2 Key Traits Smart Investors Share with Great Chess Players

Netflix recently announced that The Queen’s Gambit, its new show about a chess prodigy, is the company’s most popular limited series show to date. What may be more surprising is that chess sets have become popular holiday gifts for the first time since Bobby Fischer won the World Chess Championship in 1972, defeating Boris Spassky.

Many people misinterpret just what the Queen’s Gambit, as a chess strategy, actually is. A gambit is the sacrifice of a chess piece for an advantage. The Queen’s Gambit is White’s chess opening that sacrifices the c-pawn, in front of the Queen’s Bishop, in exchange for a dominant position in the center of the chess board. It is the d-pawn, the Queen’s pawn, which may remain after Black’s response. This chess opening dates back to at least 1490.

Black’s response to the Queen's Gambit opening is either to accept or decline the board’s center. For advanced players, White’s thoughtful choice of openings is essential because White enjoys a great advantage just by moving first. But Black’s response to that opening can be disarming to eventually devastating.

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Striking Similarities Between Chess and Financial Planning

Many scholars like to use chess as a metaphor for nearly every type of strategic thinking and planning, from business and politics to athletic competitions and warfare. The world’s chess masters become so well versed in the game that they can estimate an outcome as many as six to eight moves ahead most of the time, even seeing their loss well ahead of a checkmate. This is why so many chess matches end in a resignation and an audience struggling to decipher the final unspent moves.

Strategic tax and trust planning is certainly less complicated than chess. However, it shares many features and requirements to be effective. Most prominent among them are moving first when you can (proactivity), planning several moves at once (anticipation), understanding the usual obstacles (experience) and maintaining flexibility (keeping your options open when you can).

This past year has been a financial conundrum. Main Street has suffered from pandemic-related shutdowns, layoffs, shortages, extraordinary health costs (both financial and human), and both political and social upheavals — while Wall Street has repeatedly broken record highs for the major investment indices. Financial and political pundits trade in mixed bags of factual and misleading mini-dramas to increase viewership, influence politicians and promote obvious and hidden agendas. Consumers of this flood of information, for the most part, have retreated into their own information bubbles, and many resist strategic planning that fails to comport with that worldview.

Applying Chess’ Predictive Principles to Today’s Political and Financial Landscape

But just like any game of strategy, a failure to anticipate the actual outcome, to separate the gambit from the opportunity, can be costly. This piece is being written before the next administration was sworn in, but you may be reading this after Jan. 20, 2021. I do not know today if President Biden’s administration is working with a split or a party majority Congress. Our past experience is that a split Congress is an impediment to most legislation, especially any bill seeking to roll back a tax law that is just three years in effect. In fact, even a party majority Congress typically requires many incentives and trade-offs to reach a final bill.

It’s late November 2020 and my clients are today deciding whether they should make major recognized gifts before the lifetime estate tax exemption changes effective for January 2021 (an unlikely event before 2026 in my estimation) or recognize capital gains before the effective tax rate is increased (a somewhat more likely change, but not until 2022).

As their adviser, I tackle the math problem and forecast the differences between action and restraint, between major moves and minor adjustments. I give my opinion when it is requested and support their educated choices. I say “educated,” because it is also my job to root out the facts and state them clearly and credibly, so they may make the best decision for their families.

Exposing a Danger Zone for Investors

Which brings me to the purpose of this article and my most essential advice: Choose your information sources and your advisers well, and then carefully consider their message and advice.

• Is it unbiased?
• Credible?
• Timely?
• Is it supported by believable facts and coherent arguments?
• And finally, is their advice always well within your socio-political comfort zone? Yes?

Actually, that last one was a trick question. If their advice does not both respect and challenge your worldview, you may regret the outcome of your decisions. Your perspective is an emotional and personal practice. But various perspectives can reveal objective and universal truths. We may want the economic, societal and governmental reality to conform to our perspective, but they actually never do.

To achieve financial success, like a good chess player you must anticipate the most likely events and outcomes based on the situations and circumstances as they actually exist today. In other words, you must differentiate the gambit from the opportunity. To discern those actual situations and circumstances requires multiple perspectives.

What All Investors Need to Do

Now more than ever, your choice of information sources and the algorithms of social media manipulation can effectively capsulate you in a bubble of half-truths. This lack of credibility is dangerous and costly. Consider well the logic behind the statements you hear and the bias of the messenger. And ask yourself that most important question: Is this information credible enough to stake my financial well-being on it?

After all, in most cases the messenger has little to lose if the message is wrong, but you and your family can hardly afford a substantial misstep. Check and checkmate.