Racine Journal Times, WorkLife Section, May 18, 2008

Checkmate

When I was in my early twenties, I jotted down a list of things I decided to do in my life. I had great fun making my “life” list, which I’ve modified over the years. Seeing it come to life, though, has been a blast.

“Learn to play Chess” was one of the items on my list. I eventually learned when my older son, tutored in the game by his uncle since he was three years old, offered to teach me when he was about nine. That I was being taught by my son made the experience even more rewarding.

After a few games, I started to see some parallels between Chess and life, especially as it pertains to decision making. Not surprising, I’m not the first person to see those parallels.

Garry Kasparov, World Chess Champion for fifteen years, also found aspects of the game which can be applied to life. His book, “How Life Imitates Chess: Making the Right Moves, from the Board to the Boardroom” provides insight from his experiences to help us learn how to think so as to achieve greater success.

But 221 years before Kasparov, another great thinker noticed similarities between life and the game of Chess: Benjamin Franklin.

In his essay, “The Morals of Chess,” Franklin said, “…several very valuable qualities of the mind, useful in the course of human life, are to be acquired and strengthened by [the game], so as to become habits ready on all occasions…” He later went on to list four characteristics we may learn from Chess, which are quite useful when applied to one’s finances: foresight, circumspection, caution and perseverance.

Foresight

On this, Franklin stated, “Foresight, which looks a little into futurity, and considers the consequences that may attend an action, for it is continually occurring to the player, “If I move this Piece, what will be the advantage or disadvantage of my new situation?”

Many folks struggling with their finances have no systematic method to monitor and control their cash flow, which is simply the money flowing in and out of one’s bank accounts. Without the benefit of seeing the consequences of decisions regarding your cash flow, it’s difficult to spot and correct problems before they occur. If you want to get a better handle on your cash flow and you’re comfortable with computers, try a personal finance program such as Quicken or Microsoft Money. If computers aren’t your thing, you could use a trusty columnar pad. It doesn’t matter what you use, just as long as you have some tool to help you develop foresight regarding your cash flow.

Circumspection

Franklin explained: “Circumspection, which surveys the whole Chess-board, or scene of action, the relation of the several Pieces, their situations, and the dangers they are repeatedly exposed to, the several possibilities of their aiding each other, the probabilities that the adversary may make this or that move, and attack this or that Piece, and what different means can be used to avoid his stroke, or turn its consequences against him.”

Anyone invested in the financial markets understands the importance of seeing the big picture. Kasparov also mentioned this as one of the skills of winning chess players. What’s the big picture for investors? It’s the level and interaction of interest rates, inflation, GDP, foreign exchange rates, government budgets, tax rates, unemployment rates, consumer sentiment, margin requirements, industry trends, foreign trade, commodity prices and on and on. These factors (and then some) provide an illuminating, aerial view to aid one’s judgment on which investment moves may help you close in on the King.

Caution

Franklin said, “Caution, not to make our moves too hastily. This habit is best acquired by observing strictly the laws of the game….but you must abide by all the consequences of your rashness.”

How often do you put off or forgo a purchase when you don’t have enough cash to pay for it? Many older folks, like my dad, who lived through the Great Depression had no choice but to be cautious with their money. Without credit cards, no money meant the family might go hungry. We live in a different world, though.

Caution requires patience. It helps you say, “No!” to credit card companies when they’re offering you more credit than you can pay off in ten lifetimes.

Perseverance

According to Franklin, “…we learn Chess by the habit of not being discouraged by present bad appearances in the state of our affairs, the habit of hoping for favourable chance, and that of preserving in the search of resources. The game is so full of events, there is such a variety of turns in it, the fortune of it is so subject to vicissitudes, and one so frequently, after contemplation, discovers the means of extricating one’s self from a supposed insurmountable difficulty, that one is encouraged to continue the contest to the last…”

If your finances, whether it’s your debt, investments or a mountain of bills, aren’t serving you as well as you would like, it’s perfectly fine to try something new. What isn’t perfectly fine, though, is to give up. Thomas Edison would never have changed our world in such a remarkable, positive way if it weren’t for his amazing perseverance. To him, his “failures” during the course of inventing something new just meant that he found another thing that didn’t work. As Edison said, “If we all did the things we are capable of doing, we could literally astound ourselves.”

Michelle Ouzounian, CMFC, is the founder and President of Verity Investment Counsel, Inc. (www.verityinvcounsel.com), a fee-only, independent registered investment advisory firm in Racine. Michelle can be reached at 262-898-8400, or m.ouzounian@verityinvcounsel.com.

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