- How Owning Individual Stocks Can Destroy Your Portfolio - July 27, 2020
- Reader Case: Real Estate Regret - July 17, 2020
- How The Hell Are We Going To Pay For All This Stimulus? - July 13, 2020
Recently we were in Jolly Old England with our friends Alan and Katie. As FIRECracker mentioned in her previous Chautauqua post, we flew 4000 miles to freeze our butts off in the UK for our Chautauqua reunion and it was 100% worth it! Even though we hadn’t seen our Chautauquan family since last August, we picked up exactly where we left off. And after a memorable week spent with our favourite peeps, we headed for Basingstoke (aka “Amazingstoke!”) to stay with Alan and Katie, our Chautauqua organizers, and while we were there, ended up recording an episode of the ChooseFI podcast along with JL “The Godfather” Collins and Carl “Mr. 1500 Days.” It was a ton of fun, and you’ll be able to listen to the podcast episode when it goes live on ChooseFI in a few days.
Anyway, while we were at last year’s UK Chautauqua, we had gotten into a discussion about how cool it would be to build an FI board game to teach people the principles of FI in a fun way. So imagine our surprise when Alan and Katie had bought a copy of Robert Kiyosaki’s CASHFLOW game. The tagline was “Get Out of the Rat Race,” so we wanted to try it out to see if we could get some inspiration for our FI board game.
I’m not sure how popular this game is with the general public but as soon as we unpacked the game and Alan distributed out a balance sheet we had to fill out to keep track of our income and investments, FIRECracker started nerding out immediately.
“Ooh, math! Let’s MATH SHIT UP!” she shouted whipping out her trusty phone and starting up the calculator app.
So I knew this was going to be interesting.
So how this game works is that everyone gets assigned a career like barista, secretary, engineer, etc. That determines your starting income, but it can also come along with debt. I got a doctor, so I was like “WOOHOO!” but then I read how much debt I had and I was like “Holy shit! $150k in student debt?!?” So in other words a pretty accurate depiction of real life.
FIRECracker was a pilot, which is great, but then she got saddled with credit card debt, fancy private school for the kids, and a massive mortgage.
“BULL. SHIT!” she screamed. “That’s too much house! Sell it and rent a 1 bedroom apartment near the airport you moron!”
But the game wouldn’t allow her to do that so then she got all angry. “Car payments?!? For FUCK’S SAKE, is there a commit suicide card I can play? All hope is lost!”
All this before the game actually officially started.
So anyway, when we managed to calm FIRECracker down long enough to read the rest of the rules, we decided to start the game. On the board there’s a ring labelled “Rat Race” where everyone starts off in. All the players basically go round and round in circles (a metaphor for working the 9-to-5, I assume) and you can land on a couple different types of tiles.
The payday tile means you get paid. You take your job’s income, then minus off all the expenses (like debt payments that FIRECracker absolutely LOATHED), and then you get cash equal to the difference.
If you land on this, you draw a card from the “DEAL” pile, in which you’re presented with an opportunity to buy an investment. You have to analyze the financials of the deal and decide whether you want it, or whether you want to pass.
If you land on this, you draw a card from the “MARKET” pile. These cards have events on it that may affect your investments. For example, a MARKET card may say “A buyer wants to buy your apartment building for $X. Do you want to sell to this buyer?”
If you land on this, you draw a card from the “DOODAD” pile. These cards all suck, since it forces you to buy something like a TV. Just like in real life, these doodads do nothing, and just cost money.
So FIRECracker went first, landing first on a Payday (“Fuck Yeah!”) and then an Opportunity tile.
The Deal card was an opportunity to buy a stock. “Wait, you can buy stocks in this game? Hey, do you think it’s possible to…”
Alan cut her off. “I know what you’re thinking, and no, you can’t buy an index fund.”
“So I can only buy individual stocks?”
Katie scanned over the rule sheet. “Right. Individual stocks only.”
“Well that’s just stupid,” FIRECracker snorted throwing the card back into the pile. And good thing too, because the next person who went landed on a MARKET tile and the card read that the exact stock that was on the DEAL card has a big scandal break out in the news and that everyone who owned that stock gets half of their units get forfeited.
“You see? This is why individual stocks are stupid! Where’s my VTSAX, dammit!”
