If you saw the knight with the video camera, you're in the right place!
ghlight the chess strategies in Rich As A King
, Susan and Doug prepared a series of videos. In the book, every time they wanted to show you a video, they put an image of the knight holding the video camera. You can watch the videos to correspond with your reading the book, or just go through all at once. These videos are a very special bonus for readers of the book. We hope you find them both valuable and enjoyable.
Page 9. When to Sell an Investment or Sacrifice a Chess Piece
Chess players make poor moves based on the disposition effect. They may trade off pieces, feeling like they’re gaining traction; however, later on in the game, they might find that those trades were merely cosmetic time wasters that set them back strategically. When you have to make a decision to sell, avoid letting the disposition effect blind you. Don’t jump to sell shares whose prices have increased while keeping those that have dropped in value. Grandmasters don’t do that, and investors shouldn’t either.
Page 25. How Castling Works
Castling offers two key benefits: It keeps the king from getting into trouble, and it also activates the rook by placing it in a strong central position on the board. Can you win without castling? Famous historical players sometimes abandoned a castling opportunity; however, those games occurred before the development of today’s increasingly defensive methodologies. In those days, people would take risks that they wouldn’t attempt today. Players enjoyed the romance and gallantry of chess – think The Three Musketeers – rather than the precision that characterizes today’s tournaments. Look at the current competitive circuit and you will see that the practically-minded master-level player castles in almost every game.
Page 42. How to Be an Active Investor
For investors, the goal of being active does not mean constantly buying and selling. Churning your portfolio will do you little good, though your broker might benefit from the commissions you pay. In most cases, people who think they have the skills necessary to trade effectively end up drastically underperforming the markets. Instead of trying to add value to your holdings by always moving your assets from one idea to the next, choose investments that give you maximum impact, and then hold them. Find out more by watching this video.
Page 46. An Illiquidity Nightmare-Part I
If you have portions of your portfolio that you wish to lock up in illiquid, non-marketable securities because you think that those investments fit in well with your overall portfolio design, then you are making a controlled decision. Just be aware of the restrictions, and don’t get yourself drawn into an illiquidity or unmarketable nightmare. Watch this video to find out what an illiquidity nightmare is, and how to avoid it.
Page 46. An Illiquidity Nightmare - Part II
In this video, find out more about the illiquidity nightmare and use the tips here to make sure that it won’t happen to you or your investments.
Page 58. Set Up An Asset Allocation Model
Your asset-allocation model clearly illustrates the different asset classes in your portfolio. To make it accurate, begin by recording all your current resources such as your home, business, collectibles, stocks,bonds, and cash. Here’s how.
Page 63. How Monte Carlo Simulations Work
The Monte Carlo simulation (MCS) is an analysis tool that deals with uncertainty. It calculates the probability of meeting specific future targets. Investment professionals use MCS to put order into a large body of data (such as capital market results) so that they can help their clients make practical decisions (e.g., how much money can I spend yearly?).
Page 113.Can You Budget Your Way to Being Rich As A King?
In the same way that a chess player can’t move for his opponent, you can’t tell the stock market what to do. However, you can decide how much you spend. You can choose whether to buy a hamburger or a house, a coffee or a car, a Valentine necklace or a vacation. And over the long term, the individual decisions that you make every day will really add up.Find out how.
Page 166. Develop Purposefully, and Not Just for Development’s Sake
When you make an investment choice, make sure that your move will actively advance your overall goal. For instance, chess players “develop their pieces” early in the game. This expression refers to activating the bishops and knights so that they can enter the fray on the board instead of remaining tied to their own back row. However, developing pieces does not mean simply shifting them from one sector of the board to another. Coordinate the motion of the bishops and knights in the same way that you would coordinate your stocks and bonds. Think of each move not only as a solitary investment, but as part of the bigger plan.
Page 168. Accumulate Small Advantages
Grandmaster-level games rarely contain blatant blunders, but a professional player won’t wait until her opponent gives the game away with a bad move. Rather, she’ll build her defensive and offensive fortress slowly, accumulating small advantages wherever possible. Similarly, since you can’t bet your future on the lottery, you also need to accrue money in reasonable, steady amounts. Over time, a collection of seemingly trivial sums can help you score high in the financial game. Find out more about this by reading page 170 in the book.
Page 179.Sometimes You Just Need to Sell
To build a solid framework for your pieces on the board, like designing a structurally sound portfolio, first chip away the parts that don’t belong. Chess players often decide to give up a piece that doesn’t fit into their overall plan in order to ultimately prevail. And in effect, portfolio managers do the same thing. Anyone managing a portfolio must look for opportunities to sell underperforming positions, even if those assets are wearing a queen’s crown.
