As Garry Kasparov pointed out in the title of his book, “Life imitates chess.” That being the case, an examination of chess may provide some valuable insights into portfolio management.
When talented chess players develop their pieces, they place them on squares that will ultimately block their opponent from progressing. Let’s say you’re black, and white has strategically placed his pieces so that you can’t advance your stronger pieces. A weaker black player might sigh and slide his peripheral pawn up a notch. “What else can I do?” he’ll think. That pathetic move, however, not only wastes his time, but it gives white yet another chance to strengthen his position.
In investing, too, people often feel the pressure to do something, but they just don’t know what. Instead of leaving their money in a low-yielding money market account or bank deposit, they buy a stock. A short time later they reconsider, and then sell it. With the proceeds, they purchase a bond. Then a friend gives them a hot tip, so they cash out on the bond and move the money to its next station. All this activity makes them look busy. And they are busy …busy with random moves, but not busy implementing a sound strategy. What’s really happening here? The weak and indecisive investor just wastes time and, more often than not, puts himself into a worse financial position because of losing money on his trades or, at the very least, because of paying commissions.
Ask a chess master how to handle today’s low interest rate environment and he would probably say, “Don’t do anything until you have planned out your whole strategy.” Making a move with your investments before you have determined what you will do next, and then next after that, is like a chess competitor moving a piece because he feels it would look better on a black square rather than a white one.
Think like a grand master, and don’t forget that all the top players have coaches and trainers. Take the time to find a financial coach with whom you feel comfortable working, and make each move count.