Art of War

[kennynah]

Always arrive first to the empty battlefield to await the enemy at your leisure.
If you are late and hurry to the battlefield, fighting is more difficult.
You want a successful battle.
Move your men, but not into opposing forces.

Art of War 6:1.1-4

Nature abhors vacuum; human nature prefers crowd. Since strategy is all about advancing positions, "empty" battlefields, gives us position of strength. Be early enough to spot a changing appetite for various asset classes, well before several others do so. By doing so, achieves several great advantages.

One, we have better prices. Two, when many others realize it, human nature, like birds, will start to flock towards this investment, causing price movement. By the time all others see the benefit, and start crowding, is when you know that "empty" ground is way too congested for comfort, and the early birds may start flying away in opposite directions, having already fed themselves well. We want to be among the early birds. Timing (as Sun Tze proposed, is thus reinforced in this stanza above).

When the enemy is fresh, you can tire him
When the enemy is well fed, you can starve him
When he is relaxed, yu can move him

Art of War 6:1.9-11

I wish to highlight only the underlined passage. The enemy is Mr. Market. In a situation when prices are well into their obvious high, and many start talking about it, is when we should consider "starving" it, by not adding on more positions.

Sun Tze alludes that the "ground" is the source of strength. The "ground" is market actions or market players' inclination. The market trends up only because it gets its strength from the players. But the "climate" changes; ie global forces, fx currencies, LIBOR spreads, yields, fiscal policies change over time. These all make a strong position weak over time.

Strength is always temporary. Just as when the enemy is well fed, over time, it will grow hungry again.
A large part of our investment strategy(defined as ever changing plans according to Sun Tze) is to work alongside the nature's forces, and never against it.

Identifying when the market is hungry and well fed, helps us determine when we should attack or simply walk away.
This reemphasises the importance of knowledge and information.

[kennynah]

You must know the battleground.
You must know the time to battle.
You can then travel a thousand miles and still win the battle.

Art of War 6:6.1-3

A reiteration of the need for knowledge and skills to be successful in battling the market. I repeat here because i like the way Sun Tze phrases it.

When you form your strategy, know the strengths and the weaknesses of your plan.
When you execute, know how to manage both action and inaction.
When you take a position, know the deadly and the winning grounds.
When you battle, know when you have too many or too few men

Art of War 6:7.1-4

Largely self explanatory, except perhaps the last sentence. At times, we may have over committed to a position when events have shifted it negatively against us, making the original size too large. We must act. Or at times, we may have taken too small a advantageous position, that we fail to capitalise. Watch the market, watch our portfolios. It is unwise to buy, hold and forget.

[kennynah]

Make war without a standard approach.
Water has no consistent shape.
If you follow the enemy's shifts and changes, you can always win.
We call this shadowing.

Art of War 6:8.8-11

Sun Tze uses water as a metaphor for change. His focus is on our ability to change and be as flexible as we can. Even in martial arts, Taichi emphasises using softness to oppose the hardness. Dont go against the forces of nature at work. As in war, we cannot predict what our enemy will do, we cannot plan too much in advance.

There are way too many scenarios. Instead, we should just focus on looking at the enemy's weakness, an opening of opportunity to strike.

Overly committing ourselves to a set of planned action can actually inhibit our ability to change them. Afterall, to be fickle is usually internalized as being weak in the mind. We need a paradigm shift in our thoughts and philosophy is we are to accept this teaching.

By following our enemy's shifts and changes, we need to know what causes their movements. We must constantly update ourselves with newer information, as in war, when countries spy on each other's warfare technological advances. We must upkeep ourselves. This is what "shadowing" means.

No quantity of our plan is as important as opportunities presented to us by our enemy. Our enemy allows us to win (a point highlighted time and again by Sun Tze).

Change is the only a constant. In the dynamic market environment, too many factors are changing too fast. Rather than wasting time planning, we should spend our tie advancing. We act, defending and keeping up with our opponents until we see an opportunity. When wee an opportunity, we must seize it quickly.

An approach that has worked may not work again, because our position has changed. This leaves room for debate in my opinion. But the concept cannot be dismissed because it encourages us to stay vigilent and not take for granted that our past successes will ensure our future successes, because changes have taken place. What used to work, may not work in a new dynamic environment.

Use discipline to await the chaos of battle.
Keep relaxed to await a crisis.
This is how you master emotions.

Art of War 7:5.10-12

When we "battle" the market, it is a form of confrontation; against the other players in the market. They are simple. We must be prepared for some unpleasant results; ie losses.

Here, Sun Tze says we must control our emotions when we trade/invest. We should not let emotions cloud our decisions during our campaigns. Remembering always that we do NOT confront unless we are almost certain we can gain from it. In short, dont let emotions decide when and how to trade, but trade with a very clear objective of profiting, not for fun or to past time.

[kennynah]

Stay close to home to await a distant enemy.
Stay comfortable to await the weary army.
Stay well fed to await the hungry enemy.
This is how you master power

Art of War 7:5.13-16

We need to be comfortable in body and mind when we trade. When we are ruffled, we get confused. We do not think straight. If we suffer from a hangover, and trade, so will our trades. If we are depressed, so will our trades eventually become. We must therefore be of sound mind and health to perform well.

