I’ve been reading Sun Tzu on the Art on War and found that many of his insights are applicable to trading and investing.
“Now the general who wins a battle makes many calculations in his temple ere the battle is fought. The general who loses a battle makes but few calculations beforehand. Thus do many calculations lead to victory, and few calculations to defeat: how much more no calculation at all! It is by attention to this point that I can foresee who is likely to win or lose.”
“Ponder and deliberate before you make a move”
Think deeply and have a rational plan before you trade. Don’t act impulsively or recklessly.
“It is the rule in war, if our forces are ten to the enemy’s one, to surround him; if five to one, to attack him; if twice as numerous, to divide our army into two. If equally matched, we can offer battle; if slightly inferior in numbers, we can avoid the enemy; if quite unequal in every way, we can flee from him.”
“He will win who knows when to fight and when not to fight.”
Only trade (attack) when the conditions are right and you have the edge. When you are over-matched, out-gunned capital-wise, and things don’t make any sense, do nothing and go play videogames. Deciding on when to fight and not to fight is the critical element in victory or defeat.
“If you know the enemy and know yourself, you need not fear the result of a hundred battles. If you know yourself but not the enemy, for every victory gained you will also suffer a defeat. If you know neither the enemy nor yourself, you will succumb in every battle.”
Know your own strengths and weaknesses before the battle. If you can’t take volatility and tend to panic puke, lower your position size to a point where you can stay in the battle.
“Disciplined and calm, to await the appearance of disorder and hubbub amongst the enemy:–this is the art of retaining self-possession.”
When you are buying know why the other side is selling and why they are wrong. If the other side is selling because they can’t take the pain or due to margin calls, all the better. If they other side is selling due to temporary short-term news, all the better. If the other side is selling due to false news, all the better.
“He wins his battles by making no mistakes. Making no mistakes is what establishes the certainty of victory, for it means conquering an enemy that is already defeated.”
“The consummate leader cultivates the moral law, and strictly adheres to method and discipline; thus it is in his power to control success.”
99% of trading is about having steel hard emotional control and not making dumb mistakes. Most losses come from errors in judgement and throwing good money after bad (averaging losers) when the battle is already lost. When your initial thesis is wrong, just GET OUT.
“There are five dangerous faults which may affect a general:
(1) Recklessness, which leads to destruction;
(2) cowardice, which leads to capture;
(3) a hasty temper, which can be provoked by insults;
(4) a delicacy of honor which is sensitive to shame;
(5) over-solicitude for his men, which exposes him
to worry and trouble.
These are the five besetting sins of a general, ruinous to the conduct of war.”
After a hard loss don’t go into emotional levered gambling mode (”on tilt” as they say in poker). Be brave when the right opportunity comes to attack. Don’t care about what other people think of your strategy. It’s not about how brilliant or smart your method is, it’s only about making money. Just win baby.
If you liked this, be sure to check out some of my other recommended posts.