Nov 20, 2017

5 Financial Lessons from Financial Boardgame: Debtzilla


Debtzilla: The Board Game is a superhero co-operative board game that puts players in the role of a secret identity superhero, who has to manage his finances as a common salaryman during the day, and combating villains at night. At the end of the game, the players have to defeat Debtzilla as the final boss in order to win the game. The game is making use of the superhero theme to bring out essential financial lessons and here are 5 of the important ones:

Nov 9, 2017

Tapering? Split-up of Spain? Events in Europe and their Impact


Europe, the continent that has rocked the global financial markets with debt crisis and a Brexit has been relatively quiet on the financial front in the past few months. However, there are 2 significant significant developments that warrant the attention of investors. Here are some of the newsworthy events which we should watch out for:

Implications of EU tapering of QE

The EU central bank initiated their Quantitative Easing (QE) program in 2009 and since than, the EU economy has recovered sufficiently to warrant the EU central bank to start tapering back on the QE program. The tapering involves decreasing the amount of monthly bond purchase until it reaches zero. The last time US Federal Reserves started tapering in 2014, the emerging market currencies and stock markets suffered a major correction. The good news is that the EU tapering will be slow and gradual and expected to end and is expected only to end in Q4 of 2018. Further more, Emerging markets' debt are mainly denominated in USD and the EU tapering will not have an direct impact on their finances. The countries which were badly affected during the last taper tantrum such as Indonesia and Malaysia have clean up a good portion of their foreign debt and are at lower risk right now.

The implications will be much more indirect as the easy money has resulted in governments within the EU region to slow their reforms towards their spending and any tapering will create a strain on governments with weaker balance sheets such as Italy and Spain. Further more, with both US and China tightening their money supply, the likely candidates that will hurt from the tapering will be the weaker EU countries and their weakness may be felt in the global stock market again.

The more obvious impact which we will feel immediately is the strength of the Euro as tighter monetary policies tend to strengthen a nation's currencies. However, the speed of tightening will be slow and probably match the speed of the US counterparts, which will help to maintain an equilibrium among major currencies. Hence Euro is expected to fluctuate around a range, with the trend of a weakening Euro broken, since the outbreak of the EU financial crisis.

Catalonia Independence

One of the richest states in Spain, Catalonia with its capital in Barcelona, has declared independence. The stock market did not react much despite all the negative press. The market has assumed that the independence movement will not succeed and base on the recent developments, seem to be holding true. So, we can discount this political upheaval for now and the bigger issue of Brexit will come back to haunt the European markets again.

What's Next

The tapering of the monetary policies is a signal that the EU zone's recovery is picking up steam and the stock market should benefit over the next few years. However, the European equities have rallied strongly ever since the Brexit crisis last year and hasn't corrected significantly. Furthermore, the prospect of a fragmented EU will still produce geopolitical shocks every now and than, so it may be prudent to pick up some good quality EU equities every time such events occur.

Oct 10, 2017

Implications of Trump Tax Reforms on Your Investment


The failure of repealing and reforming Obamacare has left the Trump administration without any legislative victory. Both the Trump administration and the Republican controlled government are eager to pass a tax reform before the end of the year. The key points of the tax reforms will have the following effects:

Aug 10, 2017

4 Reasons Why USD is Weakening and Possible Future Trends


Shortly after the US Presidential elections, the USD shot up and hitting a multi-year high, with investors expecting that a newly inaugurated President Trump will be able to revitalize the US economy through tax cut, infrastructure building and trade sanctions which all will assist in the strengthening of the USD. 8 months later, the USD has reached a 2 year low and has fallen rapidly by 6% against SGD within this short period of time.

Jul 16, 2017

Debtzilla - Game Design Diary Part II: Money Mechanics



After 1 year of design work and 13 design blueprints later, Debtzilla the board game is finally born. The biggest challenge of designing Debtzilla is the challenge of incorporating various important money concepts such as income statement and compound interest without resorting to players filling out a real balance sheet and whipping out their calculators. The other challenge is to create a game that flows, easy to learn, builds tension gradually to a climax and engaging the players at an intense level making them feel that time flies by quickly.

