Thursday, October 13, 2011

As a chessplayer, you have the attributes of a Wall Street trader

Boaz Weinstein’s opening move on Wall Street came as a result of chess. A bold statement  which is worth thinking about!

"Chess helps in trading, Mr. Weinstein said. To become a good chess player, he learned to focus on how he made decisions because he could not calculate the results of all his possible moves. Learning to deal with that uncertainty or risk has been useful. When you make an investment, “you can have an 80 percent chance of being right. And then the 20 percent comes up. But really it is the process that you used to make the decision", he said.”

These extracts are taken from the DealBook section in the New York Times as reported on 29 September 2011.

Let's face it, chessplayers are often viewed as "supergeeks" who have only the most tenuous grip on reality. But let's sift through the article a little more to find out why a chess player (such as yourself, for example) may indeed possess attributes which may lead to success in the business world. Thus:

So many people in the investment world have bull-market mentalities. They do well when things are going well - Mr. Norwood said. In chess, he said, you are constantly facing setbacks, and the people who become great players learn to overcome them."

Here is the only part of the article's thesis that I take exception to. Why do we have to exclude the majority of the chess-playing fraternity from the argument? You don't have to be a "great player" to have have the attributes as described. It takes a certain amount of courage to even begin a chess game - with all the attendant potential humiliation of losing, the necessity of concentrating in a way that is quite beyond the majority of the population and so on.

So what other analogies are there between chess and investing? Here's what Mr. Hirsch, the founder of Seneca Capital, says:

"memory, pattern recognition and the order in which you play moves are important in chess, and the same is true in investing".

Apparently, Boaz Weinstein, who I mentioned at the beginning, often considers "chess players when hiring" - so maybe you could yet retire "a multimillionaire at the age of 40" as did one David Norwood, a well-known Grandmaster.

"Go for it", say I!

You may be interested in one of the comments made on the article by 'Michael' from Montreal, thus:

"If we deconstruct chess we find that all chess can be defined as a "chain" of moves. From the beginning to end this chain of moves is defined by the present state of the board. Aka past moves have no impact on the next move. Of course one might question the logic of this. "Don't chess players plan their attacks?" the answer is that yes they do. But no matter what your last move was your current move is entirely dependent on the present location of all the pieces.

This is the definition of what is called a Markov chain, a probability model which depends only on the current state of your sample. Markov chains are the one most useful probability models in the world and can be used to model anything from weather systems to financial markets.

Chess by itself cannot give a person the tools to deal with financial markets (as noted in the article) but it does give people a certain intuition and imagination which can help people grasp the complex prediction models that are oftentimes extensions of or based on Markov chains".

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