The philosophy of war is linked to psychology, timing and calculation of chance. This can help both in life and markets. We look at Sun Tzu's timeless work from the perspective of life and markets.
Little has changed over two-and-a-half millennia. People's psychology can still be manipulated using the same ways. Mastering the market is easy still, compared to mastering the mind. A lot of Tzu's work can be revisited. He said, “If you know the enemy (market) and know yourself, you need not fear the result of a hundred battles. If you know yourself but not the enemy (market), for every victory gained, you will also suffer a defeat. If you know neither the enemy (market) nor yourself, you will succumb to every battle.”
The stronger opponent (market or life) creates disorder and crushes the weak. When weapons are blunted, ardour damped, strength exhausted and treasure spent, the stronger opponent (market or life) will spring to take advantage of your extremity. None, however wise, will be able to avert the consequences that must ensue. Tzu also talks about haste and how it is unacceptable. He calls it ‘the stupid haste in war (markets or life)’.
There is no instance of a country having benefited from prolonged warfare. A constant war with markets (life) is like intra-day systemless trading (complaining in life). Behavioral finance has proved day trading to be net inefficient and wasteful. Just like in war, the greater object is victory, not prolonged (trading or complaining) campaigns.
Another reasonable assumption is to replace fighting with trading. “He will win who knows when to (trade) and when not to (trade). The quality of decision is like the well-timed swoop of a falcon, which enables it to strike and destroy its victim.”
The strategy is about destroying the enemy’s resistance without fighting. This again suggests you don't need to really resist to win. Winning in markets (life) could be trade-less or without complaints. To secure against defeat is in our own hands, but the opportunity of defeating the “market” is provided by the “market” itself.
Tzu says, “To see victory only when it is within reach is not the acme of excellence. Neither is it the acme of excellence if you fight and conquer and the whole Empire says, “Well done!” What the ancients called a clever fighter is one who not only wins, but excels in winning with ease. He wins his battles by making no mistakes. Making no mistakes is what establishes the certainty of victory, for it means conquering an enemy that is already defeated. The military method involves measurement, estimation of quantity, calculation, balancing of chances before victory.”
Another aspect is to understand disorder. Life is about understanding disorder. "Amid the turmoil and tumult of battle, there may be seeming disorder and yet, no real disorder at all. Amid confusion and chaos, your array may be without head or tail, yet it will be proof against defeat.”
This is where deception comes in. We have understood so much about the human mind because of deception. This is also explained in the works of two social psychologists: Stanley Milgram (obedience experiment) and Solomon Asch (three line experiment). How can we deal with life or markets, which are the masters of deception? The only way out could be deception itself.
Sun Tzu says that to win one has to simulate disorder, because it assumes you have perfect discipline; you have to simulate fear because it assumes courage in you; you have to simulate weakness because it assumes you have strength. Concealing courage under a show of timidity (at market tops or at extremely joyous life occasions) presupposes a latent energy; masking strength with weakness (at market bottoms and worst moments of agony in our life) is to be affected by tactical dispositions. Whether you are deceiving your mind to avoid being deceived or using it to counter life's and market's deception, the aim is to win and live.
The author is CMT and co-founder, Orpheus CAPITALS, a global alternative research firm
