Investing in Monopoly isn’t Just for Kids

Don’t Let Assumptions About Monopolies Keep You From Profitable Investments

Monopoly Game

Growing up, our Monopoly games were rough and tumble.

Tensions ran high because our attitude was a bit like the Kennedys – the difference between second place and last place was nothing at all.

Monopoly is a great game for many reasons. One is that it reflects personality traits so well.

Most of my siblings cautiously managed their cash and picked up random properties. This allowed them to stay in the game for a long time but it also made ultimate victory unlikely.

As for me, I always went for the kill with a strategy of feast or famine. Either crush opponents with hotels on a great monopoly like Boardwalk and Park Place or crash and burn and happily head out to play a game of basketball.

Perhaps a strategy in the middle is best but this raises an interesting question: Just why is it that so many people are bad at Monopoly? Maybe monopolies aren’t all that bad, and investing in monopolies makes sense.

But that’s not always easy for U.S. investors. Lasting monopolies are tough to find in America but there are plenty of them in emerging markets.

Why?

Well, most emerging and frontier markets are a fascinating blend of “wild west capitalism” and “state capitalism.” These are countries that have less developed, less liquid stock markets and normally smaller economies. Additionally, many frontier market companies remain hidden to investors, and bargains abound. Frontier markets account for 25% of the world’s population and 12% of the global economy but less than 3% of the market value of all companies trading on world stock markets.

Early movers can gain enormous economies of scale, making competition difficult. Governments tend to keep big western multinationals at bay with import and investment restrictions.

Then there are many of these monopoly-like, state-owned and controlled giants whose stocks are publicly listed. I guess the best way to convince government regulators to protect your markets is to be owned by the government itself.

But there are also plenty of private companies that don’t have a complete monopoly but profit from some edge that gives them a partial monopoly. Business professors refer to these as “moats.”

They can be based on relative size, government ownership, cost advantage or some intangible benefit like a dominant brand name.

Or perhaps they are just very well-run companies head and shoulders above their competitors? I call this a market monopoly.

Whatever the edge, these companies are attractive to investors for only one reason – their ability to deliver consistent and strong revenue and profit growth.

And in case you think it’s not patriotic to invest in international companies, you should know that international companies make a significant contribution to America’s economic growth and jobs.

Toyota has the largest manufacturing facility in the world based in Kentucky.

BMW relies on hundreds of American auto-part suppliers.

In fact, international investment accounts for nearly 7 million high-paying jobs in America.

So my advice is this – don’t be shy about investing in monopolies.

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