by Carl Delfeld, Investment U Senior Analyst
Friday, May 17, 2013: Issue #2036
Growing up with six siblings, I recall our marathon games of Monopoly with mixed feelings. 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.
Thinking back, most of my six siblings never got the game at all. They cautiously managed their cash and bought random properties. This allowed them to stay in the game for a long time but made ultimate victory rare.
As for me, I went for the kill.
It was a strategy of feast or famine. I either crushed opponents with hotels on a great monopoly like Boardwalk and Park Place… or I would crash and burn.
The idea raises a good question. Why is it that so many people are bad at the simple game of Monopoly?
You’ve Been Taught Wrong
I think it is because we are taught at a tender age that tycoons adept at cornering markets like John Rockefeller or Bill Gates are greedy bad guys.
The belief is compounded when we go to college and socialist-minded economics professors rant about evil monopolies and the need to “regulate” the free market.
Apparently, Carlos Slim, the wealthiest tycoon in the world according to Forbes, never studied economics. Slim’s vast wealth was built on the back of Mexican telecom monopolies.
Slim’s firms have captured 80% of Mexico’s landlines, 70% of the cellphone market, and account for an incredible 34% of the value of the country’s entire stock market.
Hmmm… maybe monopolies aren’t all that bad?
Lasting monopolies are tough to find in America, but there are plenty of them in frontier and emerging markets.
That’s because these markets are a fascinating blend of “wild west” and “state” capitalism.
Early movers in these regions can gain enormous economies of scale. It makes future competition difficult. Making it easier for the home team, governments tend to keep Western intruders at bay with import and investment restrictions.
Then there are many of these monopoly-like state-owned giants whose stocks are publicly listed. Try to compete with the government… I dare you.
Protect Your Castle
Let’s not forget, there are plenty of companies that don’t have a full-on monopoly, but still profit handsomely from some sort of edge that gives them a big head start.
We refer to these sorts of edges as “moats.”
They can be based on size, cost advantages or some intangible benefit such as a dominant brand name.
For example, perhaps the company teamed up with a giant. Or in the case of Rockefeller, they have the cash and dominant market position to buy the competition.
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.
So don’t be shy about investing in monopolies. After all, only one company (Parker Brothers) makes the game of Monopoly.
A Real-World Winner…
If I quit writing there, I can envision what my inbox would look like on Monday morning. “Give me a stock to look at,” scores of you would write.
I don’t like to disappoint. So if you want to win the real-world game of Monopoly, here’s one for you…
The poster country of “state capitalism” is China and one high-profile monopoly is China Mobile (NYSE: CHL). The government’s 70% ownership stake is a strong incentive to protect the company’s dominant stance.
So despite my strong distaste for state capitalism, now is a good time to look at China Mobile when many folks are questioning the country’s growth prospects.
The company’s $90 billion in yearly sales is built on a customer base that exceeds 650 million people – a cellphone market that’s some three times that of America.
As a defensive consumer business with a 3.7% dividend yield, the stock will hold up well in the toughest of markets. With its $64 billion cash stockpile and a stock that trades at just 10 times 2013 expected earnings, China Mobile is a value play.
But what’s the catalyst to unlock this giant’s value?
Evidence points to China Mobile laying the groundwork to become a major iPhone carrier. Apple’s market share of China’s smartphone market is now only 8% compared with Samsung’s 20% share.
A deal will add another lucrative layer to China Mobile’s growing monopoly.
So what do you think? Do you have what it takes to win the real-world game of Monopoly? I hope so.
Market dominance is a proven strategy to build immense wealth.
How to Invest for an Uncertain Financial Future
Are we headed for an inflationary spiral? If we reach a point where the U.S. government tries to repudiate the debt by accelerating the borrowing and devaluing the greenback – not a foregone conclusion as some gold bugs would have you believe – the answer may be yes.
Goodbye to a Great Teacher
You never forget the great teachers who affect your life. My high school Business Law teacher, Mr. Kehoe, could have been a stand-up comedian. Yet despite the continuous laughter in his class, he somehow taught us the difference between assignment and assent.
A Proven Strategy to Build Immense Wealth
Growing up with six siblings, I recall our marathon games of Monopoly with mixed feelings. 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.
Cline Shale: The Newest, Hottest Shale Oil Play
There’s an old 1950s Texas saying that goes something like this: “A few oil wells makes ranching a fine business.” But after the initial boom that ended in the 1970s, Texas oil seemed like it was heading in the direction of “all hat and no cattle.”
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