Page 184. Be Aggressive, But Play Soundly
Combine aggressive play, which can help advance both financial and chess players to the top of their fields, with more positional and defensive maneuvers. Temper your thinking in both areas with the words of the fourth World Chess Champion, Alexander Alekhine (1892-1946): “During a chess tournament, a master must envisage himself as a cross between an ascetic monk and a beast of prey.” As an investor, you will have times when you must abstain from an extreme lifestyle (hopefully not to the extent of living like a monk), and other times when you can push hard. Learn how to find the best balance for you by reading page 185 of Rich As A King.
Page 189. Castle Early Because It Is a Proven Technique, But …
Why risk your core assets trying some new idea that may fail? Though innovation may lead to success, even the greatest investors follow the basic rules, which include vigorously protecting their money. In most of the highest-level games, grandmasters strive to set up their pieces in accordance with the traditional protocol of castling because they know that if they don’t, they may be setting themselves up for failure. Take a look at Polgar vs. Vanheste 1985. Jeroen Vanheste, playing black, waited until the game was almost half done before castling. By that time, White had not only castled, but had also set up a multifaceted assault, eventually leading to Black’s resignation.
Page 191. Prepare To Attack Long Before You Fire the First Shot
Grandmasters often allot many moves to setting up for future attacks. In fact, they seldom spar at the opening of a game. Rather, they guide their pieces from one place to the next, scheming to launch an assault sometime later. Like snipers, these experts wait for the critical moment to act and only then pull the trigger to either slay an enemy or protect a friend. Watch this video to find out how to put this into action.
Page 192.Defend Your Pawns. Like Convertible Bonds, They Have a Great Future
Chess players love getting a pawn to the last row of the board and promoting it to a queen. Grandmasters defending against this transformation will naturally struggle to restrict their opponent’s access to that Holy Grail. But you can get your pawn there; it just requires help. In order to make it all the way to the other side of the board, you will need backup from some of your strongest pieces. Read page 192 of the book to find out how this applies to convertible bonds.
Page 194. Double Your Power
While one chess piece can present a threat, two together can create an impenetrable force. Frequently, chess experts will line up two pieces that have a similar pattern of moving in order to deliver a “one-two” punch. Investors, often not satisfied with their lot, sometimes forgo this important chess lesson of consolidating their forces. Instead of strengthening their more powerful positions, they regularly scatter small bits of money here and there, hoping to find something better than what they have. Even worse, they’ll frequently sell a good investment in order to free up cash to try an unknown possibility. Rather than follow this course, look at your own positions, find the more successful ones, and add to them. This concept of pairing up your strong pieces, that is, putting more money into your strong investments, can certainly strengthen your current asset pool.
Page 198. Develop during exchanges
If a grandmaster chooses to swap pieces with her opponent, and she has a choice as to which piece she can use to make the capture, she’ll usually select a piece that could benefit from further development. Early on in a game, for example, she will try to make each move not only challenge the opposition, but also try to take over space in the center of the board. At the end of a game, too, she will look to accumulate extra benefits from each move. When you sell an investment, whether to gain the tax benefit or to strengthen your portfolio, plan to take the money and develop it, making it more productive by transferring it to a new and even better investment. Read more about this idea on page 200 of Rich As A King.
Page 201. Trade Off Bad Pieces Immediately
Just like chess players, investors must also consider when to let go of an asset. An underperforming position can often wreak havoc on your overall situation, so try to dispose of it as soon as possible. Though you must expect, and even ride through, volatility in the stock market, when fundamental adjustments occur to the detriment of a company, don’t wait around for some messianic solution. Follow the wisdom of the Steve Miller Band: “Take the money and run.” Don’t spend weeks mulling over a decision to sell a stock. If the original reasons for owning it no longer apply, just get out, even if it means you will lose money. Consider cutting your losses now in order to avoid an even greater potential loss in the future.
Page 205. Don't Always Exchange a Pawn For a Queen
Exchanging cash for an investment, much like trading a pawn for a more powerful piece, requires that you carefully consider exactly which piece would help you to win the game, not which one is the strongest. How often do people hear of a great stock, buy it, and then discover that it radically alters their intended asset allocation model? Or someone may feel that one of his mutual funds has done so well over the years that he loads up heavily on that position… only to find that now it does him more harm than good. Before you convert your cash to any specific type of security, start by asking yourself which asset class you need. Don’t start by asking, “Should I buy a six-month CD or a healthcare mutual fund?” Rather, begin by exploring whether you need more growth or income. Then drill down in that asset class to choose the right investment for your current situation.
