiation. Monopoly puts you through a financial wringer without real-world loss. Once you get the hang of how to win it, you can apply the game’s “secrets of success” to real life—sometimes quite literally, always in principle.

Here are five of the most important:


1. Diversification : Monopoly makes a time-honored point about the importance of spreading your investments across several classes of property and not slavishly following the “smart money.” The game’s best investments are the orange properties (not the dark-blue ones, Park Place and Boardwalk, about which more in a moment). But the long-term value of the oranges isn’t always clear: Entire games can be played in which they don’t pay off, or at least not in time to stave off bankruptcy. To assure success, you need to have not only a powerful color group but also two or three railroads to generate income and a few key properties to block the formation of game-busting groups against you. This blend reduces risk and improves the odds of winning.


2. Cash Management: The game drills home this lesson: You can’t win if you sit on cash, just as you can’t hope to rapidly grow real-world assets if you settle for the rates of return that the banks offer. You need to take on risk. In the game, that means converting cash to deeds and buildings while retaining just enough of those colorful bills to pay for bad luck (penalties, taxes, small rents).


3. Return on Investment: Every property in Monopoly has a different likelihood of earning a return (based on how frequently players land on it, its initial cost and cost of development, and its return per level of development). The green properties, for example, are awful; the oranges and reds are superior.


The railroads, because there are four of them, are the most visited set in the game, but they can’t be developed, so they aren’t enough alone for a win. They can provide you with cash, however, and that’s what you need to develop a killer color group—just as high-earning investments like utility funds can give you money to augment your growth-oriented holdings.


One crucial point: There’s a huge difference in rent between the two- and three-house level on any property. This is the game’s investment “sweet spot”—something I look for in life as well.

4. Complacency: Beware of it. In the 2009 world championship, a young Norwegian player paved the way to victory at precisely the moment when defeat stared him in the face. His opponents had concluded a three-way trade that provided each with a powerful color group. While each contemplated how many houses to buy, Norway offered his lone red property to Russia in return for the third light blue.


The trade looked lopsided; Russia already had the greens and eagerly accepted. Complacent, he hadn’t noticed Norway’s pile of cash—or the fact that all the shiny metal tokens were approaching the light blues. Norway rapidly developed them, and all the other players landed on his group. Paying the rents denied his rivals the chance to invest in their own pricey properties. In a few rounds, all were vanquished.


Just as once-spurned asset classes can suddenly enter the limelight in real life, so too can every group of Monopoly properties. Norway was able to use the lowly light blues to win the 2009 title, and I saw the so-so purples prevail in 2004.


Even Park Place and Boardwalk have won, in the 1979 U.S. championship—but that’s a rarity. There are only two of them, and they cost a lot to develop. The three-property orange group, by contrast, gets landed on more than any other color group (because players who go to jail must pass through or over them upon exiting), and it can be developed at a reasonable price.


5. Negotiations: Knowledge of the game’s financial numbers is only half the story in Monopoly success; being a master of negotiations is the other part.


In the 2009 championship, the youthful player from Norway had one other advantage besides the inventiveness to turn his chances around. Respectful, pleasant and artfully assertive, he was the kind of player the others didn’t mind losing to.


In real life, I’ve seen more people succeed with this sort of conduct than with noisy aggressiveness. Competence in human relations affects your career, your personal life, your options and thus your net worth—yet another great lesson taught by Monopoly.

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