A Logical Timeline

In Debtzilla, a daily routine is developed which mirrors the working routine of an average working adult. In the morning, players work, earn an income and plan how you want to build their wealth in order to buy gadgets to power up your hero. In the late afternoon, they knock off from their work and head to the shopping street, checking out the latest gadgets that they can use to battle the villains. At night, the villains begin to prowl the streets looking for innocent citizens to scam while the players try to stop them with whatever resources they have accumulated. Once the villains are confronted and the dust has settled, the damage done to the city is tallied and the impact of the hero's actions will be felt in the following day in the form of interference from the final boss: Debtzilla. This flow of events help players get into the game quickly, minimizing their game learning time as it is intuitive and correspond to their daily lives.

Gamification of Balance Sheet



The biggest problem when designing this game is to find an efficient way to represent an income statement without resorting to actually filling in an actual income statement and slowing down game. How do I incorporate expenses such as interest payments, insurance premiums, personal expenses, while at the same time allowing players to build their income via dividends and proving their saving rates by budgeting and re-financing their loan. I borrowed heavily from the deck building mechanics of a famous boardgame named  Dominion whereby players start with a stand deck of cards and they get to pick new cards from a common pool, resulting in each players having different sets of monsters and abilities by the end of the game. However, the huge variety of cards offered by Dominion often result in a steep learning curve for players, which is daunting for non-gamers, which Debtzilla is trying to reach. As a result, a simplified version of the deck building mechanics is designed, with players limited to 8 cards to choose from, rather than hundreds typical in deck building game. The system is designed in such a way that more cards can be added to the Income deck in the future if I am keen to add in more kinds of debts and money instruments, such as medical debt, investment loan and car loans.


Law of Compound Interest

One of the key mechanic that I am trying to design into the game is the idea of an escalation mechanic similar to the boardgame Pandemic where players have to stop viruses from spreading exponentially. The world of finance has its own form of virus, it's called the the law of compounding interest represented by this formula
The actual calculation of compound interest actually requires a financial calculator and the mechanic to represent this formula in an actual game mechanic took some trials and errors before I got it to work elegantly.


The law of compound interest is designed into the health of Debtzilla in the form of the interest rate bar. At the initial stage, Debtzilla grows at a slow pace, often prompting players to be more reckless in their spendings. As the gauge move beyond 60, Debtzilla health starts to jump much faster, often causing panic among the players, who now will be trying to pay back the debt they have borrowed, but more often than not, the accumulated interest payment has grown so much by than that whatever amount thrown at the monster only delays the apocalypse by a turn or two. It translate the feeling of despair of crushing debt very well as players are now forced to work together to as any mis-step will lead to a losing end game.

Other Challenges

There are other challenges in design, such as balancing a 2 player vs a 4 player game and ensuring a good win-lose ratio for a cooperative game. However, these topic I will leave for another day as there are more things to talk about in the game design process.

Jul 8, 2017

Will Central Bank Tightening Derail the Bull Market?


The Trump bull rally that has been raging in the past few months have come to a halt in June. Let us take a look at some of the significant events for the month and its complication.

Mess at UK Election

The UK Prime Minister Theresa May called for an election in a bid to strengthen her coalition going into the Brexit talks with the European Union. Her lead in polls have been derailed by a series of campaign communication errors and terrorist attacks, leading to the Conservative party in losing their parliamentary majority. 

Results:  The stock market barely blinked at this political disaster. 

Oil Market Crash

The oil market went into a bear market, despite efforts by the OPEC nations and Russia to pop up the price via production cuts. The US shale producers increased their production in respond to the rising prices creating a sudden surge in supply in the market. Oil price fell to $42 from a high of $57 seen at the start of the year.

Result: The decline in the stock price of Oil companies dragged down global stock prices

Central Banks Increasingly Hawkish Stance

Other than maintaining their stance of 3 interest rate hikes for the year, the US Federal Reserve is looking to unwind their 4.5 trillion balance sheet as a result of securities buying due to Quantitative Easing. The EU central bank also noted that the European economy is getting stronger and it may be time to start tapering on their QE program. China's debt level reached a new record level again, prompting Moody to downgrade its credit ratings. The Chinese central bank, in a bid to lower the leverage level, has been unwinding the loose monetary policies implemented last year to stabilize a crashing stock market and slowing economy. 

