The Art of War & Investing: Lessons from Sun Tzu
Depending on whom you ask, you’ll get a wide variety of responses about the nature of investing. Some will compare it to running a marathon, some say it is like finding a bargain while shopping for groceries, while others may tell you that it is closer in essence to looking for diamonds in a coal mine. Whatever your take is, the outcome you seek from investing determines to an extent your approach and vice versa.
Sometimes, it is external factors that have a deep impact on your investing behaviour as well as the outcomes you seek. Factors that seem out of our control, like wartime.
If you like finding parallels and analysing scenarios, you may have already observed that investing itself is so like preparing for war. Both involve assessing positions, strategising, intensive research, risk management, scenario planning and more.
Intrigued? Then you’ll love this blog. Read on.
Let’s turn to Sun Tzu, a Chinese general and military strategist who wrote the book, The Art of War, during the Warring States period, between 475 and 221 B.C.E.
This is one of the most renowned books on not just military strategy but also on political thinking and the psychology of battle above all else.
This book was able to have a profound impact on the way leaders thought across centuries because the crux of the book is timeless: it is about how to approach war, how to conduct oneself as war is fought, and how to minimise the resource wastage during the war, as opposed to any specific weapons or ammunition technology that existed at the time. So influential is the book that Sun Tzu’s readership (and fanbase) has included some historical figures - including Napoleon, Mao Zedong, and Ho Chi Minh.
So how would it affect your investment plans if you take your advice from Sun Tzu? That’s certainly an interesting premise, with the grounding knowledge that in financial warfare, there is no real blood, but much of the proverbial red in your portfolio holding statements.
Let’s take a look at some of the lessons that Sun Tzu wrote in this influential work on military strategy, The Art of War, and how they can be applied to good investing practices today.
1. “Great results can be achieved with small forces.”
This is a great guiding principle for those who are just starting their investing journey or don’t have too much to invest at any given point. More is determined by your attitude towards your investments, your goals, as well as the effort you’re putting in to stick to your plans than the amount of money you’re investing. Remember, a small start is better than none. Begin with a small SIP if you will, but make that first move. The eventual outcomes are likely to astound you one day.
2. “In the midst of chaos, there is also opportunity.”
This is a lesson that should be taken seriously by investors of all types, especially considering the frequency with which chaos breaks out in the world these days. It takes a seasoned mind to stay calm during periods of frenetic activity - and it’s something you’ll have to consistently keep practising, no matter how good you get. Staying unemotional when it comes to investment decisions is a very important behavioural muscle you need to strengthen and flex regularly.
Whenever there is chaos, keep your mind calm, and hunt for your opportunity. Markets will tumble, they may remain flat, they may fluctuate- but your response to them, if calm and measured, will serve you very well. If you are able to practice this regularly, this particular skill will pay dividends in the long run.
3. “You have to believe in yourself.”
Okay, maybe this one isn’t exactly exclusive to military strategy or investing, but it definitely works in both contexts. It is likely that you will make mistakes when you just start out - or that you may have a great stroke of luck as you start out, and then hit such a rough patch that it completely shakes up your confidence. In either case, you will need to keep believing in yourself and build up your confidence, even if one small step at a time. Without that, you may never become a successful long-term investor or be able to practice the skill mentioned in the previous point.
4. “One may know how to conquer, without being able to do it.”
Great teachers may not be great practitioners. All the theories in the world may not still prepare you for real-life, practical challenges. So you may have the right ideas in your head, but if you have never executed them, you will feel fear.
There is too much information in our current internet-driven context. It’s possible that you have read multiple books on investing, have taken masterclasses on scalp trading, as well as played online stock market simulators. At the end of the day, you’ll still not know what it’s like to be an investor unless you start investing. Don’t be afraid of making mistakes- be afraid of not even trying.
5. “The wise warrior avoids the battle.”
This provides insight into a certain tendency in investors, which makes them too worried about what’s happening or too anxious to hold their investments when the markets drop or crash, therefore reacting too much to what’s happening around them.
The fact of the matter is, as a warrior, you need to be efficient in how you spend your energy - if you’re always thinking about your enemy, you’ll never know when they get to you. Similarly, it’s wise to not overthink your plan; take a measured, smart approach to invest and spend as little energy obsessing over whether you did the right thing or should you change your plan later, thus avoiding the battle of fighting with your own mind.
You may often have heard us say, “Do nothing”- and that is a perfectly reasonable investing strategy, especially if you made a carefully thought-out plan to hit your goals in the first place.
6. “Bravery without forethought, causes a man to fight blindly and desperately like a mad bull.”