Page 210. Don't Move Your Protection
The foundation of many chess tactics lies in setting up a defensive piece, and then moving another piece into the established safe zone. As long as Piece A protects piece B, the second piece can remain on its square. But what happens if the defender moves away? All of a sudden, Piece B becomes vulnerable. In chess, if you’ve placed a piece onto a guarded square (one that is protected by another one of your pieces), always make sure that your defense remains steadfast. Withdrawing money from your retirement account is like moving that knight away from its position defending the pawn. Find out why by reading page 211 of the book.
Page 212. Get a Free Piece
Even in the highest level games, a situation might arise where a grandmaster can grab an opponent’s piece without giving up one of her own. Though rare, these opportunities can completely change the outcome of a match. Though behavioral finance experts caution against accepting free offers (see Chapter I about “Why you should walk away from free offers”), this does not mean that you shouldn’t grab hold of a good opportunity when one comes along. Understanding that no one on Wall Street will give you something for nothing, you can still try to find advantages that cost little or nothing.
Page 214. Fork Your Opponent
When you fork another player, you use one of your pieces to attack two or more of his so that no matter what he does in defense, he will lose at least one of them. In financial terms, creating a “fork” means enhancing an asset that you have, making it fulfill two or more goals. When looking at cash in the bank, you might find some forking opportunities. How can you move that liquid asset in such a way as to make it more potent? For an example of a “fork” that may make your money more powerful, check out page 215 of the book.
Page 216. Don't Get Pinned
Beware of lining up one piece in front of another, allowing your opponent to pin you. If you are in a family-owned business, you probably recognize the feeling of being pinned. You cannot move away since you might lose a valuable piece on your financial board, like your income, pension, or health insurance. And could you get another similar-paying job and the prestige associated with it? If you resign, will your family feel as though you’ve abandoned the ancestral dream? Owners of family businesses often have a hard time hiring talented workers. On the one hand, if they choose to employ someone from within the family, the relative might lack skills, experience, or drive. On the other hand, if they look outside the family, not only might they offend their kin, but their candidate pool will be limited. After all, would you want to join a company where the only upside is that instead of answering to the patron, you can look forward to answering to his son one day? Watch out for any investment or business situation where you may become pinned, unable to maneuver to a better spot, because the consequences of your move could be dire. As chess master and prolific writer Fred Reinfeld (1910-1964) noted, “The pin is mightier than the sword.”
Page 217. Death Traps
The ultimate trap in chess is, of course, checkmate. Under attack, the king either cannot escape, or he can only flee to another unsafe square. In fact, any piece – and any investment – can fall into the snare of a cunning opponent (at the chess board or out in the economic field). In much the same way, many people get trapped by illiquid investments. They look at their portfolio and suddenly realize that some piece is effectively lost.
Page 221. The Dangerous Discovery for Bond Buyers
The last thing a chess player wants is to get caught in a “discovered check,” when an opponent reveals an attack by moving a blocking piece out of the way of an attacking piece. Similarly, a retiree dreads the possibility that a hidden attack will ambush his “safe” bond portfolio. Both situations occur when the relied upon protection slips away. Read page 221 of the book to find out more about what this means.
Page 223. How to React Against A Killer Attack
Some situations are so deadly that there just is no defense at all. So what do you do after suffering a miserable defeat? Learn from your mistakes and move on. Here’s the lesson that applies to every aspect of life: Win with grace; lose with dignity. Runners lose races; lawyers lose cases; world chess champions lose games; and investors lose money. Sometimes you will end up in a situation where a stock you own drops, bonds default, or a divorce devastates your savings. Sometimes you’ll lose your job, get ripped off by a tenant, or need to support your family members who never bothered to save. Sometimes you’ll pay a deposit to a builder for an addition to your house and then he’ll vanish. And sometimes a hacker will steal your identity, ruin your credit score, and sell your credit card numbers to thieves. In these and similar situations you would lose. So… then what?
Page 236. The Surprise Attack That Will Wipe You Out
One chess tactic called the “skewer” can annihilate an opponent. Similar to a “pin,” a skewer targets two of your opponent’s pieces that are lined up. Usually, the more valuable of the two pieces must flee, allowing the capture of the other one. Investors must watch out for this, too. As an investor, you lack the same vantage point that allows chess players to observe every piece on the board. However, you can see a lot, and in many – though not all – cases you can often stop yourself from falling victim to a surprise attack. Read page 237 of the book to learn about some common mistakes that you can easily avoid.
