One of the most interesting psychological moments in a chess game is when the initiative changes hands, when the hunter becomes the hunted and vice versa. It’s the moment at which confusion reigns and most errors are committed.

I like to use the term ‘psychological momentum’ to describe the root of these errors — neither player may realize that the roles have reversed and continue acting out their old part. For the former hunter this can lead to inappropriate aggression in which he asks too much of the position. The formerly hunted might not fully understand his good fortune and will usually ask too little. Great players shine at such moments, the speed at which they understand that things have changed being just the kind of edge that they need.

This phenomena is present in all evenly contested games and certainly in markets. Where I think it will be absent is in standard forms of hunting in which the traffic is one way. The most the quarry can hope for is to extend the game rather than turn the tables.

I think there’s also a clear analogy here with the manner of one’s market participation, there being a huge gulf between the experience of those who risk their own money (i.e. have the possibility of being hunted and killed) and those who take no personal risk, even to the extent of taking management fees whether they perform well or not.

In the latter case it is the clients who would fill the role of ‘turkeys’, starting out with a huge disadvantage (management fee outgoings) which leaves them with very little chance of outright victory. And I would also suggest that the better hunters will be the ones taking personal risk; they have to be in order to survive.

It would be interesting to see if this could be verified numerically, i.e. that fund managers who trade their own money alongside that of their clients are better.


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