The following is an excerpt from Rich As A King: How the Wisdom of Chess Can Make You a Grandmaster of Investing. by Douglas Goldstein and Susan Polgar.
Imagine if someone summarized your whole financial picture on one page. Wouldn’t that be great?
Not only would it present all of your holdings, but it would also show you a bit of their history and their relative strengths. On top of that, it would catalog every possible vulnerability for you in an easy-to-read fashion.
With all that information at your fingertips, would you make the right investment decisions?
Unfortunately, the answer may well be “no.”
Even with all the information spread out before them, investors tend to only look at, and give relevance to, a small portion of the available information. This is also true of chess players. In a chess game, participants may suffer from what behavioral finance professors call “mental accounting.” The players, in this case, focus too much on one part of the board to the exclusion of concentrating on the whole game. While carefully examining all the possibilities for, say, an elegant attack, they might completely ignore the rival bishop perched in the corner of the board. Then, as they complete their maneuver, their opponent swoops in with the up-until-now silent bishop and slays their queen.
Don’t neglect the big picture
Players get a sinking feeling when they accidentally give away a critical piece, similar to how investors feel when they realize that they missed something important because they have spent too much time focusing on just one part of their portfolio.
For example, some investors might get so involved with trading their online stock account that they completely neglect the big picture, letting the rest of their money drift in the abyss of low-interest checking accounts and random 401(k) pension plan choices. Frequently, those with multi-million dollar accounts will agonize for days over whether to sell a hundred shares of a small stock rather than review the performance of their money managers who handle the other 99% of their liquid assets.