It’s certainly telling that the English translation of Sun Tzu’s Chinese statement mentions the word “bull”. While there are no doubt bull market cycles every now and then, it’s essential not to get completely swayed by the market and fall prey to greed. To win the war on investments, you need to fight with clarity - and clarity means knowing when not to stretch yourself too thin in the hope of quick returns. Don’t jump into battle without a shield. Or a sword. Eventually, you will lose.
Risk awareness, risk acceptance, risk profiling, risk management. Remember these words.
7. “Ponder and deliberate before you make a move.”
A dictum that shouldn’t surprise anybody who considers themself a seasoned investor, it simply alludes to a rather common internet acronym today: DYOR. Do your own research. There is far too much information out there - and if you’re watching a random video on your favourite platform that tells you a certain stock will go 100x in a month, you better watch out.
Train yourself to know what to look for while investing (we have a comprehensive learning library you can benefit from, or DM us on Instagram) or if you need guidance, connect with a professional financial consultant (like a Mutual Funds Distributor). But even then, don’t blindly go with what they say- make sure that you know the right questions to ask before you take action.
8. “Water shapes its course according to the nature of the ground over which it flows; the soldier works out his victory in relation to the foe whom he is facing.”
This is a tip perhaps more suited for investors who have experienced both highs and lows in their investment journey. This quote teaches us that sometimes the nature of victory is not what we expect. It’s not always possible to turn around huge losses, and at the same time, you can’t always be as much in the green as you’d like.
Victory looks different for different people, and victory also looks different in different contexts. Being able to determine when you’ve won is the tricky bit. But this comes with clarity, reasonableness and awareness of goal-planning. Hitting what seem like small milestones across changing scenarios is what will eventually help you reach your bigger goals.
9. “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.”
With this quote, Sun Tzu points us towards a specific direction that will help everyone in their investment journey - it asks us to go inwards rather than outwards. While this quote will be better received by more seasoned investors, it can nonetheless be immensely useful for people who have just started investing as well.
Once you understand yourself, what you’re hoping to get out of your investment journey and the steps you need to take to get there – you will position yourself very well to face the battle. But it doesn’t end here. You also need to understand the other side- the product you’re investing in, the possibility of changing market scenarios, fixing and editing your goals and hence your plan once in a while. It certainly is extremely important to know yourself, but learning how the market can behave and the product choices you’re making too (including the fine print 😊) will help you prepare even better.
10. “It is only one who is thoroughly acquainted with the evils of war that can thoroughly understand the profitable way of carrying it on.”
Perhaps a bit of a cynical note to end on, but it demystifies the casual attitude that many investors have towards the stock market. At the heart of it, someone’s sale is another person’s purchase. Investors seek to make money where others are losing. Or, rephrasing the same statement - investors seek to understand flows of capital and to unearth the various ways in which they can make money regardless of what’s going on. A recent example of this is the Russian invasion of Ukraine, where instantly people were speculating on which stocks will trade higher because of supposed sanctions on Russia. In such times, calculating potential profit seems like a cynical act at best and a soulless one at worst. And this is what it perhaps means to know the evils of war, both in a literal and (in the case of the stock market) metaphorical sense.
A different way of looking at this, and experienced investors will agree- is that only once you know what it is to lose, do you prepare how to profit better the next time. Generally speaking, investors who build the most well-crafted portfolios are the ones who have experienced stock market crashes, events such as the Subprime crisis of 2008-09, or the Covid-related market crash in 2020. These events humble us, but also teach us to be responsible with our decision-making.
Some of the most beautiful things come out of what looks like chaos. A Lotus Grows in the Mud, as a popular American actress wrote in her memoir.
So there we have it! Ten lessons on the art of investing from Sun Tzu. Although the lessons originated from war, we have seen that they can be applied rather liberally as lessons in investing as well.
Which ones do you find useful? Let us know in the comments below!
About the authorThe Rational Ghost. This is one rational storyteller that provides interesting insights & stories about investing and tries to be completely unemotional about it. Lives in the shadows, doesn’t want anyone to know its real name.
This note is for information purposes only. In this material DSP Asset Managers Pvt Ltd (the AMC) has used information that is publicly available and is believed to be from reliable sources. While utmost care has been exercised, the author or the AMC does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. Readers, before acting on any information herein should make their own investigation & seek appropriate professional advice. Any sector(s)/ stock(s)/ issuer(s) mentioned do not constitute any recommendation and the AMC may or may not have any future position in these. All opinions/ figures/ charts/ graphs are as on date of publishing (or as at mentioned date) and are subject to change without notice. Any logos used may be trademarks™ or registered® trademarks of their respective holders, our usage does not imply any affiliation with or endorsement by them.
Past performance may or may not be sustained in the future and should not be used as a basis for comparison with other investments.
Leave a comment