You must follow military rules.
Do not take a position facing the high ground.
Do not oppose those with their backs to a wall

Art of War 7:6.4-6

Do not fight against a strong trending market. Do not assume too contrarian an outlook when the enemy(market) is showing plenty of strength. When we ride our profits far enough, we must know when is enough and take it off...dont force the enemy to a corner...quite foolish to squeeze a few last drops and risk a potful of gains.

Do not follow those who pretend to flee.
Do not attack the enemy's strongest men.
Do not swallow the enemy's bait.

Art of War 7:6.7-9

We must learn to read the ticker well enough to know what the market is doing...eg, when it retreats from a rally, is this a temporary correction or a major change in trend. However, we must follow when the "flee" is real, that is we chase the enemy if it we have knowledge to believe so. eg. Rallying from after a few days of down turn, is this upturn a temporary technical rebound or is it sustainable in the upward direction for some time...we need to know our enemy really well....

[kennynah]

Stay close to home to await a distant enemy.
Stay comfortable to await the weary army.
Stay well fed to await the hungry enemy.
This is how you master power

Art of War 7:5.13-16

We need to be comfortable in body and mind when we trade. When we are ruffled, we get confused. We do not think straight. If we suffer from a hangover, and trade, so will our trades. If we are depressed, so will our trades eventually become. We must therefore be of sound mind and health to perform well.

You must follow military rules.
Do not take a position facing the high ground.
Do not oppose those with their backs to a wall

Art of War 7:6.4-6

Do not fight against a strong trending market. Do not assume too contrarian an outlook when the enemy(market) is showing plenty of strength. When we ride our profits far enough, we must know when is enough and take it off...dont force the enemy to a corner...quite foolish to squeeze a few last drops and risk a potful of gains.

Do not follow those who pretend to flee.
Do not attack the enemy's strongest men.
Do not swallow the enemy's bait.

Art of War 7:6.7-9

We must learn to read the ticker well enough to know what the market is doing...eg, when it retreats from a rally, is this a temporary correction or a major change in trend. However, we must follow when the "flee" is real, that is we chase the enemy if it we have knowledge to believe so. eg. Rallying from after a few days of down turn, is this upturn a temporary technical rebound or is it sustainable in the upward direction for some time...we need to know our enemy really well....

[kennynah]

Do not block an army that is heading home.
Leave an escape outlet for a surrond army.
Do not press a desperate foe.
This is the art of war.

Art of War 7:6.10-13

When the enemy(market) tries to escape from you...meaning, when your profits is dwindling from the change in direction to your trade. Consider taking your profits and let it go (do not press a desperate foe), provided one has acquired Art of War 7:6.7-9(just above stanza).
However, a foe can be a friend...if we are able to take both sides of the trade. If it is certain the enemy will oppose us now, we should retreat and not fight it without gains in sight. To do this, we must be as equipped to be offensive (Long) and defensive(Short)...the enemy gives us our winnings...remember.

Military leaders must be experts in knowing how to adapt to win.
This will teach you the use of war.

Art of War 8:1.14-15

self explanatory...the more we are skilled in various trading techniques, the better we are at adpating and seizing opportunities when they arise. example...for those without the ability to trade gold...this period is a lost opportunity. did not adapt enough.

[kennynah]

Some commanders are not open to making adjustments to find an advantage.
They can know the shape of the terrain.
Still, they can not find an advantageous position

Art of War 8:1-16-18

We must plan our trades. But more importantly, we must remember our "philosophy" or goals of trading. Plans must change, when called for, to achieve the goals. Planning is only a means to an end. The goals are the end. We may not change goals (or we lose sight of our original purpose) but we must change plans to meet these goals.

[kennynah]

W : apologies...i couldnt retrieve your earlier responses to this thread...but do have a relook and appreciate your take on some of Master Sun's techniques

[winston]

Hi K,

Thanks for starting this thread again. I enjoyed your previous comments very much. The following are my comments:-

Next, you have the climate.
It can be sunny or overcast.
It can be hot ot cold.
It includes the timing of the seasons.
The Art of War 1:1.19-22.

Our Tactics must be in tuned with the season..
Is it the season to short-sell, buy puts, buy calls, day-trade, buy & hold etc. ?

Make victory in war pay for itself.
Avoid expensive, long campaigns.
The military commander's knowledge is the key.
The Art of War 2:5.1-3

1) This goes back to Return on Capital Employed. We must measure our returns less what we can get from a risk-free investment.

2) Yes, over-trading is a major consideration too.

3) Always look for catalysts to either buy or sell. Why are we buying ? Why are we selling ? Can we explain that clearly ?


Thanks and take care,
Winston

[kennynah]

<< Why are we buying ? Why are we selling ? Can we explain that clearly ? >>

Dear W : i always only have one answer to above question...which is to profit from all positions i take... no other reasons should justify my actions to trade/invest. having the precept of profiting obviously doesnt mean it always happen...hence the need to manage the risk and losses well enough...

generally, with a few positions, the overall must be a +ve...for the portfolio to be considered successful. of cos, there were times, when all i see was a sea of RED...very disturbing visually and psychologically... i usually, walk away momentarily...recap the original Sun Tze's teaching to remind myself once again...

Make victory in war pay for itself.
Avoid expensive, long campaigns.
The military commander's knowledge is the key.
The Art of War 2:5.1-3.