As a child I used to love playing monopoly, which I had not done for years, but the other day, while braaing with friends, I re-discovered my monopoly board and could not resist the temptation.   My friend Emil and I eagerly divided the money and started playing, trying our best to remember the rules.

 

Emil started buying every property he landed on (I am assuming most the readers have played monopoly, my apologies to those readers who have no idea what I am on about), and quite quickly had plenty of diverse property but very little cash. My approach was totally different I targeted my preferred properties and kept plenty cash stashed away under the board to provide for a rainy day. Needless to say Emil ran into cash-flow problems, he owned the best property, but could not afford to build houses or pay his penalties. He eventually had to mortgage his properties to pay the penalty for landing on my property. The game lasted an hour and it was all over. I felt very pleased with myself the “Donald Trump” of monopoly and Emil went home miserable!

 

Two weeks later we were back and Emil began with the same tactic of accumulating property feverishly, I chuckled to myself expecting the same result as our previous game, however this time Emil managed to overcome his initial cash-flow problems and started developing houses and hotels. I played my instinctive game of purchasing a few blue chip properties with plenty of cash stashed under the board for just in case I ran into trouble. Emil rode the property boom and eventually owned more than half the board, which made it impossible for me to go around without landing on one of his properties, which was initially OK as I had my cash reserves, but they did not last long and very soon I was bankrupt!

 

My overly conservative nature had cost me the game. At a stage in the game Emil had offered to sell me some property at what I felt was an exorbitant price and I not so politely declined, preferring to keep my money in the bank. If I had bought the property I may have been able generate additional income, which could have kept me in the game. Lesson one: even financial advisors need independent advice in order to avoid making mistakes based on their own emotional biases. An independent advisor can provide objective advice without being influenced by emotions (fear and greed).

 

Lesson two: Emil re-invested his winnings by buying more hotels, which compounded his wealth and won the game. In real life a person needs to recognize the importance of building wealth by “re-investing” some of their earnings, but first you need to overcome the desire to buy bigger cars / houses funded by the bank manager!

 

Mark Williams
Mcomm, CFP®, HdipTax
T. 021-851 3746
Email. service@synfin.co.za

 

Don’t only trust your instincts
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