The Art of War in Financial Investment

Investing to me is like playing a game. It is the goal of the project to build an empire as powerful and lasting as the Roman and Ottoman empires.

I am only a small hamlet with very limited resources right now. A ruler’s job is to make do with what he or she has, to expand his or her territory, and to grow their influence.

Liu Bei and Cao Cao both came from nothing, too. The first left Luoyang to build his own army, while the second is a shoemaker. However, their quick wits, resourcefulness, and craftiness make them essential in war. They became famous for their strategic thinking and military genius.

Whether you are big or small doesn’t matter. It is more important to focus on the process than the goal. Better to make progress than to achieve perfection.

In Sun Tzu’s words, controlling a large force is as simple as controlling a few men: it’s just a matter of dividing up their numbers. Using signs and signals is the same as using them with a small army: it is simply a matter of establishing a command structure.

Striking a balance between offense and defense

The defence and offence of an empire are intertwined.

External affairs are dealt with by the Offence. The objective here is to build up an army, devise military plans, and conquer other lands and secure strategic locations.

Internal affairs are handled by defence. State finances are discussed here. Is your treasury well funded to carry you through tough times? How well are your walls defending you against unexpected invasions (medical bills)?

You are commanding one soldier with every dollar you spend.

Your state will be stronger if your army is bigger.

The state is therefore very concerned with how you allocate and utilise your army and resources.

The first thing you need to do is consider how you will allocate your army between defence and offense. At which outer gates and inner palaces should guards be placed? These funds would be used for emergencies.

Which number of them should be deployed at the frontline to conquer lands? This is your war chest. “Land” here refers to assets such as stocks and real estate.

Upon conquering a land, you would be rewarded with more soldiers and resources (dividends). The larger your army, the more land you can conquer and the more resources you have available to you. This is a compound interest at work.

If you just leave your money in the bank and do nothing about it, you are 100% protected. Your money will be protected regardless of what happens. However, the state will not be growing and expanding. It is a case of no risk, no gain.

Guards of this type will soon become lazy and idle. Activity and staleness are not compatible. To get the very best out of them, you must put them to use.

Regardless of where your soldiers are positioned. There is no guarantee it will be a better decision. People who win military campaigns one after another are far better off than those who lose them all.

People who lose their money through investments are better off than those who do nothing with it.

However, it is vital to note that maintaining one’s own state is of utmost importance. Destruction of the enemy is of secondary importance.

Laying Plans

In addition to knowing when to attack and where to attack, a general who has an army on the frontline would also determine their success.

It is important to plan before you act.

In the Art of War, there is a very popular quote under Laying Plans.

Before a battle, the general who wins it makes many calculations in his temple. Losing generals make few calculations before battle. There are many calculations that lead to victory, but few that lead to defeat: how much more no calculations at all! Knowing who is likely to win or lose can be predicted by paying attention to this point.”

You conduct calculations behind the scenes based on research and valuation assumptions. Your decisions will be more confident if you have done your research.

Whenever you move, let it be like a thunderbolt, as dark and impenetrable as night.

Weaknesses & Strengths

Weak points and strong points are also discussed in the Art of War.

In war, the goal is to strike at the weak and avoid the strong.”

Do not send your army to attack the stock market when it is sky-high. The enemy has baited you. You would be wasting a lot of resources. Soldiers would lose unnecessary lives under your command.

When an army is on fire, a clever general avoids it, but when it is sluggish and inclined to retreat, he attacks it. Observing moods is an art.

The market’s mood is similar. At times, it is exuberant, at other times, it is frightened. Avoid attacking them when their spirit is keen.

It is important to use them efficiently and wisely. Unless the position is life or death, do not move, do not use your troops, and do not fight unless it is essential.

Variations in Attack

In an attack, concentrating or dividing your troops depends on the circumstances. Dividing your buys into tranches would be a divide and conquer strategy. You could, for instance, deploy your war chest at:

A market drop of 5% will result in a 20% drop

A market drop of 10% will result in a 30% drop

A market decline of 20% results in a 50% loss.

As a result, dividing up a small army like mine would drastically weaken its significance and strength. If this were the case, a better strategy would probably be:

If the market drops 15%, you get 100%

Investment Strategies

After graduating, I’m starting to accumulate bills on top of my hefty student loan repayments.

The majority of my soldiers are being assigned to defense. My insurance coverage was recently upgraded to include private hospital coverage, a rider, whole life, and an accident plan. A few percent of my salary after CPF deductions goes toward my monthly insurance premiums.

Why not give yourself 5% peace of mind?