Result: Stock market tumbled as the fear that one of the key drivers of stock market returns may be removed in the near future.

Technology Stock Slipped 

Major technology stocks slipped during June despite not having any major driver for its downtrend. Analysts are worried that the valuation of technology stock has risen too fast too much in the fast few years.

Results: The Tech stock decline affected the US Stock market and the impact is much greater than oil companies as the result of the higher weightings in the S&P500 as compared to oil.

 

What does this mean?

Some say that this is a foreshadowing of a major correction in months ahead as a result of an irrational run for the past few months. Some say that it is a temporary blip and the market fundamentals are still strong. In my opinion, I will watch the actions of the central banks closely and if there is a tightening of monetary policies around the globe, the high debt level that has been accumulated as a result of a prolonged zero interest rate environment will come back to haunt us.

On another note, Jim Rogers thinks that the market may crash this year.

Jun 13, 2017

So You Want to Be an Asian Board Game Designer?



When Capital Gains Studio first entered into the tabletop scene in Singapore, many of the previous generation of tabletop game publishers have thrown in the towel and left the scene all together, along with their industry knowledge and competency.  With no established publishers in the region, game designers often have to double up as game publishers and we can totally understand why our predecessors left as the board game publishing environment in this part of the world. Making tabletop games in this part of the world is harsh and unforgiving. We started with wanting to just design a simple low budget educational game for workshops and classroom  as a side project with no knowledge whatsoever how a good game is produced. Fast forward three years later, we have gained a lot more knowledge and expertise after attending the tabletop school of hardknocks after publishing 3 games and about to launch another Kickstarter for Debtzilla. With Kickstarter launching their operation in Singapore and Hong Kong in 2016, we are seeing more designers trying to fund and launch their tabletop game via Kickstarter. So I thought its timely to share with some of the local up and coming game designers and publishers some of the challenges they will face.

Ain't got Time and Money for Board Games
In the ancient past, tabletop games are reserved for the rich and noble, whereby they are the only people who have the time and money to enjoy a strategic game of chess. This is somewhat true for most parts of Asia as the majority of the population is trying to break out of the poverty trap and moving into the middle income. Many Asian countries also boast the some of the longest working hours in the world and by the time we reach home at late at night, we are too tired to even make babies, leaving little time for board games. The thriving bootleg market also means that the average popular board games be purchased at a discount to their actual retail price. When we tried to penetrate the less developed markets which have a much weaker currency exchange, we have to decide if we wanted to slash our retail price by more than half in order to compete with bootleg board games or only target a very niche elite market who can afford the game. In high population and high growth markets such as China, India and Indonesia, board game is still considered as a luxury niche product and the easier markets to penetrate are the smaller rich nations with a higher disposable income such as Singapore, Taiwan, Hong Kong, Japan and Korea.

Other Challenges Facing the Asian Designer
Asia has a similar problem to Europe: There is such a huge in differentiation of culture and language that localization is the key to sell your board game. In South East Asia alone, you will need to translate your game into 6-7 different languages in which each country probably will have a demand of 300-400 units with sustained marketing efforts. Hardly worth the effort to do a minimal print runs for each country. Therefore, the ability to design a language independent game where it can cater to different languages by able to update the rulebook is important for a designer aiming to distribute their games in Asia.

In terms of art, anime style artwork tend to gain better traction in North Asia and South East Asia, due to the popularity of Japanese anime and manga in the region. Just looking at the attendance of pop culture conventions will give you an idea of the demand for art. Anime Festival Asia (AFA) which features mainly Japanese pop culture has an attendance of around 150k while Singapore Toys, Games and Comic convention (STGCC) has an attendance of around 50k. The local illustrators we worked with often shared with us on the better marketability of anime art as compared to the more semi-realistic art more favored by the western markets. However, designing a board game with a pure anime theme may find trouble when marketing to the western markets as there is still a stigma against anime artwork.

Heavy games which takes a few hours to play will also find limited traction in Asia and the more popular games are usually smaller and quick to learn and play social games, as evident from many of the table top games published by Asian designers. For example, social games such as Werewolf and Saboteur are popular in China, while Japan has a more dominant card game culture. One of the best selling game in Malaysia is a game about a social game called Poop.

