This game of strategy has an important lesson for us when it comes to investing. If you are wondering how, consider this:

Your investment objective is the King of the board. The various coins are the different investment vehicles that you may use to achieve your dream.

For instance, the Queen could be likened Diversified Equity Fund. This is a core investment with powers to move any side but ensure protection and growth at the same time. The Rook is the powerhouse and can give you great results in the long run. I would probably equate it with investing in Real Estate. The Bishop is a linear movement coin, which is always important and safe to have on the board. It can probably be likened to the Liquid Funds or even cash holdings. The horse on the other hand is like Gold. Alternative asset classes (just like the alternate moves) and provides the much needed fillip when required the most. It can also hedge your investments in financial investments because these asset classes have a cycle of their own and may not be in sync with Equity markets. And your pawns would be fringe investments. Direct Equity and sector / thematic funds would fall into this category. They can be very useful tools to provide you the necessary fillip when you need it the most. Similarly, direct stocks or theme funds may turn in high returns suddenly and your portfolio may look great or turn towards the good overnight.

So what do you learn from this?

• If you notice, the most important piece in the board is the King. It would then be apt to connect the King with your investment objective. At all points, this focus should be maintained and you must realize that the rest of the coins viz., the investment vehicles are just tools in achieving the investment objective.
• There is an adage; never fall in love with the path and lose sight of the destination.
  In a game of chess, you may end up sacrificing a coin to save the King. Similarly, you may have to let go of some investment vehicles, depending on the time, the macro economic scenario and the performance of the investment vehicle. For instance, if a stock is performing well and has given you say 50% absolute return in 2 months, don’t fall in love and expect it to give you say 60%. It is absolutely fine to book your profits and exit the stock. Because a performing stock is not the destination, the investment objective is!
• You would always have different coins in the move at any point of the game. It is never possible for you to play an entire game of chess without using say, the pawn that starts on D2. Likewise, you must always have different asset classes and different investment vehicles working for your investment objective. By doing so, you would increase the chances of achieving your investment objective because all your eggs won’t be in a single basket.
• Risk is a friend – if properly used. Yes, some investment vehicles are high on risk. But that doesn’t mean that you stay away from them forever. It is important to embrace risk, but with a cautious approach. For example, never invest more than 10% in a single vehicle OR never invest more than 40% of your portfolio in a single asset class etc. These are just illustrations and will change from person to person. The idea is to apply thought and engage risk positively.
• Even the best of kings will always have a minster. And your minister would be the financial advisor. Always consult your advisor to gauge your risk appetite, performance of a vehicle, macro economic scenario etc., before making an investment decision.

So the next time you need to make an investment decision, think of the Chess Board and the learning it provides. It is important to understand your risk appetite and build a portfolio of diversified asset classes to ensure that your investment dream for tomorrow is met, while you don’t lose sleep today.

Happy investing!

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Disclaimer: All views expressed in this blog are my personal and in no way express or implied, of that of the company I work with, or have worked with in the past.

The innovation in finance that is unfolding in Mexico is another case in point. Infonavit, a leading financial institution that specializes in providing housing credit had come up with a series of innovations in structuring credit products for the housing market. One of their programs targets those who do not have the access to mortgage credit from financial intermediaries. Under this program, a worker can qualify for financial intermediary mortgage credit using his/her individual account in Infonavit as a non-default guarantee. This means, the company can deduct its monthly loan outgo in the event of the individual’s unemployment, from the account that the person has with Infonavit. There is no ceiling for the amount of loan that the person can borrow from the company.

When I look at such examples, I often wonder what companies should do, especially in India, to come up with profitable innovations and alter the market in a positive way. Here’s what I think companies can do:

First, identify the critical problems that your target customer faces as opposed to identifying vague customer needs and then come up with a wholly new solution. This is precisely what Infonavit tried to do. They discovered that, access to finance for housing is really difficult for workers. This, in one sense was a critical problem for their target audience. That’s where they pitched in with a totally novel financial offering that allowed workers to obtain funding for housing through lenient, yet risk-free credit terms. The correct identification of your customers’ core problems has many advantages. For one, it helps you to come up with innovations that are relevant to your customers’ `critical need sphere.’ Moreover, such innovative offerings are likely to be immediately accepted by your target audience. The reason why many MF schemes in India attract a large following is primarily because they are able to target the critical issues/needs/problems that their investors are confronting and don’t stick to superficial investment rationale. They just address certain superficial investment rationale.

Second, as someone has rightly said, innovation is part inspiration. And as the adage goes, success breeds more success. This is a maxim that business practitioners need to take more seriously. As mature organizations, we all should start projecting our profitable innovators or the innovations team as role models. This goes beyond honoring them in the cosmetic Rewards & Recognition ceremony. The senior management should cascade the achievement stories, down to every line managers and SBU heads, with a mandate to circulate the story in informal coffee table conversations with their respective teams. The immediate reporting head talking about such stories will have a personalized effect as opposed to the senior management sending an impersonal mail via the company’s distribution list. This is more so because several studies suggest that role models are best created within an organization only when a person is positively talked about by someone with whom the employees have a strong rapport. In most cases employees often have a personal rapport with the immediate reporting head.

One of the key challenges of innovation and ideas is linking it to execution and profits. Vijay Govindarajan, the Earl C Daum Professor of International Business at Tuck School of Business, Dartmouth College, in a recent article mentioned that the trouble begins when you start acting upon the idea. He further adds that most companies are unsuccessful to roll out great ideas because often they get carried away with too many ideas. Execution is the key to roll out – sharpen and formalize the idea for a business to derive value and commercial success.

Lastly, ensure that you put your techniques used in your innovations in the Knowledge Management (KM) Platforms that you have created within your organizations. This will give valuable inputs to your organization on the whole dimension of “how to innovate profitably”? Most companies capture innovations only from the perspective of value delivered to the business. However, they need to tweak their systems to capture innovation from the context of the pattern of thinking that went behind the innovative ideas. Further, in all such KM initiatives companies should also mention the challenges that they had encountered while implementing the innovation. This is yet again an aspect that organizations miss out on. Most innovations that are captured in the KM systems in companies are silent on the challenges encountered. This leads to generation of a lot of innovative ideas within the organization that often ignores the implementation issues and bottlenecks. The result: companies launch the so-called “innovative projects” only to find that they do not deliver results due to certain intrinsic challenges.

I feel that for any innovation to succeed within an organization, the team is a critical factor. Routine parameters of organizational measurement of meritocracy like work experience, seniority or professional education should not be the criteria for choosing a team for innovation.. The leadership of the innovation team should be anchored at the highest level with direct reporting to the CEO’s office which shows the organization’s commitment to develop innovation led thinking within the company.

Let me conclude my discussion by saying that if organizations have a scientific method to inspire employees to deliver business-relevant, value-creating innovations, and companies would perhaps be operating in a different world today.