Page 239. How Not to be Broke
It’s funny how people complain about not having money, yet they’ve got new cars,TVs, and iPhones. Sadly, they’re really broke, or worse. Buried in debt, they actually have a negative net worth. How did they end up that way? They got caught by a “decoy.” Grandmasters use decoys to lure their opponents into unfavorable positions. Similarly, credit card companies and other lenders use marketing gurus to fashion decoys that ensnare consumers. Certainly, when you’re out in the shopping mall and a sale appears before your eyes, don’t assume you’re getting something for nothing. Rather, view it as a decoy. The store owners try to make you feel like a winner, but really they are luring you to put yourself further into debt.
Page 241. Ruined By Your Own Team
When castling, players sometimes create such a solid, static fortification around the king that they make it more susceptible to a deadly attack since it cannot move itself out of harm’s way. Too much protection of a valuable piece can actually stifle its movements. For more information about how being overprotective can ruin your finances, read page 243 of the book.
Page 245. The Backup Plan You Need Now
Standard chess strategy calls for castling so that the pawns, and other pieces as well, will guard the king. However, an adroit opponent looks to cut down those defensive pieces, ultimately exposing the king. Do you presume your retirement income is secure? Prepare for the potential retirement disaster if your main source of cash flow, usually your pension and/or social security, defaults. “Can’t happen!” you say? Simply read the report that the Social Security Administration sends you, listing your benefits (order it at www.ssa.gov/myaccount). On the cover page of that document, they admit that in the not-too-distant future, they will collect less income than they have to pay out and that over time they may have to cut benefits. Can you feel them chipping away at your defenses? Find out how you can make a backup for your finances.
Page 248. Buying at The Best Price
Market professionals debate whether to buy stocks “at the market” or at a limit price. When you place a market order, you’ll get the current best price on the security. But with a limit order, you’ll get filled only if the stock trades at your stated price or better. For most long-term investors, whether they pay a few cents more or less for their purchase probably won’t make a significant difference. If you want to own the position, in most cases just go ahead and buy it without setting a limit, lest you set your limit too low and never get an execution on the trade.
Page 252. Go For The Stalemate With the IRS I
What happens if you make a mistake in preparing your taxes? Sometimes you could make an innocent miscalculation, or your brokerage firm, or your boss might send you an amended 1099 or W-2 after you have already filed your return. Other folks might have more nefarious inaccuracies on their returns. These could include anything from claiming ineligible dependents (like the millions of people who claimed their pets as dependents) and failing to report domestic workers, to not reporting income (“I had to pay tax on the money I earned when I painted that guy’s house?” or “Gambling winnings are really taxable?”) and not including offshore bank accounts or mutual funds. No matter the situation, if you owe tax to the government, they’re going to checkmate you, and they’ll probably hit you with penalties, interest charges, and the threat of jail if you’ve played a particularly bad game. Watch the first part of this video about going for a stalemate with the IRS.
Page 252. Go For The Stalemate With the IRS II
Tax professionals advise their clients to use certain methods when they need to clean up a mess with the IRS. First of all, don’t try to hide the problem. It will only get worse. The simplest tool you can use is the 1040x, which is an IRS form that allows you to amend a previously filed return. You can correct your filing status (single, married, head of household, etc.), dependents, income, deductions, exemptions, or tax credits. Though you may have to pay some tax and interest, you’ll likely avoid penalties. Instead of losing the game big time (i.e., with fines or jail time), you’ll come out even – or at least better off than losing. Watch the second part of the video “Go for the Stalemate With the IRS” to learn more.
Page 254. How Perpetual Check Can Save… And Your Money
Low interest rate environments are a nightmare for retirees. Since their bonds and bank deposits yield lower returns than what they had expected they would receive, they feel a looming financial checkmate. Unfortunately, in this vulnerable state, some people place their money in highly speculative investments, rationalizing that since they need the income, it’s worth the risk. But it’s not, and they can learn this from the chessboard. According to the rules of the game, if the same position arises three times,meaning the players make the same moves back and forth for three turns in a row, a player can declare a draw. Just as in the “stalemate” tax example above, a draw always trumps a loss. As such, go for a draw if it means you can escape a loss.
Page 256. Leverage Your Strongest Piece
What is the strongest piece in your financial arsenal? You. Regardless of how much you know about investing, the surest way to build your wealth is to get the most out of yourself. More than any other wealth-building tool, your own earning capacity will determine whether you will succeed in becoming as “rich as a king.” In order to maximize your career opportunities, get out of your comfort zone. Just as the queen in the above example took a firm step at the outset of the game, you also need to earn what you’re worth. Read page 258 for some great ideas about this from internationally acclaimed business consultant Brian Tracy.