There’s a saying among chess players that the game is won by the player who made the next-to-last mistake. Most every chess game has errors, some serious, some not so much. Some are apparent as soon as they are made, others are only discovered several moves later. The same can be said of investing. If only you could tell what the market would do before you make your next move…
The trouble with making mistakes is they compound themselves, one right on top of the other. For this reason, it can be difficult to go back and correct errors. In chess, by the time you may want to correct your error your opponent could have moved the set-up to an entirely new situation.
The Domino Effect applies to the world of finance as well as chess. If you make a mistake and buy/sell too late/soon, or place your assets in inappropriate allocations, it may be difficult to correct your error after your opponent (the market) moves.
The bottom line is that investing really is like a chess game.
Even if the markets don’t follow specific rules as they move across a 64 square board, the bottom line is that investing is really like a chess game. Remember that even if you do make a serious blunder, the best strategy is to fall back and regroup, play conservatively until you come up with another plan, and then play to win. Winning depends on not so much as avoiding mistakes, but learning how to regroup, and turn them the disadvantage to an advantage.
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