Chess is a game of strategy, and part of strategic thinking is figuring out what your opponent will do. Often, you may mistakenly assume that your opponent thinks the way you do. However, for all you know, your opponent is thinking of something completely different and may make an unexpected—perhaps, even illogical move.
Similarly, when investing, you may think that you are making some very smart investment moves. You have done all of your research, made a comprehensive risk-benefit analysis, and taken what looks like a very logical investment decision. But then, all of a sudden the market does something unexpected and you end up with a loss.
So how can you invest strategically if you can’t predict the market’s movements?
Create a flexible plan
The answer to handling unexpected moves in chess or the marketplace is flexibility.
The way to develop flexible thinking is to create a financial blueprint. This ‘blueprint’ describes the strategy you have in mind, the benefits you see if things go your way, and the alternatives you have if presented with unexpected challenges.
This blueprint is similar to an architect’s plan: An architect starts with a plan on paper, but when the construction begins, the builder’s tactical skills come into play. As surprises unfold due to unexpected variations on the ground, supply-chain or worker problems, the contractor must remain flexible to deal with each of these issues. This doesn’t mean he changes his overall strategy. Instead, he makes minor adjustments to the plans in order to resolve the obstruction while staying on track.
So for builders, chess players, and investors, advancing flexibly and sticking to a strategy are not opposing concepts.
When you create a financial plan, it should be solid, but leave you with enough room to fine-tune it as things change under your watchful eye. In this way, you can be flexible and strategic at the same time.
For this reason, I often advise my clients to review their portfolios at regular intervals to see if any changes are necessary. Sometimes, risk levels increase as the economy begins to sputter. Sometimes more rewards are available as a new buying trend or technology shows up in the marketplace. You won’t notice either risk or rewards unless you keep your finger on the pulse of change. By creating a strategy with the assumption that life never goes completely according to plan, you are more likely to make a success of your investments.
To learn more about how chess strategies and tactics can improve your financial IQ, read here.