The recent pandemic has led to an increased interest in chess, this may be because people are looking for something to do at home, the growing popularity of chess figures like Magnus Carlsen or because of the Netflix show the Queens Gambit. While we’re on Carlsen, he raised eyebrows when he ranked very highly in the premier leagues fantasy football even leading the 5 million or so users at one stage. People began to question whether chess players would be good at trying their hands at other pursuits, maybe Carlsen could be the next Warren Buffett? We discuss reasons why chess players may make good investors below.
For those who don’t have a clue what fantasy football is, it’s essentially a strategy game where you pick a team and try and build points through players scoring goals, keeping clean sheets etc. It involves being methodical and looking at teams/ players in form, possible injury concerns, opponents for the week and if they’re playing home or away (plus many more things but I won’t bore you anymore, let’s continue).
Chess is all about strategy, you might attack one side of the board, try and control the board early on, try to isolate the opponents king or go for the queen. Either way, going into a chess match, especially against someone who’s experienced in the game is a waste of time unless you have a strategy you can implement. This is similar to the stock market and one of the reasons many people fail from the off. Quite often new investors react to news and FOMO which often results in buying high and selling low a lot of the time (the exact opposite of what you want to happen).
If one went into investing much like a chess player and said I’m going to stick to dollar cost averaging every month and invest in the same low cost index fund regardless of price action they’d probably do well in the long run. This is just one example of an investing strategy but you get the idea.
Good Chess Players are Probably Smart
At least at the professional level, chess players tend to be good at pattern recognition, have good memory and are very strategic thinkers. Qualities you might attribute to someone who’s good at valuing companies or trading short term. The Gary Kasparov’s and Bobby Fischer’s of this world have IQ’s above 180 (supposedly).
A good chess player has to think several moves in advance and try to foresee the danger before it’s even happened. This can be similar to investing, it’s very difficult to predict things like market crashes or corrections but if you have an idea one is coming you could do some things to mitigate against a total destruction of your portfolio; maybe increase your investment in bonds or stocks that do well in recessions. Investing with a long term goal in mind will allow one to continue to invest even when the portfolio is red as most good investors know this is the best time to buy.
A Thirst for Learning
You can’t be good at chess without studying the game and learning all there is to know, similarly you’ll not be a good investor unless you understand what to look for in a great investment. Knowledge is key in both pursuits.
Why Chess Players Might not Make Good Investors
Maybe they’re just not interested in investing. Becoming good at chess often requires hundreds or thousands of hours of playing, learning different strategies, recognising patterns of play and so on. If someone is good at chess it’s probably because they’ve committed a lot of time to be good. Similarly to good investors, they’re probably good because they enjoy learning more and more information about the stock market.
We’ve discussed Warren Buffett in more detail before here, Buffett is the most successful investor of all time and rightly so. He’s had skin in the game for 80 years and made an average annual return at Berkshire of over 20% since the 1960s. Buffett and many other successful investors such as Peter Lynch suggest that being smart is not a factor for being successful in the stock market and that emotional intelligence is far more important.
We found an interesting article here from TheStreet that suggests Poker might be a better substitute for chess when it comes to carry over to investing. Poker deals with luck and uncertainty which is more in tune with the stock market, I guess they have a point.
Chess players might make good investors just like poker players. Some of the skills used in chess may have carry over into the investment world although Lynch suggests an easier approach of only buying companies you understand and avoid anything relating to macroeconomics. Buffett has even suggested most people should just invest in the S&P 500.
If you want to learn more about chess and investing, you can find Susan Polgar & Douglas Goldstein’s book ‘Rich as a King’ on Amazon here.
The views expressed in this post are the authors and should not be construed as financial advice
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