Tuesday, January 17, 2006

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The Chivas Regal of board games?

Major in economics in college, and you'll likely hear the story about Chivas Regal, a brand that was struggling back in the seventies and hired a consultant to diagnose its ills. The consultants came back with two recommendations: change the label, and raise the price of a bottle of whiskey by 20%. The logic was that consumers would take the higher price as a signal of higher quality, and demonstrate a willingness to pay. Sure enough, the strategy worked.

I bring this up because Mary Umberger has a front-page story in the Chicago Tribune about a new board game that makes the Chivas Regal price change look miniscule:

"OK, everybody, grab a rat," announced an organizer who had brought a dozen aspiring property magnates together.

The group, crowded around tables in a Naperville sandwich shop on a recent Saturday morning, reached for their game markers--little plastic rats--to play Cashflow 101, a board game some devotees credit with changing their lives.

The brainchild of investment guru Robert Kiyosaki, author of the extraordinarily popular "Rich Dad, Poor Dad" books, Cashflow 101 has spawned clubs around the world.

Members play regularly, learning the accounting principles Kiyosaki insists are key to shrewd investing, while honing their get-rich-quick fantasies....

"I thought it was the stupidest thing I had ever heard of until I sat down to play it," said Paul Strauss of Naperville, a full-time real estate investor and a founder of the Windy City club, which isn't affiliated with Kiyosaki but whose Web site links to Kiyosaki's. "But the game teaches you how to get out of the rat race, and I did."

The prospect of learning the secret to wealth has unlimited appeal in a culture that has embraced real estate investing as sort of a fiscal sport. Some economists tied novice speculators to as many as one-fourth of real estate transactions in 2004.

This has led to boom times for pitchmen of books, videos, seminars, DVDs and trade shows. Among those at the top of that big heap is Kiyosaki, who preaches that schools fail to teach financial literacy.

His solution was to create Cashflow 101.

Though it has dice, markers and a colorful board, it's not a typical game--it's more Monopoly on steroids. For one thing, it costs $195, as opposed to the industry average of $15 to $39.

Kiyosaki said that when he was developing the game, a consultant told him it was too complex for the public.

"He said, `Raise your price. Make it ridiculous,'" Kiyosaki recalled. "`That would make people perceive it as a value.'"

So, is the game worth the coin? I haven't played it, so I can't say for sure. Snippets from the Tribune story make me skeptical, however:
Cashflow also departs from routine games through the detailed accounting each player must do. The object of the game, like Monopoly, is to make money through investments. But players must keep meticulous financial statements, updating them constantly as they flip apartment buildings, negotiate complicated partnerships and juggle debt....

Financial planners complain that he scorns 401(k) plans, mutual funds and other traditional forms of saving in favor of more risky real estate and franchise endeavors.

Critics say his books are long on platitudes and short on specific investment strategies, beyond developing passive income from real estate and stocks....

Julie Canoura, a Naperville real estate agent, is a believer in the game. She said she's using her individual retirement account to invest in property in Belize and has learned investment strategies from other players. (emphasis added)

For the past five years -- the period of Kiyosaki's fame -- real estate investment was a pretty shrewd move. However, anyone who banks their retirement income on property in Belize is much more comfortable with risk than I am.

To be fair, if you root arounf Kiyosaki's web site, he's quite aware of the real estate bubble. However, this letter suggests to me that his financial success seems based on the Chivas Regal argument:

Presently, although Kim and I are still buying real estate, we are also selling our "junk" real estate. Eight months ago, Kim put on the market a small apartment house valued at $1 million, for $1.4 million. People complained and no one bought it. So four weeks ago, she raised the price to $2.0 million and it sold in one day for full price.
Hmmmm.... maybe my belief in the power of incentives is misplaced, but I just don't buy this. I can accept that the Chivas Regal effect works for... Chivas Regal. Maybe I can accept the idea that it works for an overpriced board game. But the idea that someone was able to sell a piece of real estate only after jacking the price up by $600,000 doesn't pass my smell test.

For anyone curious about Kiyosaki's current investment strategy:

I am getting rid of my U.S. dollars. As you may know, the U.S. dollar has lost nearly 40% of its value against other currencies in the last four years. That means if you have $10,000 in savings in the year 2000, it is worth about $6,000 in purchasing power. Rather than holding cash in the bank, Kim and I have been holding our excess cash in gold and silver bars. Why? Because you will know that the dollar is falling because the price of gold and especially silver will begin to rise. When silver goes higher than $8.50 an ounce and gold reaches $500 an ounce, you will know the end is near. When the crash comes, the currency of many countries will go down in purchasing power as the price of these two precious metals rise in value.

posted by Dan on 01.17.06 at 08:36 AM


This guy is a hack and doesn't completely understand what he is doing or talking about.

He has been caught fudging before, too, so I'd take his tales of his investments with a grain of salt. I particularly can't believe his raising the price of the apartment building story. Where was this? Miami? Raising the price of real estate doesn't make the rents go up and only an extremely foolish buyer would pay $2mm for a $1mm property. Even then, it would have to be all cash because no bank would give such a loan on such an over priced property. (S&Ls in early 90s Texas aside).
I call BS!

posted by: elambend on 01.17.06 at 08:36 AM [permalink]

Someone should write a book about becoming successful by convincing people to buy your book about how to become successful. Self-fufilling prophecy. Much like allegedly expert gamblers hawking their picks to the public, you always have to question why these guys bother selling books instead of just cashing in on their genius.

posted by: Mark Buehner on 01.17.06 at 08:36 AM [permalink]

Oh awesome, he's into gold. That's a black mark to me.

posted by: perianwyr on 01.17.06 at 08:36 AM [permalink]

Forget becoming filthy stinking rich, you should have your IR students play Risk Dan, it could help them realize their full potential for world domination. Just be sure to up the cost of tuition for students who take your classes, ya know to ensure enough people think its worth their time.

posted by: DT on 01.17.06 at 08:36 AM [permalink]

Smart Money did an expose' on kiyosaki a couple of years back. He claimed he had done 6 real estate deals that got him n million dollars in such and such year, but they searched tax records and found out that he had done almost no deals. They also pointed out bogus stuff about his so called rich dad in his autobiography. When Smart Money asked Kiyosaki and asked for an explanation, he mumbled something about fables to illustrate a point (translation -- he was lying).

But you know, if someone wants to play a game about finance, there are lots of excellent computer games that are much cheaper. Sid Meier's old favorite, Railroad tycoon is right up there. And for IR types, try playing Civilization.

posted by: erg on 01.17.06 at 08:36 AM [permalink]

Greetings, friend. Do you wish to look as happy as me? Well, you've got the power inside you right now. So use it. And send one dollar to Happy Dude, 742 Evergreen Terrace, Springfield. Don't delay! Eternal happiness is just a dollar away.

posted by: Homer Simpson on 01.17.06 at 08:36 AM [permalink]

I hear Belize is a pretty nice retirement spot. I suspect some new information may have come in on the real estate, but don't underestimate the number of foolish people and the lengths investors will go to to not pay taxes. Uneconomic, yes, irrational, yes, but it occurs all too often when people have more money than sense. Gold did better than stocks last year and will likely do so again this year. The intelligent are always upset at the results of the market. Get over it.

posted by: Lord on 01.17.06 at 08:36 AM [permalink]

Laugh if you want, but once my Nigerian contact comes back from Switzerland with the cash taken from Mobutu's secret accounts, I'll be sitting pretty while all y'all are still stuck in the rat race.

posted by: Independent George on 01.17.06 at 08:36 AM [permalink]

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