Investing

1. How Markets Work

A House Divided has three investable asset classes: corporate stocks, foreign currency, and government bonds. Each lives in a different country with its own currency, and all three are interconnected through interest rates. Understanding how rates affect each asset is the key to investing well.

2. Stocks & Shares

Corporations are founded by players and traded on the stock market. Each corporation has a CEO who controls salary, dividend payout rate, sector focus, and expansion. As an outside investor, you profit through dividends and share price appreciation — but you are always at the CEO's mercy for operational decisions.

What to look for before buying

• →CEO salary. An excessive salary drains liquid capital each turn, which directly depresses share price. A CEO paying themselves $10M/turn on a small corporation is a red flag.
• →Dividend payout rate. High payout = more current income; low payout = more retained earnings and higher future equity per share. Neither is wrong — decide which return profile you want.
• →Sector focus and expansion state. Sectors outside the corporation's primary and secondary type suffer a −15% margin penalty. A diversified corporation with no clear focus is quietly bleeding.
• →State economic health. Sector profitability is modified by unemployment, inflation, corruption, power grid, and a dozen other state-level metrics. A corporation operating in economically weak states earns less.

3. How Share Price Is Calculated

Share price is a blended metric recalculated every turn:

Share price = 60% balance sheet + 25% income + 15% momentum

Balance sheet:  equity per share = (liquid capital + NPV of all sectors) / total shares
  → NPV uses a 25% discount rate: yearlyProfit / 0.25
  → High CEO salary drains liquid capital → lower equity per share

Income component: based on after-tax corporate income
  → Higher dividend payout = more distributed, less retained
  → Lower retained earnings = lower future equity growth

Momentum: 15-turn price trend
  → Creates short-term trading opportunity independent of fundamentals

Floor: $0.01 per share (hard minimum)

The balance sheet component is the most important long-term signal. Corporations that retain earnings and expand into profitable states will see equity per share rise steadily even if their current dividends are low.

4. Dividends & Income

Dividends are paid every turn to all shareholders. The amount depends on the corporation's after-tax income and the CEO's chosen payout rate (0–100%). The CEO can change this rate with a 24-hour cooldown between adjustments.

5. Currency Exchange (Forex)

Each country has its own floating currency. Exchange rates move based on macroeconomic fundamentals, player trading volume, and a small random noise component. You can speculate directly on rate movements or use the forex market simply to manage currency exposure from international investments.

Access the market on the stock market page under the Forex tab.

6. What Moves Exchange Rates

Rates update every turn through three components:

Macro target = baseRate × (
  1 + (primeRate - baseline) × 0.02        // Higher rates → stronger currency
  - (inflation - baseline) × 0.015         // Higher inflation → weaker currency
  + (GDP growth - baseline) × 0.01         // Higher growth → stronger currency
  + (trade growth - baseline) × 0.005      // Trade surplus → stronger currency
)

New rate = currentRate + (macroTarget - currentRate) × 0.05  // 5% drift per turn
Volume pressure: net buy/sell from last 24 turns → ±1% effective maximum swing (raw pressure capped at 5%, applied at 20% weight)
Noise: ±0.1–0.3% per turn

The 5% drift speed is the key insight: major macro shocks take roughly a game year (~48 turns) to fully propagate. This creates persistent, exploitable trends — not random noise.

7. Forex Trading Tiers

Three execution methods are available, each with a different spread (cost):

8. Sovereign Bonds

Governments issue bonds automatically every 12 turns (quarterly) when running a deficit. Each bond pays a fixed coupon — equal to the central bank's prime rate at issuance — every turn until maturity at turn 48. Face value is $1,000 per unit.

The core dynamic: bonds and interest rates move opposite each other

Bond market price uses a present-value model that accounts for time to maturity.
The key rule: bond prices and interest rates move in opposite directions.

Example — bond issued at 4% prime rate → coupon = $40/year per $1,000:
  Prime rate rises to 8%  → price falls (more for bonds far from maturity)
  Prime rate falls to 2%  → price rises (more for bonds far from maturity)
  At maturity             → price returns to $1,000 (face value) regardless

Credit ratings and coupon rates

A country's debt-to-GDP ratio determines its credit rating, which in turn determines the base interest rate the government pays. Higher debt means costlier borrowing — and bonds issued when the credit rating is poor lock in higher coupons for their full 48-turn life.

9. Interest Rates

The central bank's prime rate is the single variable that connects all three asset classes. Understanding its direction is the foundation of any cross-asset strategy.

When prime rate RISES:
  Bonds       → prices fall (existing bonds less attractive)
  Currency    → strengthens (higher rates attract capital)
  Stocks      → growth costs rise, expansion slows, share prices pressured
  Inflation   → falls over ~12 turns (monetary policy lag)

When prime rate FALLS:
  Bonds       → prices rise (existing bonds more attractive)
  Currency    → weakens
  Stocks      → growth costs fall, expansion cheaper, equities benefit
  Inflation   → rises over ~12 turns

The 12-turn inflation lag is important: rate changes don't immediately fix inflation. A central bank chair raising rates will not see inflation results for 12 turns, meaning they may over-correct — creating trading opportunities when policy reverses.

Baseline rates by country

Rates above neutral are contractionary (slowing the economy, strengthening currency). Rates below neutral are expansionary (stimulating growth, weakening currency). The neutral rate is the equilibrium point — deviations create the macro trends that drive asset prices.

10. Putting It Together

The most profitable positions are cross-asset plays that exploit the same macro signal from multiple angles simultaneously.

Scenario: Central bank raises rates

• →Sell bonds immediately. Prices fall as the new rate makes existing coupons less competitive. Get out before the adjustment is fully priced in.
• →Buy the currency. Higher rates attract capital inflows; the currency strengthens over the next several turns.
• →Be cautious on stocks. Growth costs are rising. Corporations with heavy expansion plans or high debt will be squeezed.
• →Wait for the lag to play out. Inflation won't fall for 12 turns. If the central bank gets impatient and raises again, bonds get even cheaper — a better buying opportunity.

Scenario: Deficit spending spikes

• →Watch the bond issuance schedule. More bonds hit the market quarterly. Increased supply pressures prices — especially if the credit rating has already started slipping.
• →Consider high-coupon bonds as a long hold. If the rating drops, new bonds are issued at higher coupon rates locked in for 48 turns. A future fiscal correction would make those bonds very valuable.
• →Monitor inflation. Deficit spending adds directly to inflation. Inflation weakens the currency. Position accordingly in forex.