investment lessons from chess: Life and investment lessons from chess

Chess,the ultimate game of strategy and the game of royalty, is one of the most popular games in the world.

According to the United Nations, 70% of the adult population in the US, the UK, Germany, Russia, and India has played chess at some point in their lives and about 605 million people play chess regularly. The game is so complex that on one hand, it is said mathematically there are more possible moves of chess than atoms in the observable universe and on the other, it is still possible to checkmate your opponent in just two moves.

With its origins dating back nearly 1500 years, chess is the only board game that stood the test of time. It is believed by many that Chess originated in India. It was known as ‘Chaturang’, named after the four parts of an army namely the elephants, chariots, horsemen and foot soldiers. While Chess began as a battle simulation game, it may not be wrong to say that the game teaches a lot about life and investments.

Let’s see how…

The Game starts long before the first match.

Chess is a game of strategy. Even before the first move is played, chess aficionados prepare their game plan and strategize. Similarly, before one starts putting their money to work, it is important to be aware of our financial goals and investment horizon, which would then define our investment strategy. Players, when stuck, often take help from coaches to fine tune their game plan. Similarly, when in doubt investors can gain from the expertise of financial advisors who can help them fine tune their financial plan.

Each piece is unique and has a specific role to play.There are six types of pieces in chess, 16 pieces in all, eight pawns, two bishops (camel), two knights (horse), two rooks (elephant), one queen and one king. Each type of these pieces has a defined movement and can attack their opponents only through a defined set of rules. Each one of them has a unique place in the game.

Similarly, when it comes to life it is important to know that all of us are unique with unique journeys. And with investing, remember, each asset class has its own features and place in an investor’s portfolio. For example, debt is relatively stable whereas equity is prone to bouts of volatility but has the potential for growth vis-à-vis debt.. We often, without thinking, use debt for long-term investments, forgoing the extra return we would have earned, had we invested in equity. Similarly, we invest in equities and with even slight and short-term movements in the market, redeem within months or days, without giving our investments adequate time to grow.

Equity is well suited for long-term investments. Debt tends to bring down volatility and gold acts as a hedge against the negative impacts of inflation or geo-political events. We create robust portfolios only when we align the characteristics of each asset class with our time horizon and risk appetite.

Consistency can turn a Pawn into a Queen.
We often underestimate the power of small consistent efforts. In chess, a pawn that is able to reach the other end of the board can convert itself into a Queen. In life, people who consistently puts in efforts towards their dreams achieve it. In investments consistent small and systematic investments (SIPs) have the power to compound and grow over time.

Patience is the Key.
Chess is a game of patience. There are times during the game when the players have to keep their mind calm and decide on the next move. So much like investing (and life), where short term news, or market movement can make us restless. However, like a good chess player, we need to remain calm, not take any hasty decisions, stick to our plan and let the volatile investment cycle tide over.

Lastly, and most importantly, protect the King at any cost.
It is often said in chess that the Queen has the most powers, however if the King is dead, the game is over and hence it is important to protect the king at all times. In investing (and life) the king translates to what is most important for us and the need to protect that. What we value, needs to be decided by us. It could be child’s education or sending parents for their dream vacation. Whatever we think is important, it is pertinent that we start investing in that direction.

Just like winning at chess, the path towards wealth creation and financial freedom involves strategy and discipline. The analogy between the two is aimed to help you maneuver your investment journey.

Happy International Chess Day.

(The author is CEO Baroda BNP Paribas Mutual Fund)

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