Thursday, February 23, 2017

Trump and Chess Are Helping My Returns

Happy 2017!

I know it is already February and a bit late for that but my first blog entry in a year always requires a new year's greeting.

For those that wondered why this blog is silent, it is mainly that my portfolio has been static. A long term investor typically doesn't change his portfolio and his views. So, if I give advice or opinions, it is just a repeat of what I already said. I have learned that long-term investing is always longer than what I initially. So, most of investing is simply waiting.And that is probably repeating what I already said before.

Trump is President???

The last year has been a truly unique year. In a year when I thought Trump becoming the president was absolutely improbable, the improbable happened. I was in Europe at election time, and I really wondered if I would be allowed back in the US. And even if I was allowed back, I wondered if I wanted to come back. My native Canada looked more and more enticing.

I was preparing to readjust my portfolio in reaction to the market fallout. Donald Trump won the election in the early hours of the morning local time. The Asian market dropped in reaction to it. So I thought the US market will be a bloodbath in the morning. However, I was pleasantly surprised that the market rose! Even stocks I thought would suffer under a Republican government went up, including my managed care stock Anthem. I didn't buy anything that day. And in the following three months hardly touched my portfolio. But what a blessing Trump has been to the market, especially value stocks which makes up my entire portfolio.

I make politics off limits on this blog except as it pertains to the market. And the recent US election is one such case. The last US election taught me a lot as does much of politics. I am not talking about Trump the person. What I learned from the election is about Americans. The US population is not a cut above all other countries. They are prone to the same hysteria, xenophobism and gullibility as people of all other countries. Its institutions are exceptional, I admit that. But in think in the next four years, we will see it put to the test like no other time in recent history. I wonder if a single man can do as he wishes despite the constitution and laws that forbid what he wants to do. The recent Federal court decision to block his immigration ban from seven Muslim countries is one such example. And there will be more I am sure.

The makeup of the US population has made me even more eager to diversify away from the US. I am thinking more of countries like Europe and Japan. I already have investments in those places but maybe I should look again for more.

The recent election has also taught me that strange things often happen. In fact people are so caught up on avoiding past mistakes that one should not focus on that. Instead one should focus
on exactly the not-so-obvious. For example, last 8 years has seen extreme scrutiny of banks. So extreme that probably it has unnecessarily hobbled the banks. Banks are doing fine now. Maybe dismantling Dodd-Frank is the best thing to do. In that, maybe I do agree with Trump!

And I found it even more bizarre that the market rallied in the months after Trump got elected. It just reinforces the common wisdom that you cannot time the market.

And this leads to my main idea. My portfolio picks in this blog have almost all fundamentally not disappointed. But my portfolio hasn't done as well as I expect because I often sold too early because I was impatient. Sometimes I would wait 1-2 years for something to happen to a new investment. If nothing happens I'd sell. And the following year it doubles. This was the case for ITIC and ADW:TSX.

Play Chess to Enhance Returns

Investing needs skill and temperament. Many discuss the skill aspect, but it really isn't that technically hard as Buffett and Munger say. And I have found solutions for the skill aspect. Others may not find it suitable for them but it works for me. But I need a better solution for the patience issue. I looked at the habits of other great investors. They all seem to be comfortable under their own skin and they have good balance in their life. Warren Buffett's wife once remarked that Warren doesn't care much for money as one can see from the way he lives. But he is competitive and his net worth is a way of keeping score against the competition. It is very satisfying to know you have some innate superior skill that others cannot deny. You read the same stuff as everyone else, but you are able to perform so much better financially.

Some may see him as a big philanthropist or a humanitarian who makes money for the good of others. But I think his wife's description is the main reason that has motivated him throughout his life.

I also think many successful investors are very competitive. But one has to be very careful in channeling that energy. Millions of people have tried the short term investing game and have lost dearly. Some may be successful at it, kudos to them. But I believe in long-term investing. And it is very unsatisfying for the competitive spirit to do nothing but wait everyday. So in that way being competitive is detrimental to long-term investing success because it can spur the investor to be more active and less patient. And that is the case with me as I described earlier.

