Investing the Sun Tzu Way
No I am not talking about myself here; I'd like to discuss how the ancient Sun Tzu would have invested in the stock market had he been among us. For those who don't know, Sun Tzu was a brilliant military strategist who lived about 3000 years ago in China. His work The Art of War is the first and most important of The Seven Classic works of Chinese millitary strategy. Since its rediscovery, the book has been translated into every major language and has been adapted to deal with issues as diverse as parenting to career planning and investing. I have tried to condense the book into the few founding principles and would like to discuss their application with regards to investment techniques. Please do contribute to this discussion. Though I've chosen the call name "Sun Tzu", I am not omniscient and am sure I can learn much from each of you.
Before we go further, I'd like to thank all of you who've sent me research info, especially Gottfried Mauersberger who has done a great job in pointing out good bond sites. I am dealing with a few tight deadlines to certify trading systems for the Y2K problem, so I have not had the chance to do the research I wanted or to contribute to this thread as much as I wanted. Many of you have sent me private mails and I've tried to answer as many as I could. In all honestly those questions can be discussed in the thread for everyone's benefit. Now let's get back to Sun Tzu's principles.
Almost all of Sun Tzu's teachings can be derived from these principles:
(1) Do not engage in War lightly. It is the greatest affair of the state and the basis of life and death.
(2) Know yourself.
(3) Know your enemy.
(4) Understand your tools and environment thoroughly.
(5) Retreat against strength.
(6) Attack weakness with all your strength.
(7) Deny your opponent what he needs.
(8) Understand the principle of opposites.
These principles are deceptively simple. In fact they are sound so simple that most people ignore them all together (and pay dearly for it). As a side note realize that the Taoist believe (and I agree fully with this) that if you have to force it, then you are going about it the wrong way; affairs must naturally flow in the right direction. In the context of investing, it means that money should flow into your pocket easily; if you are struggling with your investments and trading methodologies, then you are going about it the wrong way.
I interpret the first principle as, do not choose your stocks lightly; your livelihood depends on it. And yet how many people buy a stock just because they heard it was good, is going to split, will be on CNBC tomorrow, is half the price it used to be, is working on a revolutionary drug, is in a great growth industry (say internet), Mr. xyz told them it was a good investment, their broker says there will be a news release soon... and I can go on and on. I have found no less than 22 different factor to consider before deciding to take a position in the stock. These vary from deciding if I should be in the market for the moment to begin with, to technical analysis, to short interest, and to industry specific factors. But going over them all will require writing a book and will take more space than can be had in a thread posting. So before we move on to item (2), I'd like you share with the rest of us what factors you consider before taking a position in a stock and how do you evaluate them. You don't have to get too fancy, let's just get the ball rolling.
Sun Tzu |
