Sunday 20 May 2012

Chess Playing And Investing/Trading

My classmate taught me how to play chess during my secondary school days.

Remember those wonderful weeks after the school exams where our teachers leave us to "study" on our  own?

As a newbie, I was very surprised to be checkmated in 4 bloody short moves!? Huh? 

I was "taught" how each chess pieces move; but was not taught "how" to play chess.

I learned from my mistakes and now I am puzzled how my classmates were able to counteract my early opening moves without much thinking on their part.

That is until I realised that they have memorised the popular chess opening moves. No wonder! 

I too started reading chess books.

And learned the classic chess openings like Ruy Lopez, French Defense, Queen's Gambit, etc.

Now some of my classmates don't seem so smart now. I started to win more games.

What comes next is the exciting middle game of chess. Rote learning does not help here. Strategies and tactics matter more.    

The more chess games I played, the better I become. 

I realise its because I got better at recognising the patterns of the chess pieces and it's relation to the spatial positioning on the chessboard.

When to sacrifice material for positioning advantage; and when to give up positioning advantage to win back the initiative... Books can't teach you all these. We have to learn it through trial and error. Or practice, practice, practice!

Some of the best learning came from defeats by better opponents. I can "borrow with pride" their winning strategies or tactics that were used on me in my next game ;)

Soon, I've reached my bottle-neck in chess playing. The end game is where the boys (me) are separated from the men.

Mediocrity is hard to conceal when there's simplicity. An empty chessboard with only a few remaining chess pieces. You either know or don't know. Period. 

You got to think and make your own decisions. You're on your own! 

And now you have your answer to the debate between nature versus nurture...

Non chess players do not fret. Just substitute chess playing to another game or sport that you love playing passionately - just like in investing or trading.

I think golf is another great analogy to chess playing :)

Fellow investors and traders, can you relate to the chess analogy above? 

It's humbling to know that after so many years in the markets, we sometimes fuxx up the end game don't we?


Some externalise and blame. 

Some internalise and reflect. 

Not everyone can be great investors and traders. Good is enough for me :)


  1. In investing, not only you must have guts, you sometimes use your "instinct" also. Some prominent floor traders of NY EX, admitted at times they can just "feel" what is the ambience of the "trading atmosphere" and act accordingly. Well this "sixth sense" is developed after countless and countless trading experiences, on the floor.
    Is this the same as recognizing what your chess opponent going to do next after playing countless chess games?
    So don't use your instinct to trade stocks unless you are like the NY. EX. floor traders. You must be there on the floor to soak in the ambience of the floor's trading atmosphere, live. No, never by looking at your computer screen. You will never be able to develop this instinct.

    1. Temperament,

      I not sure whether you have hedged but you and I were exploring various hedging options in Feb remember?

      I hedged since I recognise some of the patterns that "whacked" me in the past ;)

      2 weeks ago, after the poor ADP numbers came out in the States, I doubled down on my SIMSCI hedge.

      Like you've said, it just felt right to me go short.

      Pure dumb luck!

    2. Investing in the stock market is still a game of strategy like Chess - you need to defend and attack as well as Anticipating the market next moves to make a kill; but sometime the anticipated move may not happen then you may get cornered into some difficult positions and then it is time to re-strategize your game again.

    3. CW8888,

      And that's where if you blindly follow the fundamental doctrines or technical indicators like chess opening moves, it works in the opening moves; but come the mid and end games, it does not work too well without independent thought...

  2. Congratulations!When are you going to execute your hedging?
    i have not hedge by shorting. i read James Montier's article on tail-end risks hedging and he suggested keeping some cash is one of the best hedging. So i have to liquidate my portfolio bit by bit more often, In fact i have sold most of my reits. And if the market really headed South, then i will have more cash at the ready.

    1. Temperament,

      Done it at Feb! Shorted the SIMSCI March contract and rolled-over to April and now May where I can see the payoff finally!

      Never said I was a good market timer ;)

    2. Temperament,

      I forgot.

      Sell in May and go away is like chess opening moves.

      That's for newbies to believe in and writers to fill white spaces in the media.

      You and I did our hedging in our own separate ways I guess more out of our memory and experience that this "rally" does not feel right ;)

  3. Partial sales off your portfolio is one form of hedging in anticipation of down market.

    1. CW8888,

      Yes, simplicity of getting partially into cash is good!

      I hedged as I was collecting my dividends.

      Having more than 1 trick up our sleeves can be useful ;)

  4. We always need to develop our own special little strategy based on what we learn from the market.

    Reminds me of my nerdy days when I played Chinese Chess with a friend over the phone regularly... we always end up with different pieces and places after some time. LOL!


    1. Blackjack,


      Chinese chess over the phone!? Now that's impressive!

      I guess now technology has evolved to live chats while gaming. I miss my counter-strike days...

      Go! Go! Go!


  5. I suck at Chess or any board and computer games for that matter!

    On investments - Well, I don't really know what makes even a "good" investor anymore. The only thing common with Warren Buffet, Donald Trump, and others like Richard Branson is that they've been investing ever since they were kids. And the power of compounding combined with hard work got them where they are. Same thing goes for my own experience as an engineer who was passionate about one thing since 11 yrs old and took it all the way to today, owning my own home with no debt and all. Nowadays we have a lot of young professionals blindly going into finance thinking they're gonna get a corner office right away and earn lots of money! Then they soon realize how hard life really is. So I think there's no escaping the fact that making money is going to take blood and sweat and resilience! And I'm sure Jarred can speak to that too :-)

    1. Ronian,

      I am envious of people who knew what they want to do when they were kids.

      It took me a bit of rock-n'-roll and twist and shout before I stumbled onto what I enjoy - selling. Or maybe it's to get paid for talking more than doing real work? LOL!

      Tell me about it! Thankfully it's more sweat than blood. Setbacks and failures are par for the course. Resilience is what keeps us coming back for more ;)

  6. Hi SMOL

    "It’s humbling to know that after so many years in the markets, we sometimes fuxx up the end game don’t we?"

    The challenge I find in investing is to avoid letting the game f*** us up through black swans or unforseen market shocks (1985 recession, 1998 Asian Crisis, 2003 SARs, 2008 global financial crisis).

    Be well and prosper :-)

    1. Panzer,

      Yup, the last 30 years have been really interesting!

      Especially the Asian financial crisis of 97/98. That to me is my definition of a market crash. Lucky I have not started my investment/trading journey then.


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