So looking at the habits of big investors like Buffett, I noticed that a lot of them channel their competitive and mental energy. Buffett, David Einhorn, James Cayne, Alan Greenberg, are just some of the people in the investing and financial world who play bridge. Einhorn is also a very successful Texas Hold'em poker player.

Less well known are several hedge fund managers who are excellent chess players. Boaz Weinstein is a master and also a fund manager. And Patrick Wolff is a 2-time US Champion who ran a fund aptly named Grandmaster Fund. Chess was my youth passion and I quit just short of expert level.

I started reading and watching videos on chess last few years and thought about the pattern of investors who have mental stimulation outside of finance. And I thought it would be fun to get back into it, as well as helping me channel my mind and competitiveness away from frequent trading. So about 5 months ago I got back into playing. First it was online and then over-the-board (OTB). And I am as passionate as ever as a child. I have so far played two OTB tournaments and I have achieved a 1996 rating. The two tournaments were the first face-to-face competitive chess I played in 28 years! The diagram above is from one of my games, which unfortunately I lost. But my performance so far is better than when I left the game so long ago. My goal is to be a master, which is a person with a rating above 2200. I don't want to put undue pressure on myself but I am making a serious effort to get there. I have even hired a grandmaster to coach me!

In the future I may even post some of my games with annotations! Would any of you be interested in that? Let me know your thoughts in the comment section.


  1. Hello! It is an interesting observation about the need to channel your competitive energy.

    Isn't it the case that to play chess on high level you need to memorize a lot? Endings and openings, I'm guessing?

    1. Yes Igor, chess is a lot of memorization. Unlike card games where there is chance and there is a psychological/human aspect, chess is deterministic. And therefore you can get a computer or books or coach to give you instructions on how to play, especially in the opening.

      Eventually at some point you will go into uncharted territory and have to think for yourself. So chess has more learning than say cards where I feel it is more a competition of brains and instinct.

      I think that is why chess is not all that popular like cards because it requires so much learning just to be at a minimal proficiency level.

  2. I agree that the learning curve might explain popularity.

    Have you tried bridge? I wonder how does the amount of memorization compare between the two games. I once memorized enough bidding conventions to be able to play, it was a lot of fun then! I thought that in bridge one has to think in terms of probabilities more explicitly, which I liked, because it is a bit more like real world.

    That said I'm bad at both games, so my conclusions might be worthless.

    1. I have never played bridge and I don't even know the rules. I did try to get into texas hold'em but I never did well. I never got the hang of reading people.

      In chess I can simply play the board. Some people do try to add some psychological factors into the game, but I for the most part do not.

      Memorization would seem more important in chess. You can memorize optimal moves. But in card games your opponent can do what you don't expect because they know your strategy. Or maybe I am totally off? After all I don't even know how to play bridge!

    2. Since making these comments, I too became interested in chess. I now have an account on lichess. It's nice to be able to play anytime. I also enjoy the puzzles.

      I'm not as good as others, however. I'd say I know the rules, the relative weight of pieces (and that perhaps the weight depends on how well the piece is positioned). I know pinning. That's how I play - I try to take advantage of the battlefield using this knowledge :)

      What's the best way to improve from here?

    3. Oh you are a beginner. Well there is a learning curve but the best thing at this point is simply practice practice practice. Just go online and pick up some some games with others at your level. I don't recommend playing with computers.

      At the beginner level there is simply so much to learn........ but when you can see the board in your head, know what the board looks like blindfold then you are starting to be proficient! good luck!

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  4. hey bovinebear! I am enjoying your blog a lot, keep up the good work! My question: What broker are you using for buying international stocks?

    1. I use fidelity in the US, they have a international online trading feature. Schwab also has it and I think I opened it but I haven't done any trades.

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