Therefore, a designer who is considering to market out of their home country to different parts of Asia have to consider the language, game mechanics, art and limited demand for board game. It is a high risk and potentially low return strategy. Confronted with such a design and logistical nightmare, many designers choose to design their games with the US and European market in mind, only to be hit with another set of challenge.

Marketing in US and Europe? Time Space and Money

In Singapore, I often participate in game testing sessions and when I asked the game designer about their target audience, the game designer will often say, "United States and Germany." It is not a surprise since many designers believe that there is a lack of demand locally while the grass is greener on the Western front.

Asian game designers also tend to believe that Kickstarter will solve most of their marketing challenges and helps to penetrate the Western Markets. The truth is that it is not as effective as they think. They often under-estimated the amount of money, time and networks they need to build before and after the Kickstarter campaign with the media, publishers and distributors which are often done during conventions and tradeshows. However, the cost of air tickets and logisitcs often makes the cost difficult to bear and most small Asian indie designer simply does not have the resource and time to attend all these conventions.

Financially strapped and fearful that they will be stuck with a load of board games which they cannot sell, designers often go for small print runs of 500 and below. There is a joke within the Singapore creative community: "If you can sell 500 books, you are considered to be a best seller in Singapore". Not willing to take a risk to go for a bigger print run, the per unit cost of manufacturing shoots up too high for these designers and given that most major distributors in the western markets will want 60% of the product retail price plus shipping, it makes distributing into the US market unprofitable for most designers who are not willing to risk a print run of 2000 and above.

Lastly, the western markets are getting more competitive by the day as the number of board games being launched is increasing on a yearly basis. In order to stand out from the crowd, a board game has to have top notch production value in order to compete at the highest level. An board game considered as excellent standard in the local context, is normally considered as average to good when pitting against some of the best board games around the world. You have to raise the bar beyond your usual standards if you want to stand a chance even to compete on a global level.

Design Locally, Think Globally

Hence, here are the choices which an Asian designer can take

- Design a game with art, language and mechanics suitable for the local market with the benefit of cheaper marketing cost but at the risk of limited demand. A good example is a Singapore adaptation of Cards Against Humanity "Lim Peh Says"  which raised more than $120,000. As the jokes are only unique to Singaporeans, the product probably will not go international anytime but a simple card game raising a 6 digit figure is still no joke.

- Design a game with the Western Market in mind with top of the line artwork, components and unique mechanics. The best example is Three Kingdom Redux, a beautifully designed and balanced heavy Euro game which has a better distribution network in the Western Market than in Asia. They did not launch their project on Kickstarter.

- Design a game with mechanics and artwork that appeals to the local market but at the same time, can still be enjoyed by an international audience. This is the route that we took for Wongamania: Banana Economy, but this is a risky route whereby you may risk alienating all the markets you wish to pursue rather than making everyone happy. For example, Wongamania: Banana Economy is often referred as a "Simple Game" by the more seasoned players in the western market, whereby it is considered a "Difficult Game" locally as the most commonly exposed tabletop games in this part of the world are simple games such as Cards against Humanities and Monopoly. Trying to maintain that balance requires designer to put in a lot more effort in terms of designing every aspect of the game.

The Choices Designers Have to Make

So you live in Asia and want to design a board game? Before you start, you need to do a quick check of your own resources and who you want to design your board game for. If you are unable to take time off and invest a huge amount of time and money in design, artwork, air tickets and convention fees to US or Germany, consider designing a simple game for your local market and build your expertise from ground up. When we first started, we are amazed by the kind of cardboard you can use to design a simple card game and learning the 101 variety of cardboard, is the first step to become a good designer. We are also seeing an increased interest in tabletop gaming as Asians are getting increasingly wealthy and work life balance becoming a priority among Asian families. Who knows, that small game you have designed for your local market with limited demand may become the next big hit when the tabletop culture become more widespread in years to come. 

Jun 9, 2017

Missing out on the Emerging Market Rally? Think Twice before jumping on


China is Recovering! Emerging Market Equities Soars!

