Even better, "The Art of War" is often available at a substantial reduction to RRP on the discount tables at many shopping centre book retailers.
Hi all,
I have recently read Sun Tzu's famous book The Art of War, and written up a brief review & breakdown of such lessons for investors that can be interpreted.
The Art of War by Sun Tzu is a classic piece of timeless writing that explores the stratagem of warfare and invites readers to explore the results of applying sound and rational decisions in differing environments.
The book in its first principals explores the decision making from many military leaders and the effects such decisions have on the battlefield.
Taking a step away from face value allows the reader to understand the application of basic principles and how this creates a greater probability of success whether in an investing context or otherwise.
Quote #1 – “Know your enemy and know yourself and in 100 battles you will never be in peril”
Translation in investing terms:
The enemy – a particular stock/industry/sector
This quote highlights the importance of understanding oneself before deciding to engage in idiosyncratic stock analysis. As an investor you must ask yourself, “What are my strengths, weaknesses, points of understanding and fundamental flaws?” You must first understand what you know, and what you need to know before engaging research on a business.
Secondly, you must know “the enemy”. To increase the chances of success, the investor must understand the company that are researching / they have a shareholding in. They must know what the business does, what problem it’s product/services solves, it’s customer base, the management team, what motivates it’s employees and so on.
Thusly by understanding an one’s weaknesses and the challenge it faces an investor can greatly increase their chances of a high return on investment.
Quote #2 - “It may be known that the leader of armies is the arbiter of the people’s fate, the man on whom it depends whether the nation shall be in peace or in peril”
Translation in investing terms:
This highlights that the leader of an army/business (I.e the management team and/or the CEO) is often the driving force that determines success or failure. A good leader motivates their employees and brings them together to achieve a common goal.
Investors must spend time understanding who runs the business, what their management style is, their track record of success or alpha creation and so on. Thusly conducting adequate analysis on a company’s management team should be a paramount part of an analysts role.
Quote #3 – “Avoid what is strong. Attack what is weak”
Translation in investing terms:
As also explored in the breakdown of Quote #1, an investor should avoid situations where they are diving into the unknown. For example; an investor should not invest in biotech’s or mining speculators without an adequate and proper understanding of those relative fields. Otherwise, you are taking a practically expensive gamble.
Quote #4 – “To win 100 battles is not the height of skill. To subdue the enemy without fighting is”.
Translation in investing terms:
Highlighting that sometimes avoiding a specific sector or stock can be the best investment an investor can make. Successes aren’t always defined by wins, but by times a loss was avoided. Risk aversion and conservatism are often under appreciated over long periods in the market.
In reflection, I thoroughly enjoyed reading The Art of War and I feel like I took some important lessons away from reading whether explored in first principles, or applying such concepts to real life applications such as investing.
Overall, Sun Tzu’s The Art of War is definitely a book I would recommend to others.