The Hindu Business Line : When travelling over difficult ground, watch for surprise attacks

IT WAS about a year ago (August 3, 2003) this column started with Curtis J. Montgomery's Sun Tzu on Investing, a 2500-year old war guide to devise strategies for dynamic investments. The old master seems to be stopping by while on orbit, because what I have on hand is Dean Lundell's Sun Tzu's Art of War for Traders and Investors, from Tata McGraw-Hill Publishing Co Ltd (www.tatamcgrawhill.com).

It is not only the UPA and the NDA that are on opposing sides as in a war, but also financial markets. That's because of constant conflict, causing investors to either win or lose. "Lundell applies Sun Tzu's winning tactics to the modern art of investing — from designing a personal trading plan, to timing market moves, to gleaning data from a global information network," says the blurb. "Free markets are the last bastion of unabashed conflict," says the intro.

"There are no government quotas, no regulations as to how much you can win or lose. The markets do not care what race you are, what religion, what colour or creed, and they do not take prisoners." How does one participate in this conflict? "Become a soldier," is the author's advice. "You must be your own general. You must gather information, adapt to the situation at hand, devise a strategy, and execute your plan. Either you win or you lose; it is that simple."

The book is laid out with Sun Tzu's sutras on the left, and the author's commentary on the right. First comes the statement: "War, or military action, is of vital importance to the nation or state. It is a matter of survival, of life and death, safety or ruin. Therefore, we must study it and understand it." For Lundell, this means: "You understand our economic system from a global perspective in order to profit from it. You must be cognitive of central bank policy, liberal or conservative governments, economic performance, relative currency valuations, and interest rates."

Not assessing the market is bad. What's worse for traders and investors is "refusing to admit that they may be wrong." Instead, they might be saying: "The market is wrong." How foolish! "The market is never wrong," points out the author. "Nothing happens in a vacuum. Events in one market will affect another."

On discipline, Sun Tzu spoke of chain of command and disposition of resources. Lundell adapts: "Discipline means to exercise good and prudent money management and risk management." Warfare is based on deception, so the old wisdom is: "If strong, pretend to be weak and hold out a carrot to entice your enemy. If your opponent is superior, evade him." I'm afraid the market regulator would not like the advice because it can affect the interest of small investors.

In long fights, you become tired and your weapons become dull. So too in trading. Don't become desperate to make up for a loss. "Do not overtrade. If you trade for a long time, you will lose the edge and start taking chances and foolish risks. The inevitable result will be a string of losing trades."

To reinforce the winning attitude, the general rewards his soldiers with the spoils of victory. So too, since you are your own general, "after you are victorious, call your brokerage, or clearing firm and ask to be sent a cheque." What's important is victory, not persistence. Work smart; so take profits consistently, "regardless of size".

If you are small investor caught in the middle of two major market participants with opposing views, "think like a guerrilla soldier". Means? "The best strategy would be to wait and recognise when one side is capitulating and join the winning side. That way you can reap the spoils of victory without having to take part in the major battle." Most politicians seem to have mastered this technique.

Remember that when travelling over difficult ground, you must watch for a surprise attack. Lundell adds: "I never trade at midday or in a quiet market. It is a great place to be ambushed."

Nobody respects a weatherman who looks out the window to forecast the day as `sunny'. So too, as Sun Tzu said: "To see victory when it is obvious is no sign of excellence or cleverness. To life an autumn leaf requires no great strength... and to hear thunder does not necessitate sharp ears." Lundellspeak is to think and anticipate; "stay ahead of the crowd". For this, "use the `what happens if' approach." Also, adapt the military's five rules: "Measurement, estimation, calculation, balancing of chances, and victory."

One last thought: "If a secret is heard before a spy reports it, the spy must be put to death." But why! Because he's only telling you `second-hand rumour' and that's false intelligence.

Hear the call of the conches from the trading rooms?

BookValue@TheHindu.co.in

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Investment Quiz

Telecom majors slash tariffs

Taking stock of retail brands

Evaluation check-list

Steel prices: Tinkering with tariffs makes little sense

Ideas packaged as stocks

PruICICI Growth: Sell

Magnum Taxgain: Hold

Sundaram Select Focus