The following is an excerpt from Rich As A King: How the Wisdom of Chess Can Make You a Grandmaster of Investing. by Douglas Goldstein and Susan Polgar. 

Imagine if someone summarized your whole financial picture on one page. Wouldn’t that be great?

Not only would it present all of your holdings, but it would also show you a bit of their history and their relative strengths. On top of that, it would catalog every possible vulnerability for you in an easy-to-read fashion.

With all that information at your fingertips, would you make the right investment decisions?

Unfortunately, the answer may well be “no.”

Even with all the information spread out before them, investors tend to only look at, and give relevance to, a small portion of the available information. This is also true of chess players. In a chess game, participants may suffer from what behavioral finance professors call “mental accounting.” The players, in this case, focus too much on one part of the board to the exclusion of concentrating on the whole game. While carefully examining all the possibilities for, say, an elegant attack, they might completely ignore the rival bishop perched in the corner of the board. Then, as they complete their maneuver, their opponent swoops in with the up-until-now silent bishop and slays their queen.

Don’t neglect the big picture

Players get a sinking feeling when they accidentally give away a critical piece, similar to how investors feel when they realize that they missed something important because they have spent too much time focusing on just one part of their portfolio.

For example, some investors might get so involved with trading their online stock account that they completely neglect the big picture, letting the rest of their money drift in the abyss of low-interest checking accounts and random 401(k) pension plan choices. Frequently, those with multi-million dollar accounts will agonize for days over whether to sell a hundred shares of a small stock rather than review the performance of their money managers who handle the other 99% of their liquid assets.

Mental accounting, the tendency to look at one part at a time rather than focusing on the greater whole, leads people to poorly allocate their cerebral resources. In these cases, a wealthy investor might have purchased a small position years ago, and rather than selling the shares, or transferring them over to his professionally traded account, he continues to devote undue time and energy to reading the news, looking at the stock’s fundamentals, and tracking the company’s trading patterns.

Become your family’s own CEO

To stop yourself from becoming overly focused on one aspect of your money picture, view yourself, or you and your spouse, as the Chief Executive Officers of your own company, “My Family, Inc.” You have different divisions, each of which has certain responsibilities. The checkbook division handles the invoices that your company receives; the bond unit supplies regular income to cover your monthly expenses; and the stock department seeks out new opportunities to help grow the bottom line. Having your divisions set up neatly in front of you allows you, like a chess player who can view all the pieces at once, to analyze your whole board. Anyone who has ever sat in a chess class at Webster University in St. Louis has probably heard the quote, “Look at the whole board!” –SP.

Remember those words as you examine the finances of My Family, Inc.

See another excerpt from Rich As A King here.