My System

Malt Liquidity 112

The ability to play chess is the sign of a gentleman. The ability to play chess well is the sign of a wasted life. — Paul Morphy

While bizarrely uttered by a man who gave up chess for a failed law career and general idleness spending his family fortune, I generally am sympathetic to the view that it’s equal parts amusing and befuddling that chess might be the most pondered and written about subject in all of human history. A simple enough ruleset such that a three year old can learn to play somehow lends itself to one of the deepest rabbit holes ever created in the name of human entertainment — that of the struggle to play perfect chess. As such, I have my own version of Morphy’s infamous quote:

The ability to play chess well is the sign of metacognitive understanding. The sole ability to play chess well is the sign of a wasted mind.

Chess is what I call a “symptom” of intelligence rather than a sign of it. It’s also maybe the best “proving grounds” for more profitable games like poker or trading — there’s a reason why elite prop shops recruit at the collegiate chess championships. Chess, when played sufficiently well, allows for a fantastic simulation of every skill you need to trade well — time spent in your own head organizing your thoughts, learning to deal with pressure, managing ego, making decisions in a timely manner — without the net worth requirement to trade/gamble or introducing the variance of poker.

The two skills I use the most from my chess days, even now, is timely decision making and being comfortable with my own thoughts. Chess is almost a pure skill game, in the sense that it’s solely your ideas versus your opponents. There’s no variance. This leads to a supreme validation of one’s skill when they win a game. As Bobby Fischer famously stated when asked what his favorite thing about chess was:

I like the moment when I break a man's ego.

In most careers, high pressure make-or-break situations are fleeting. You only have to pass your Series exams or Bar exam once. It’s not the end of the world if you fail an actuarial exam the first time. Pretty much everyone makes it through college, even if you fail an exam or two — C’s get degrees. The highest pressure situation the standard individual faces is usually some type of entrance exam, where your performance is entirely relatively scored. Naturally, people tend to freak out about these exams — “overpreparing” is more a symptom of unresolved anxiety than it is meticulously “outworking” everyone around you (though they correlate.) And this isn’t a negative! Odds are, if you spend all your time prepping for the CFA for months on end, you will score higher than everyone else. But when we are faced with constant high pressure situations which directly impact your net worth, such as trading and managing assets, we need a better framework to optimize our time allocation and maintain risk-neutrality in our approach.

The best performance psychology manual I’ve ever come across is Relax and Win by Bud Winter. The essential lesson iterated upon throughout the book is to learn to consciously calm down. My favorite example from the book is the section about how soldiers slept in trenches in World War II. I’ll defer to the writing in the book itself, but essentially it highlights that, while you cannot replace sleep, that tiny bit of relaxation that you grant yourself operates as a cocaine-hitting-your-blood revival during a long night out drinking, a “reset” that allows you to operate at near full capacity again. Prior to chess matches, I would “sleep” for roughly 15 minutes to fully reset before I played. Note that efficient napping either requires exiting sleep before you enter a full cycle or completing the cycle, else you wake up groggy and paradoxically more tired than when you started. Similarly, during trading days, I frequently took a 15 minute nap (with zero days open, for peak absurdity) instead of eating lunch due to the performance drop-off that comes with a full stomach. Sometimes, you just need a little bump to keep going.

In David Foster Wallace’s meditation on Tracy Austin, I constantly recall precisely one thing he said, which was maybe the most powerful insight into optimal performance I’ve ever read. He rhapsodizes about the vapidity of her memoir and her inability to say something that isn’t formulaic, isn’t cliche, about how she developed. But he asks, what if that’s actually the case? When Tiger sank that iconic putt at Torrey Pines, what if all that went through his head was “make the putt?” The complexity is in reducing oneself to the simplest form of an idea, the pure truth that if you allow yourself to execute, it will come. As DFW puts it:

There’s no magic trick to relaxing and controlling anxiety. Certainly, putting yourself in certain situations may aid one in doing so — a yoga studio with a view of the Highline is probably preferable to a trench being shelled in a vague location in Western Europe. The simplest advice I can give anyone who wants to manage their head, whether it’s trading, chess, or tennis (as Spassky once said, tennis is the closest thing to chess), is this:

If you can’t quiet your thoughts, just focus on what you can control and what you can’t, and solely operate on what you can. You control the placing of an order, the swing of the club, the movement of the pieces. You don’t control whether someone blows up a pipeline and nukes /CL, what people might do in response to an earnings release, the wind and landing angle, or your opponent. Why bother with them? It really is that simple.

You can buy books, self-help guides, yoga classes, time with some sort of spiritual guru, but in the long run, the only thing that can help you is quasi-absurdism, in the sense that it doesn’t matter in the grand scheme of things, so you might as well enable yourself to perform as well as possible in the moment. Certainly, some things are harder to let go than others — I closed 42 strike GME calls at a 100% profit and missed the entire surge, for example. But much like bad beat stories in blackjack and poker, nobody cares. It is what it is. And ultimately, smart, enterprising people hit it big more often because they enable themselves to be present in the situations where variance arises. Your big opportunities will be randomly distributed throughout life; the question is, will you be able to take it?

If you don’t stop and look around once in a while, you might miss it.