Jan

15

Nigel DaviesOnce in a blue moon, one comes across a seemingly specialized book that is beautiful and instructive in its own field but also is perfectly applicable for everything that important in your own turf. Such books as Horse Trading by Ben Green, The Secrets of Professional Turf Betting by Robert Bacon, and Zen and the Art of Motorcycle Maintenance by Robet Pirsig immediately spring to mind. The Rules of Winning Chess by Nigel Davies joins the pantheon of such books and is highly recommended to all traders, athletes, game players, parents, and kids.

The book is divided into five sections. Rules for improving yourself as a player, rules for preparing yourself for play, and rules for the opening, middle and end games. In each section, 10 or 15 lessons are given, a quote to put it in perspective appears, a discussion of how to apply the lesson follows, then the lesson is applied to real life examples taken from experiences and chess games played by the author and champions such as Capablanca, Lasker, Bronstein, Petrosian, Fischer and Karpov. Rules taken from the book with direct applicability to markets, and life follow.

1. Train with deadly seriousness.

2. Educate yourself.

3. Be vigilant.

4. Take away emotion.

5. Be your sternest critic.

6. Feel your way to a win.

7. Be Patient.

8. Don't be afraid to lose.

9. Know your strengths and weaknesses.

10. Lead a healthy life and diet.

11. Get good sleep.

12. Have a good breakfast.

13. Know your opponent's strengths and weaknesses.

14. Give no quarter.

15. Choose a favorable battle ground.

16. Play to win, and don't be content with a draw.

17. Master deception.

18. Know all the tools in your arsenal.

19. Clear your mind from distractions.

20. Don't talk during a game, but do walk before.

21. Play the type of game you are suited for.

22. Beware of doing the same thing often.

23. Attack the weakest points.

24. Don't be too eager to break the tension.

25. Centralize your forces.

26. Be wary of taking small gifts that distract you from the main chance.

27. Never say die.

28. Don't hurry.

29. Give yourself flexibility so that you can win in two ways.

Here are some of my favorite parts of the book along with a discussion of how they relate to markets. In discussing how important deception is, Davies divides deception into luring, goading, bluffing, mimicry, decoying, and changing tempo. I have read many academic treatises on deception that are much more erudite, talking about levels of indirection, stages of the foraging process, degrees of perception and misperception, benefits and costs, degrees of secrecy or uncertainty, but this practical approach developed out of the game board for practical use is highly useful and encompassing. The story he tells about Najdorf trying to get Stalberg drunk before a game by luring him to a nice lunch and yet finding that Stalberg despite all the drinks had him in a won game is right out of the annals of my uncle Howie. But the great twist is that Stalberg offered Najdorf the draw. "How could I beat a man who just bought me such an excellent lunch?"

The lures in the game of markets are so extensive they make the angler fish look like a neophyte. How about the lure of a big fat open or the lure of an investment in your firm with the only provision being that once I invest I will determine what you can get paid and what you may charge your customers. Mephistopheles lives. In the chapter on knowing your weapons well, one of my favorites, Davies makes the point that all the great champions were proficient at all games, and never overspecialized. All those who develop a niche must understand that their niche may become overpopulated, and the prey may not be as easy and other predators may come. "Not only does such wholesome food (knowledge of many different games) provide appropriate sustenance, but such opening will be valuable weapons in critical tournament situations."

In the chapter on not talking during the game, Davies makes the point that many businessmen don't like to take phone calls during the day. "It can take a while to refocus." I find this a crucial concomitant of success during the market day, and the only calls I take during the day are life-threatening ones from the family, and calls from my octogenarian friends, who can't understand how an old friend could be so busy at any time that he couldn't have time for them, and they're right. Old friends trump profits.

In the chapter on healthy body, Davies makes the point that the mind is part of the body and derives from the ensemble of all the organs. He then goes on to say that in many of the games lost by great players some aspect of their physical condition was responsible for the loss. A hilarious discussion of how he likes to play closed games against overweight opponents ensues. The stories about Mikhail Tal, who Davies thinks might have been the most gifted player in chess history, and how his dissipate life style did him in, are most indicative on this point.

My favorite quote in the book is by Bent Larsen: "This reminds me of a rule that I know very well because I made it up. When you are caught in an opening you don't know, play healthy developing moves." I like to believe that there is no situation from any game or any cultural event I can't think of a market analogy for. And I would say on this, that if the market is moving in a way that you have never seen before, just reduce your position when it moves in your favor, and wait patiently for another situation when you will be there.

My book is marked on every page with market lessons and things I should have done to improve my chess game. More important than all the lessons you will learn is that this is a beautiful book to enjoy and savor. Davies is a grandmaster writing about grandmasters. He's played with all the best, had many a sparring session with the great Bronstein himself, and has been a scholarly student of the wisdom that all the great champions of the last 200 years have captured. He rolls around with the reader, enjoys the follies and the greatness of the lessons that the champions have taught him and leaves the reader in an exhilarated state that such greatness exists and can be shared.

You can buy the book at Amazon, B&N, Borders, BAMM, Powell's or Waterstones.


