Chess is one of the most intellectually challenging games that can be enjoyed by players with a range of abilities. Ranked by ‘Elo’, players range from novices (with ratings below 1,000) to grandmasters, with the top players in the world achieving ratings of 2,700 and beyond.
While there are no scores, the same is true for investors, who range from relatively inexperienced savers to elite fund managers.
Parallels can be drawn between the two. In chess, years of study and dedication are required to give grandmasters a slight edge against one another, while fund managers too must dedicate their time to research, finding the anomalies that others may be missing.
Similarly, lower-rated players in chess have less time to study and therefore will be more sporadic in their play, but can improve by learning some basic principles, such as set openings.
Meanwhile, newer investors, or those without the time to research companies, can stick with guidelines including buying and holding for the long term and diversifying their portfolio.
Unfortunately for the chess novice, they cannot pay the experts to play for them, as I am pretty sure that would be cheating. New investors, however, can give their cash to expert fund managers to run.
The parallel between chess and investing came to mind when watching the World Chess Championship, which took place between Ding Liren of China and Ian Nepomniachtchi of Russia last month. They battled for the title vacated by former world champion Magnus Carlsen.
The match was a saga, going all the way to the wire, with Liren emerging victorious having not led at any point in the final until the last game.
There are similarities between his journey and investing. Liren struggled to even make the Candidates Tournament, which players must win to earn the right to play for the title, although he qualified by placing second.
In this way, he showed similarities to a value investor. With the odds stacked against him, it would have taken a brave person to back the Chinese world champion a year ago.
Even during the match, he trailed several times and looked out of sorts – a feeling that all value investors will recognise, having suffered for the best part of a decade while growth boomed in an era of low interest rates.
Nepomniachtchi was more akin to a growth investor. In the previous world championship, he breezed past the competition in the Candidates to become the number-one contender, before falling short against Carlsen.
He bounced back immediately, winning the right to compete in the most recent match and at times looked unstoppable. Again, however, he came up short as his form escaped him.
The Russian has been one of the best performers in the world, running extremely hot at times, but has fallen behind the pack more recently, just like some of the best growth managers over the past few years.
So what can we learn? Like the chess players, both value and growth represent good options. While value, like Liren, is going through a purple patch, there are reasons to believe that growth and Nepomniachtchi will be back.
Value and growth go through periods when they beat the other, so hedging your bets with both is a sensible strategy.
A final parallel comes from the former champion Carlsen, who decided to abdicate his titles despite being on the top of his game, as his heart was no longer in it. When investing, if you’re no longer sure you can continue, it’s better to sell out when you’re ahead than carry on and risk the gains you have already made.