Ever wanted an opportunity to play around with individual stocks with no risk, just to see how good your stockpicking skills are? CNBC is running a contest called the Million Dollar Portfolio Challenge which basically amounts to a fantasy stock market. You can spend one million fictitious dollars buying stocks, and the person with the most valuable portfolio at the end of the contest (mid-May) will win $1 million. Also, the person with the most valuable portfolio at the end of each week until then will win $10,000.

It’s a lot of fun, and I myself have entered the contest. However, if you enter it actually playing to win, it won’t teach you a thing about individual stock investing, and here’s why.

If you’re playing to win, you have to be absurdly risky. My portfolio in the game is made up of three stocks, two of which are in overlapping industries. They’re all small cap stocks, too. (Curious as to what they are? Here’s one of them – it is obscene that this is under 4). I would never, ever invest this way in real life because of the risk factor. How so? First of all, all of my investments are in rather small-cap stocks, which can be really volatile. Second, my portfolio isn’t diversified at all. Third, I’m invested in these companies only because I suspect them to go really big in the next month or two and that’s it – I’m not even picking ones that I think will provide a great gain over the next six months or a year.

You’re not competing with the market. In reality, people do individual stock picking to try to beat the market, so they can make choices based on cycles and such. Here, you’re competing directly with other people: you don’t really care about anything other than this tiny timeframe, and you only really care about beating the people that are ahead of you. Thus, your choices aren’t really based on any normal fundamentals – you’re only looking for things that can go to the moon really quick – and that’s a complete crapshoot.

I’m not discouraging anyone from entering – by all means, get in, because it can be a lot of fun. I’m merely stating that if you’re playing to win, you can’t play as if you are investing real money (unless you’re absurdly rich and view it as a game). That’s because it is a game above all else.

That doesn’t mean you can’t use it as a learning experience. It can be a great opportunity to effectively practice simplified daytrading and get a taste for the fluctuations and speculation that goes into individual stock trading. Just remember that if you follow this contest and look at the leaderboard, those people are doing things that toss all fundamental stock investment logic out the window – using them as an example will do nothing more than bankrupt you if you attempt doing such things with real money.

Now go sign up and have some fun.

To celebrate the week before Christmas (and give you a few great last minute gift ideas), The Simple Dollar is reviewing five board games that not only are a blast to play, but teach valuable financial lessons as well. All of these games should be easily found at a department store or a gaming specialty shop (check your local yellow pages). Other games in this series include The Game of Life, Monopoly, Modern Art, and Acquire.

Puerto Rico
Rio Grande Games

Here it is, the ultimate financial board game. Many of you have probably never heard of it, and that’s a true shame, because it may be the most elegant board game ever created. It is a complete simulation of a nation’s economy packed into an incredibly fun and easy to play game that takes about an hour or so to play.

How the game works Each player is a capitalist on the island nation of Puerto Rico, back in the days when the island was first discovered by Europeans. The goal of the game is simple: collect the most assets before the island runs out of workers, the capital is completely civilized, or the market has geared up to full capacity. Sound complicated? It could be if the game wasn’t so elegant and enjoyable. The best part of the game is that there’s basically no “downtime” for anyone; all of the players are always involved in making decisions on every turn. No more waiting twenty minutes for Uncle Bob to decide whether or not to put another house on Park Place.

What can you learn from the game?

A successful business always has some cash on hand. In order to develop your city, you need to have cash to invest in buildings, but if you invest everything in a new building and things don’t go well, you might have to wait for a very long time before being able to build again. Thus, keeping some cash on hand ensures that you aren’t just running in place.

A successful business invests in itself at the right time. At different stages in the game, it makes sense to buy different buildings. Early on, you want to build buildings that will support your farms, such as the hacienda; later on, you’ll want to build buildings that are valuable assets on their own. Figuring out how to manage these changes in the marketplace is genius.