You may have read similar headlines in the past few weeks and may be tempted to jump onto the Emerging Market bandwagon to reap the returns. Afterall, Emerging Market equities have soared 18% this year and the trend seems to be unstoppable. Popular news channel are optimistic about the China reforms and Asia is where all the growth is after all. 

For those market watcher, you will get a feeling of deja vu.

May 12, 2017

Why Commodities is in a Sweet Spot to Invest in


The idea of business cycle investing is simple. Allocate more of your resource based on the different stages of the economy cycle. Invest in stock and property during the recession and early recovery of an economic cycle. Invest in commodities and financial related stock during the growth to stagnancy stage of the economic cycle as inflation and interest rates start to accelerate. The last stage whereby the economy swings back into recession is the time to hold on to cash and bonds.

Apr 10, 2017

How to Improve the Risk Return of your Bond Portfolio


A well balanced investment portfolio typically has a bond component which will help to smooth out the volatility of the portfolio and gives investors some safe buffer to take advantage of any market correction or crash when it occurs, without needing the investor to top up the investment portfolio with cash.

As the global economies move towards the more mature end of the economic cycle, it is often prudent to lock in the profits made during the better times and increase the allocation towards bonds.  However, in the current rising interest rate environment, the performance of bonds will be affected.

So how can investors increase the returns of their bond in a rising interest rate environment and maintain the principle objective of a bond allocation as a form of safe haven?

Decrease the duration of bond
A bond is like a longer term fixed deposit, the longer the duration, the higher interest it will draw. However, as interest rate rises, the fixed deposit you invested in today will be worth less as investors can now go to the bank to get a new fixed deposit with a higher interest rate. In order to capture the rising interest, investors should invest in a bond that has short duration, which matures quickly so that investor can roll over the bonds which has matured and buy into the higher interest rate bond. This strategy will allow investors to improve their returns over time and at the same time, gives the element of protection.

Invest in TIPS or Higher Risk Bonds
An rising interest environment is normally driven by 2 factors, a growing economy and a rising inflation. In order to take advantage of this situation, investors can improve the returns of their portfolio by allocation a proportion into Treasury Inflation Protected Securities (TIPS) or High Yield Bonds.

Treasury inflation protected securities (TIPS) refer to a treasury security that is indexed to inflation in order to protect investors from the negative effects of inflation. Here is the description of TIPS from Investopedia: TIPS are considered an extremely low-risk investment since they are backed by the U.S. government and because the par value rises with inflation, as measured by the Consumer Price Index, while the interest rate remains fixed.

High Yield Bonds are considered to be the riskier cousins to investment grade bonds as they command a higher interest due to the riskier financials of the governments and companies that issue these bonds. In terms of risk and return, high yield bonds have similar returns to equities depending on the environment. For example, during the 2003-2007 cycle, whereby the interest rate is being raised rapidly during 2005-2006, the returns of high yield bonds was impacted but at the same time, become a natural dampener of risk which result in a much smaller investment return loss. The rising interest rates act like a "cooling measure" towards High Yield Bond while the returns of equities continue to rise and crash with higher intensity during the same period. Meanwhile, as a result of consistently low interest rate environment, high yield bonds essentially behave like a stock. However, as the intensity of interest rates may increase in the near future, this may put a dampener on the return of the High Yield Bond but at the same time, improving its recession protection should the market cycle turns in the near future. However, the potential downside of the high yield bond will defeat purpose of the safety buffer of bond in the first place, which means a slightly lower risk/return instrument might be more suitable.

 
Best of Yield and Capital Preservation
A compromise between getting better return and some level of capital preservation might be found in the solution of a short duration high yield bond. Back to the idea of duration, the longer investor lend out money to institutions, the higher chance that they may not get the money back due to higher probability of companies going bust in the long term.


However, if a shorter duration bond is used, the risk of the company unable to pay back decreased considerably. A short duration high yield bond provides a certain element of protection against rising interest rates, relative lower risk of default in the growth to stagnant phase of the economic cycle and yet return higher return as compared to a no risk treasury bill. Having said that, the, investors should be careful even using short duration high yield bond as it can have the potential downside of 5-10% during bad times, so it should be used at certain periods of the economic cycle to enhance returns.
Related Posts Plugin for WordPress, Blogger...