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14 Comments so far

  1. Anatoly Veltman on January 15, 2010 9:11 am

    Bravo Nigel! Nobody could have done a better job.

    I dare to suggest a few logical conflicts, however:

    1. “22. Beware of doing the same thing often.” clashes with “21. Play the type of game you are suited for.”/”18. Know all the tools in your arsenal.”/”9. Know your strengths and weaknesses.”/”15. Choose a favorable battle ground.”

    2. “17. Master deception.” clashes with “15. Choose a favorable battle ground.”/”14. Give no quarter.”/”21. Play the type of game you are suited for.”

    3. “29. Give yourself flexibility so that you can win in two ways.” clashes with “23. Attack the weakest points.”/”21. Play the type of game you are suited for.”

    4. “16. Play to win, and don’t be content with a draw.”/”8. Don’t be afraid to lose.” clash with “7. Be Patient.”/”3. Be vigilant.”/”4. Take away emotion.”

    More important, I must point out conflict with Einstein’s wisdom: “29. Give yourself flexibility so that you can win in two ways.” clashes with “Everything should be made as simple as possible, but not simpler.”

    And who was it that branded Genius a person able to repeat, repeat, repeat whatever works. Certainly in conflict with “22. Beware of doing the same thing often.”

  2. Steve Leslie on January 15, 2010 10:43 am

    These points are in many ways portable to the game of poker. Doyle Brunson stated after he wrote Super System and so many read the book, he had to alter his playing strategy to confuse his opponents. Action Dan Harrington is an oxymoron in some ways. He is a very tight aggressive player who alters his play perhaps four hands a session. Otherwise he sticks to the script. Those four plays can be the difference between a successful evening or tournament and defeat. I have offered this book many times in the past as a corollary for traders, poker players and self-improvement types and I shall suggest Zen and the art of Poker by Phillips. I also suggest Zen in the Martial Arts by Joe Hyams. Both excellent broad stroked pointers.

    PS. Join Facebook. Keep the conversation lively over there where my friend Nigel Davies has a page.

  3. Nigel Davies on January 15, 2010 4:02 pm

    Anatoly, please take a look at the actual book. Thanks.

  4. Anatoly Veltman on January 16, 2010 1:48 pm

    Both the book and Vic’s review are great work! I’m just trying to figure out for myself some of Vic’s picks:

    Larsen: “This reminds me of a rule that I know very well because I made it up. When you are caught in an opening you don’t know, play healthy developing moves.” 13+ years as a pro player taught me to ALWAYS play “healthy developing moves.” In fact, my only wins against players of Larsen’s caliber were a result of those GM’s apparently neglecting rules “they” previously “made up”.

    Vic: “if the market is moving in a way that you have never seen before, just reduce your position when it moves in your favor, and wait patiently for another situation when you will be there.” 23+ years in markets taught me that when markets move in an unprecedented way that is difficult to comprehend (to me, as well) - therein lies much-better-than-average opportunity for scalping. Somewhat in conflict with Vic’s advice, I’d likely seek to increase size, while reducing holding period for the ENTIRE position (not just partial). I.e. when market movement suddenly becomes random: take advantage of fluctuations caused by disorderly exits of hapless others, enabling you to execute greater than usual size (how would you ever be able to do that in a market “clear to participants”?) This is unsafe from standpoint of “money manager”; but, well, many wise money management rules are detrimental to speculator’s bottom-line

  5. BG on January 16, 2010 1:51 pm

    My downfall in chess & markets is a lack of patience. In chess I often want to attack before I fully built up my formation and in markets I want to trade before the time is right.

  6. Steve Leslie on January 16, 2010 9:34 pm

    The first great rule I learned in poker was that to play the game correctly, the majority of the time you will spend mucking cards or throwing them away. I recently had a conversation with Mr. Watson and he told me in a 15-30 no limit game, he played only materially in five pots winning four of them. This made his evening.

    Nobody goes to a casino with the expectation to sit for hours and do nothing except poker players. Yet this is exactly this is what the successful poker player does. They see poker as a never ending game therefore there are but sessions. The old adage applies " Poker is played by the year and not by the day." And if you want to see the most morose of people watch them play lowball or razz. That is the most boring of all poker games yet only the greatest players are successful winning money at it.

    The best affirmation to your understanding of the game of poker is after sitting at the table for hours someone says "I did not even know you were playing" The action game of today is hold-em because that is what everybody sees on TV. In my view, it also is the one poker game that has the most gamble to it. It also forces the player to bluff at pots overplay hands or the blinds will eat you away. Sometimes you just cant wait for cards. Omaha and 7 stud are more straighforward, yet these are difficult to find anymore.

    With respect to stocks, William O'Neill restricts his selection of stocks to those in the top quintile of earnings, and the top quintile of relative strength. Do yourself a favor and take 6000 stocks and screen them just with those two parameters and see the number you are left with. There just will not be that many. Perhaps this will solidify this thought. There are over 300 schools who play Div 1 college basketball. This means roughly 4500 play at the highest level of college basketball. Add in all of the other divisions and the international players. Then look at the NBA draft. They only hold two rounds. And if a player is not selected in the 1st round chances are slim that they will make the team.. The point is there just are not that many good basketball players, great stocks and good starting hands in poker.