A successful business knows who to bribe. The players take turns fulfilling various roles on the island; each turn, a player selects a role to play out of several. The selected role affects all players; for example, if someone chooses to be the mayor, all of the players are allowed to bring in more workers to their farms and move workers to other farms (in order to produce crops, you must build a farm and have a worker on it). So part of the game is choosing which role to take on – and deciding whether or not other players can be convinced to take roles that benefit you.

A successful business knows how to game the market. You can monopolize the market on various crops and basically lock everyone else out of selling crops for a turn or two if you plan well. On the other hand, you can also lose all of your crops if you plan poorly. When do you sell and when do you store crops for the future? It’s another tricky balance.

Besides Acquire, this is probably my favorite board game of all time, and it’s more educational than Acquire because it is a stronger depiction of a full economy at work. The lessons that Puerto Rico can teach about the flow of money through an economy are countless, but what really matters is that it is a lot of fun. Very rarely do I enjoy a game so much that I want to play it four times in a row, but I’ve done that many times with this one.

To celebrate the week before Christmas (and give you a few great last minute gift ideas), The Simple Dollar is reviewing five board games that not only are a blast to play, but teach valuable financial lessons as well. All of these games should be easily found at a department store or a gaming specialty shop (check your local yellow pages). Other games in this series include The Game of Life, Monopoly, and Modern Art.

Acquire
Avalon Hill

While yesterday’s choice was a fine example of a market at work, it didn’t capture the elegance of true competition, mergers, and acquisitions, the kind of moves one expects to see from a large scale market. Thankfully, the number two choice turns the magnificent beauty of an open market into a really compelling game.

How the game works The board is a grid of 120 squares. Upon these squares, players take turns laying tiles out of their “hands”; this is all much like Scrabble. Each tile has a letter and a number in it that refers to a specific square on the board, so you choose the tile from your hand that best improves your situation on the board. Tiles that are next to each other represent corporations, and players can buy stock in these corporations. Over time, as more tiles are placed, corporations grow (a group of adjacent tiles has another tile added) or merge (a tile connects two corporations). When corporations merge, the larger one swallows the smaller one, and so the smaller one can cash out their stocks or receive stocks in the larger one. The game ends when the market is full (i.e., no more tiles can be placed). The player with the strongest portfolio of stocks and cash wins.

In other words, the game represents a market, with corporations merging, investors capitalizing, people holding insider information (like in Scrabble, you know what your tiles are, but the other players don’t), and people diversifying their portfolios. It’s an incredibly enjoyable simulation of the wild ride that is Wall Street.

What sorts of lessons about finance does this game teach?

Buy low, sell high You win the game by doing this well. If you know a corporation is going to grow in the future, you can do very well by buying stocks in it.

The only kind of information is insider information The tiles you hold for yourself are your insider information; you know some elements of where the market is headed that other players do not, and you can choose to guide corporations in these directions. For instance, a handful of tiles that can help one corporation means you have a ton of information about that company, and thus buying stock in them early means you’ll turn a nice profit.

The market is complicated Once you get into the game, many layers of strategy begin to reveal themselves. How long do you hold onto certain tiles? Should you force a merger now? Do you cash out or take valuable stock in a huge corporation?

Startups are insanely lucrative but very risky It is this aspect of the game that so effectively parallels the stock market. When companies start up in the middle of the game, there’s a chance that the holders of the stock will get very rich. There’s also a chance that they’ll barely be worth the paper they’re printed on. Does the investor have inside information?

Mergers often pay off better for the acquired than the company that acquires. Quite often, it is the investors in the smaller company that gain the most in the long run with a buyout. This is true not only in this game, but in real life.

Acquire is deliriously fun and a great abstraction of how the real market works. If you want the challenges and the joys of stock investing in a board game form, Acquire is a wonderful choice. Plus, it may be my favorite game of all time.

So what could possibly top my favorite game of all time on this list? Tune in tomorrow to find out.

To celebrate the week before Christmas (and give you a few great last minute gift ideas), The Simple Dollar is reviewing five board games that not only are a blast to play, but teach valuable financial lessons as well. All of these games should be easily found at a department store or a gaming specialty shop (check your local yellow pages). Other games in this series include The Game of Life and Monopoly.