At first, I planned to pay off my $21,000 student loan (now $17,000) and build an army ASAP before the recession (war).

The coronavirus fears rippled through the markets sooner than expected, however.

The price of some stocks and REITs is very close to my target price because I have done my calculations. I can hear the soldiers chanting and they are ready to strike at any time.

My savings and war chest are each $2,000 at the moment. Hence, my state is a hamlet. Only 10 people are on the front line of my army. Almost all of them are gone now that I made the mistake of conquering unfamiliar territory (cryptocurrencies).

If we are unfamiliar with the country’s mountains, forests, pitfalls, and marshes, then we will not be able to lead an army on the march.

Resource reallocation

I’ve decided to reallocate my resources so that this army can grow even bigger. The soldiers who were paying off my student loans will now be on the frontlines.

As of right now, I am paying $1,500 a month for that service. Now, repayments will be reduced to $1,250, and the excess $250 will be added to the war chest.

I pay about 4.85% in interest on my loans. Currently, there are stocks with yields above 5%. The best use of resources would be to invest rather than pay down debt. The trade-offs can be significant.

Reducing repayments has the risk of resulting in an additional $920 in interest expense. In this case, I will pay $920 more in order to recruit more soldiers. 

I have forfeited the wager if none of these bullets are fired. However, instead of attacking the debt, the soldiers did nothing. However, if the soldiers secure a valuable piece of land at the right time, then it would be a wise move.

Building a stronger military

Furthermore, I am also considering selling away some of my cryptos when the time comes. In two months, Bitcoin will halve. Neo 3.0 will be released at the end of the second quarter of 2020. In 2020, Ontology will release Aristotle.

NEO and ONT will be the first that I let go of. Their dividends are pitiful. ONG and GAS are subject to two factors. The fluctuation of the USD/SGD exchange rate and the price of the token.

A total of $8 has been earned from GAS dividends and $22 from ONG dividends over the past year. NEO and ONT represent $2,187 in total investments. That amounts to a paltry dividend yield of 1.4%. Originally, it was 8%.

I would realize a loss of $1,250 if I sold them now. On the other hand, I would gain $940 in my war chest.

It’s very simple to understand why such a blockchain platform business would be troublesome. Not a single useful Dapp is being built. The focus is primarily on gaming. The NEO 3.0 platform is becoming more enterprise-friendly.

Let’s wait and see. It is my intention to give them a final chance until the end of 2020. In the event that these soldiers do not perform up to expectations. They are not welcome in my village.

Heaven (Tian 天)

In the Art of War, heaven is one of five constant factors. The concept of heaven is dualistic. The yin and the yang, cold and hot, day and night, season and time, crisis and opportunity.

During good market conditions, we are in Yang territory (the white space). In bad market conditions, we are in Yin territory. Now is probably the highest point of Yang. However, this is also the point where the Yin (black dot) emerges, indicating the transition to Yin.

Markets in Yang territory will not always be white and bright. The FED and Trump want that, and think they can control the market.

Yin (Offence) and Yang (Defence)

Currently, my defence is very weak. It’s not even possible for me to sustain myself for 3 to 6 months without an emergency fund. As the strategic focus now is to expand the army base (dividends), we need to conquer more lands. Opportunities like these are rare. Yin is the place to be on the offensive, while Yang is the place to be on the defensive.

Is Yin in sight? Possibly. The Chinese manufacturing PMI was released on 29 February. It is 35.7, much lower than the forecasted 45.1 and even the 2008 crisis figures. When China announces negative news, you know it’s bad.

The world gets sick when China sneezes.

As of Feb 2020, the number of CEOs leaving hit its highest point.

  • Bob Igler, CEO of Disney has stepped down.
  • Keith Block, co-CEO of Salesforce has stepped down.
  • Ajay Banga, CEO of Mastercard has stepped down.
  • Ginni Rometty, CEO of IBM, stepping down in April 2020.
  • Jeff Weiner, CEO of LinkedIn stepping down in June
  • Chia Tai Tee, Chief Risk Officer of GIC, retiring.

Is it a coincidence at the highest yang? We don’t know. The coming weeks and months will be very interesting. Currently, I am on offense.

Just as water doesn’t retain any shape, the market doesn’t have constant conditions. I will be able to pay off my loans if fear subsides and a V-shaped recovery follows.

Don’t chase an enemy who is scheming; don’t attack soldiers whose temper is flared. You shouldn’t chase prices that are soaring above your target prices since you may be taken by surprise.

I’ll leave you with my favourite quote, which sums up everything. We move swiftly like the wind and close together like the wood. We attack as fire and remain still as mountains.

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