  7. Jeff Watson on January 17, 2010 9:57 am

    Steve, Until I was about 12, I thought that Lowball and Razz were the only poker games around. Didn’t master Stud and Omaha until I was 14 or so. The deadliest game is “In Between the Sheets” which was very popular at the exchanges. The pots would regularly grow to $15,000, and all with a $5 ante. Whenever I run into a person who tells me that he can’t ever catch good cards and gets the worst hands in the world, I tell him that he should be the richest person in the world…..just change games and play lowball. Same thing for craps whenever a person tells me that they can never pass. I tell them to bet against themselves. Rather unorthodox thinking, but it has its merits.

    getting back on the subject, I can’t wait to get Nigel’s book and he graciously offered to autograph it for me. That generosity speaks volumes of Nigel’s character.

  8. Nigel Davies on January 17, 2010 3:34 pm

    Anatoly,

    So you say you’ve seen a copy of the book, right? And read it? Then maybe you can tell me which game starts on page 81 say within the next 12 hours.

    Thanks, Nigel

  9. Steve Leslie on January 17, 2010 11:38 pm

    If my friend Nigel Davies wrote a book on chess and the Chairman endorses it then by all means it should be absorbed. I am a hack chess player so I can offer nothing constructive on this subject. I do know a heck of a lot about people and the greatest flaw I see in this area is that most people do not know as much about a subject as they think they do. A study was conducted some years back with a questionnaire asking people where they would place themselves on an I.Q. scale. Not surprisingly most ranked themselves higher than their actual scores. I feel this applies mostly to critics. I like the adage "Those who can do, those who can't teach and those who can do neither become critics." Be very wary Pooh of the latter, for they are the most dangerous of all types.

  10. Nigel Davies on January 18, 2010 1:13 am

    Steve,

    I’m all for discussion and nobody needs to agree with me. But as a basic minimum it would be nice if people were to read my book before arguing and perhaps then think about what I’ve written (admittedly the second part may be too much to ask!).

    Best wishes, Nigel

  11. Anatoly Veltman on January 18, 2010 11:43 am

    I second Nigel: think about what’s written and how you can use it!

    Vic wrote: “if the market is moving in a way that you have never seen before, just reduce your position when it moves in your favor, and wait patiently for another situation when you will be there.” Vic has been a market student near half-century; he seeks out exposure based on statistics that make his cut. If market suddenly deviated from expected pattern - he would cut back, mindful of capital preservation. His trading method is admirable, but arguably is not the only potentially successful one. I thought about what he wrote, and it was OPPOSITE to what my approach has largely been in similar market circumstances: I would tend to increase my position during market mayhem, as I’ve found those situations to present better-than-average opportunity. I’ve used that approach scores of times. April 24-27, 1987 is easy to recall as my first million-dollar weekend. Silver price doubled in one month, for few understandable reasons. I started accumulating Longs below $5, and a month later at $9 my average was near $6. Toward Friday’s April 24 close, I hear that Richard Dennis is doubling-up on his Silver (another example of OPEN GAME), while selling Gold against it (inter-commodity spread margin requirement was so low, that maneuver gave one the largest possible exposure). I agreed on incomprehensible Silver run (and kept my longs), but I couldn’t bring myself to pay over $9 for more Silver! Gold appreciated mere 12% that month-to-date; and when Dennis was giving it away on Friday’s bell below $467 “for as much as you want…” I bid $465.5 for 400, and got filled as bell rang! Both of us profited over weekend, as Gold gapped up to $481 and Silver spiked to $11.25 Monday! So again, the craziest market days raise trading liquidity in favorable ways - for those properly set-up to take advantage of it. In contrast: when markets move in clear patterns - try biting bigger piece of the pie!

  12. Rocky Humbert on January 19, 2010 3:28 am

    In the interests of full disclosure, I have not yet read Nigel’s book. This, however, should not disqualify me from mocking Mr. Veltman’s bizarre approach to risk management in unfamiliar situations.

    Mr’s Veltman’s approach seems analogous to the stereotypical male driver who increases his velocity after becoming lost in a strange neighborhood; or a disoriented hiker deciding to slurp the last drink of water from his canteen and then run at full speed into the darkness of the jungle.

    See: http://www.thaindian.com/newsportal/world-news/higher-sex-drive-fuels-financial-brinkmanship-study_100101833.html

    It’s difficult enough to make intelligent judgements about risk when one is alert, composed and in full awareness of their surroundings. To increase one’s risk when opposite conditions are true is an act of testosterone-drive hubris that will eventually lead to ruin.

  13. Nigel Davies on January 19, 2010 4:46 am

    But Anatoly, you still haven’t actually seen the original source now have you?

  14. vniederhoffer on January 19, 2010 5:31 pm

    We don't believe in grabbing the lion by the beard here as too many casualties would result. We will not print Anatoly's response. What he said stands on its own. vic

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