Modern Art
Mayfair Games

I first discovered Modern Art during a “game night” held in my college dormitory. There were all the usual games there: Monopoly, Risk, and so forth, along with a few others I hadn’t seen before. One of these involved people staring at each other intently, then participating in an auction. As I moved closer to that table, I began to be sucked into one of the best games I’ve ever played.

How the game works Each player has a handful of cards that represent paintings by one of five different artists – you can think of the “artist” as being much like a suit in a normal deck of cards. The players go around the table and auction off the paintings, with the highest bidder collecting that painting. At the end of the round, the paintings are sold: the most popular artist has the most valuable paintings, followed by the next most popular artist, and so on. This gives the players money with which to bid the next round. It’s worthwhile to note that artists maintain their popularity into future rounds, so artists popular early on will always have some value to their paintings. The winner is the player with the most money at the end of four rounds.

In essence, the paintings are like any free market, and that’s what makes Modern Art so interesting: it’s the best game I’ve ever played for teaching the concepts of a free market. What can be learned from it?

Relative values change over time As the game goes on, some artists stagnate in value, while others suddenly skyrocket. If you keep betting on the same horse over and over, you’re going to lose out to people who diversify their investments.

You win by finding bargains and riding their escalation The real key to success at Modern Art, just like in the stock market, is looking at the game situation in front of you and determining which artist is going to make the biggest value jump in this round, then buying that artist’s paintings. The best investor will be the one that picks right.

Bubbles will always burst Whenever people start bidding like crazy for one artist, a good player (and investor) will hold off on investing and will look for something else to invest his or her money on. After a round or two, the bubble will burst and those paintings will be too expensive at auction to turn a strong profit on.

The art of negotiation A big part of this game is knowing how to negotiate with other players, mostly in terms of convincing them to not participate in auctions that you are hoping to corner. This usually ends up with various types of negotiations, including manipulating auctions on some paintings. It’s up to you to determine how much of this to allow, of course, but it can get very interesting.

Aesthetics versus the bottom line Another interesting aspect of this game is how many players seem to bid in relation to their personal feelings about the paintings themselves, even though it really doesn’t matter in the game. This can cause some players to train-wreck their own game, much like investors who bought into sexy stocks like Enron.

Different forms of auctions mean different strategies The game allows several different kinds of auctions, from a “once around” auction to a double-painting auction and several other variants. Each one requires a careful evaluation of what’s actually for sale and what other players are doing.

Aside from some very complicated (and often boring) board games, this is the best version of an open market I’ve ever seen in a game – plus it’s incredibly fun to play. If you want to teach (and learn about) the open market to someone, this is easily the most enjoyable way to do it. You might even find yourself playing it again and again – it takes only about an hour to play, and it gets very interesting as the players gain more skill at the game (i.e., they understand the market better).

To celebrate the week before Christmas (and give you a few great last minute gift ideas), The Simple Dollar is reviewing five board games that not only are a blast to play, but teach valuable financial lessons as well. All of these games should be easily found at a department store or a gaming specialty shop (check your local yellow pages). The first game in this series was The Game of Life.

Monopoly
Milton Bradley

For many of us, Monopoly is the game that pops in our heads when the phrase “board game” is mentioned. Rainy afternoons and marathon games of Monopoly were rites of passage when I was growing up – my cousins and I played a five player game that ended up running for 34 hours because we wound up in a deadlock and no one would trade lest the other one win.

How the game works You move around the board in a loop, buying unowned properties and charging rent to other players who land on your properties. Each completed lap around the board earns you a small income. Event cards (Chance and Community Chest) alter the game a bit, but the real charm is in the player interactions: can you convince Uncle Walt to trade you Illinois Avenue for Reading Railroad, completing both of your sets?

So what does this game teach players about personal finance?

Investments pay off If you spend your money on a property, over time that property will generate income for you, enabling you to buy more property. In other words, investments earn income.

