Saturday, October 23, 2010

The Art of War and Investing ---- Part 1

It's has been a while I did not touch on the investment philosophy.

Sun Tzu said:

Know [the] other, know [the] self, hundred battles without danger; not knowing [the] other but know [the] self, one win one loss; not knowing [the] other, not knowing [the] self, every battle must [be] lost.

The obvious that everyone knows is know the enemy and know yourself, hundred battles fought hundred wins. But what is less obvious is this

Not knowing the enemy but know yourself, the winning rate is only 50%. In his words, One Win One loss.

Translating this into practical investing. We must know what kind of investors out there just like knowing major martial arts out there. What are the strengths and weaknesses of each school? I like what Bruce Lee said you have to balance between instinct and control. Too much of control then you are too scientific then you are turning yourself into a mechanical man. If you push yourself to the other extreme on instinct then you are just too unscientific.

We ought to know that each type of investing school has its own strengths and weaknesses.

Let's start with Value Investing.


1. Attention to details especially on accounting(quantitative side)
2. Analysis driven
3. Value rationality rather than emotions
4. Patience
5. Strong discipline sticking to a set of principles
6. Self knowledge
7. Generally introvert allow them to be away from crowd to be independent thinker
8. More interested in the thinking process rathar than answers/solutions
9. Hands on -- going to the source rather than depending on secondary analysis


1. Too theoretical
2. Unable to connect theoretical numbers with business reality. Lack of qualitative analysis.
3. Could miss big pictures especially on macro development will affect micro events
3. Too rigid and sometimes miss big opportunistic profits
4. Patience sometimes come at a very high opportunity cost
5. Poor market timing due to buying and selling based on valuation
6. Too focus or specialized give birth to blind spots -- missing a large new trend.
7. Buying too many stocks without knowing the business intimately especially Graham purist(buy whatever fit your screening criteria)
8. Too skeptical of everything ended up buying nothing

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