But alas, no VTSAX in the DEAL pile. The deals that came up were either individual stocks or real estate, with the occasional weirdo one like a tech start-up or an empty plot of land mixed in. And being the obsessive optimizer that FIRECracker is, she kept hyperventilating whenever she found out the rules wouldn’t let her decrease her expenses or avoid getting into more debt.
Eventually, though, it became obvious that her tactic of trying to decrease her expenses wasn’t making her balance sheet improve, and it wasn’t getting her any closer to winning. “What am I supposed to do again?” she asked.
“OK,” Alan replied reading off the rule book. “You’re supposed to increase your passive income until it matches your living expenses, at which point you become FI and you’re out of the Rat Race.”
“Well, how the Hell am I supposed to that?”
“I think you’re supposed to buy real estate,” I replied helpfully.
The laser-glare FIRECracker fixed on me would have lit my hair on fire if it could. “What?” I said holding up my hands defensively. “Don’t look at me! I didn’t make up these rules!”
Robert Kiyosaki famously made his fortune investing in real estate, so it’s not a huge surprise that real estate is depicted pretty positively in the game, but this did not sit well with FIRECracker.
“3BR/2BA townhouse. $200k price, $10k downpayment, +$500 cash flow,” she read off a DEAL card she had drawn. “So I would go into a $190k mortgage.”
“What’s the interest rate?” I asked.
“I don’t think it matters,” Alan said. “There’s a tenant and they’re paying the mortgage.”
“Yeah, it’s all built into that $500 cash flow number.”
“Does the loan amortize?”
“I don’t think so. The rules don’t mention anything about the loan getting paid off.”
“So this is an interest-only mortgage, supported by a tenant.”
“And you calculate your ROI by dividing the cash flow number by the downpayment number.”
“Oh, Jesus Christ,” I sighed, exchanging knowing looks with FIRECracker. “They’re literally doing Real Estate math.”
“AND,” Alan added helpfully. “You can draw a MARKET card where someone comes and buys your property for a higher price, so you can get a capital gain on that too!”
“Is there a B20 card that gets drawn where mortgage regulations come in that causes everyone’s house to go underwater?”
Alan shook his head.
“Wow, so in this game, stocks are risky but housing always goes UP!” FIRECracker said, shaking her head in disbelief.
A long, drawn out, angry sigh later, she bought her first property. A few turns around the board later, and she was the proud owner of a 4-plex, a townhouse, and 2 condos.
“It’s okay, it’s okay…” I said trying to soothe her.
“It’s NOT okay! I’ve become everything I hate!”
It became obvious that the rules of the game were encouraging behaviour that really didn’t work out in real life (Robert Kiyosaki’s company went bankrupt in 2013 when his over-leveraged, real-estate-laden house of cards collapsed). So when I drew a DEAL card saying a certain stock named ON2U was on the verge of bankruptcy and could be picked up for $1, I turned to FIRECracker. “OK so this game clearly wants us to do the opposite of what we would do in real life. So what’s the opposite of what we would do in this situation?”
“I’m going into debt!” So I went to the bank and took out the largest possible loan my income could support. I then turned around and bought up 360,000 units of that stock at $1. My balance sheet was a mess, as my entire pay-check was now going into servicing that loan.
But then a few turns later, I landed on a MARKET tile which read “ON2U bounces back! Current market price $5 per share.”
So I sold off my entire single-stock portfolio, paid off the loan and was now sitting on a net worth of $1.44 Million dollars.
“See Hun! Leverage is the best! Don’t you get it now?” I then started chanting “Leverage! Leverage! Leverage!”
At this point we had to stop the game because
a) We had to catch our bus to the airport and
b) FIRECracker was banging her head on the desk so hard I was afraid she was going to hurt herself
So clearly, Robert Kiyosaki’s game has some, shall we say, questionable lessons, but I was really impressed by how he was able to make a board game about finances and make it fun. I’m curious as to how popular this game was among non-math-nerds, because it looks like a really cool starting point for our own FI board game.
The investment stuff, though, is a mess. If you want to try it for fun, you can play it for free here (you just need to install flash): http://www.richdad.com/classic.
We’ll extend the discussion we started in the last Chautauqua about what an FI board game might look like into this Chautauqua, but I’m curious about two things from you, our intrepid readers:
Question #1: Would you find an FI board game fun? Would you play it?
Question #2: What financial lessons do you think it should teach, and how?
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