Investments have different kinds of value Many players are initially drawn to Boardwalk and Park Place because of the fantastically high rents that they bring in, but as you play more, you discover that other properties (such as Indiana, Illinois, and Kentucky) are landed on much more often. Which is more valuable: a space rarely landed on with a huge rent, or a space with a lower rent that’s landed on regularly? Players learn to compare values and how to invest for themselves.

Random events Not only do the dice determine your route, but the Chance and Community Chest cards interject a good deal of randomness into the game. These cards often represent completely random events that can devastate you or save you, teaching players that if they get themselves into desperately overdrawn situations, they can lose everything at the drop of a hat. The game almost requires an emergency fund, and it shows clearly why it’s important.

Negotiation A big part of Monopoly is the art of negotiation. Can you talk your sister into trading Pennsylvania Avenue to you in exchange for the electric company and water works? A big part of the deal is how you sell it.

Infinite variety There are countless “house rules” for Monopoly that changes the flavor – and the skills needed. As the rules of the game change, so must your gameplay. For example, the free parking variant makes die rolling more important, whereas the bank lending rule enables players to go into debt without mortgaging. Different rules mean different strategies.

To celebrate the week before Christmas (and give you a few great last minute gift ideas), The Simple Dollar is reviewing five board games that not only are a blast to play, but teach valuable financial lessons as well. All of these games should be easily found at a department store or a gaming specialty shop (check your local yellow pages).

The Game of Life
Milton Bradley

Life is one of those “standard” board games that are often found in the back of a grandparent’s closet, pulled out once every few years to be played by the kids during holiday get-togethers. Yet hidden behind this simple facade is a game that teaches a number of valuable and interesting lessons about the progression of a person’s financial life.

How the game works The board consists of a long path of rectangles, most of which refer to specific life events, such as having a child, having a home fire, collecting stock dividends, and so forth. You’re represented by an automobile with a small peg in it (representing you) and room for many more pegs (representing your family). You move along the board using a spin-dial, moving the number of spaces represented by the dial, and perform whichever action is prescribed by the space.

So what does the game teach players about personal finance?

Random events Over time, random events can greatly help or greatly hinder your personal finances. You might buy a great stock and make a truckload of money, or you might lose a lot of your money to a long hospital visit. This can be used to demostrate the usefulness of an emergency fund; in fact, spending all of your money in the game is a very, very dangerous strategy.

The use of insurance The game allows you to purchase insurance against various calamities. This insurance is inexpensive and can be purchased early on. If you buy the insurance and hit one of the “disaster” spaces later on, you won’t have to pay the steep cost, but if you hit that space without insurance, it’s terribly expensive. Of course, there’s a good chance you won’t hit a disaster at all because of the “chance” factor. Is insurance worthwhile? This game can generate a good discussion on the topic.

The progression of life events – and what they cost As you move through the game, you might get married, have children, get divorced, and so on. These choices have financial consequences within the game, but can also have benefits depending on the path that you follow throughout the game and which spaces you happen to land on. Life events affect future life events and can have significant and unseen costs and benefits.

Setting individual goals and meeting them Although the official rules of the game state that the goal in the end is to have the most assets, the game allows people to set their own goals. I used to play with a young girl who would believe that the winner was the person with the most children at the end, because having a big family was the best life you could have. The game lets people figure out what’s important to them, whether it’s money or not.

Different lives have different issues If you’re not as rich as your neighbor, it might be because you chose different jobs, had different numbers of children, and had different life events. Even if you measure your success within the game as the amount of money you have at the end, the game reveals that different life paths can mean different levels of financial success and that having money is a mixture of good fortune and good choices.

The Game of Life is a simple game that can be played in an hour and provides great insight into many of the financial issues that an average life can have. Throughout the game, there are countless opportunities to learn about and teach key personal finance issues. Plus, it can be a lot of pure fun, and you can engage relatively young children (second and third graders can handle it with some occasional reading help).