Source: Broker China

For investors who have liquidated or left the market, Qiu Guogen, founder and chief investment officer of Chongyang Investment, is alarming: in investing, never do anything irreversible. If a strategy is not iterative, then it means the possibility of bursting out or leaving the market, and the investment becomes a dangerous “Russian roulette game.”

“Win first and fight first” is an iterative rule. Qiu Guogen believes that the core idea of “win first and fight” in the traditional Chinese classic “Sun Tzu's Art of War” is the same as iterative thinking. It not only requires thorough preparation before fighting to make oneself invincible, but also wait for opponents to relax or make mistakes before attacking. The goal is to ensure that nothing is lost. The so-called traversal means that the statistical results are consistent in time and space after a certain type of event has experienced various states under the test of a large sample and sufficient number of events.

In the book “Tales of Good Fortune Warriors,” Shu Taifeng, an investment partner of Chongyang, explains why value investing is invincible using Sun Tzu's theory of war. The “buy stock is buy a company” rule, the margin of safety rule, the law of the circle of ability, and the law of treating “Mr. Market” rationally reflect the essence of Sun Tzu's “invincible oneself”, “win first” and “win first” ideas.

Good fighters of wealth have already won at the beginning of the investment layout. Just as those who are really good at fighting have already won before the war begins; it is called “win first, then fight later.” The following is Shu Taifeng's summary of the ten points in common between Sun Tzu's art of war and value investment. The top ten topics are explained in detail using virtual conversations between Sun Tzu, Buffett, and Munger.

Taking advantage of strengths and weaknesses: choosing people to assume positions

What is a good business? It is an enterprise that can create long-term profits for shareholders and also create value for society. A good enterprise needs good management, a good business model, and in line with the development trend of the industry. Sun Tzu said, “Therefore, good fighters seek the situation and are not responsible for others, so they can choose people to take positions.” “Choosing people” is equivalent to choosing good management, and “assuming positions” is equivalent to adapting to industry trends and choosing the best business model. Together, they form the competitive advantage of an enterprise.

Overcome by reversing: avoid their sharpness and defeat their depravity

A good company is not equal to a good target; a good company plus a good investment price is considered a good target. So in addition to buying good, you also need to buy good, that is, buy cheap. But how can I buy it cheaper? This requires reverse thinking, so that people abandon me and take it. Only by buying when others don't like it, or where others overlook it, can you buy an excellent target at a reasonable or even lower price than the valuation. There is a saying in “Sun Tzu's Art of War”: “Avoid their sharpness and beat their idleness.” Avoid the strong fighting spirit of the enemy during the campaign and wait until the enemy relaxes to attack them. The principle is the same as the principle of investment.

Slow to fast: those who are afraid to wait and not be afraid will win

Good prices don't automatically appear; it's like good prey always hides deep in the jungle. They all require us to wait patiently until the tide recedes and the noise stops. Buffett is very good at waiting. He admires baseball player Ted Williams because Williams never swings his bat until a real good ball arrives. Buffett always did not hesitate to spend years or even decades waiting for a good target. Munger called it a “sit back and wait investment law.”

“Sun Tzu's Art of War”, on the other hand, advocates “those who keep the good guardians under nine places,” and ultimately achieve “those who are afraid to wait and win”, that is, only when prepared divisions attack unprepared enemies can achieve ultimate victory.

Win more with less: it all depends on the battle

Buffett, who follows the “sit back and forth investment law,” will definitely not make too many moves. Unlike many people who prefer diversification, he preferred Mark Twain's suggestion to “put all your eggs in the same basket and watch it carefully.” Of course, investing only once is really too rare. His advice to ordinary investors is to prepare a card with only 20 holes, representing an investment they can make in a lifetime. Once you have filled the 20 holes in this card, you can't make any more investments.

Corresponsibly, “Sun Tzu's Art of War” also does not advocate fighting more wars, because fighting consumes a lot of manpower and material resources, which can lead to “victory and death,” and countries that always win battles may perish. “Sun Tzu's Art of War” is actually the method of careful warfare. It focuses on fighting fewer wars (preferably no war). If you don't fight, the best is the highest level; in fact, if you want to fight, you also need to pursue “determined by war 1.”

Overcome timidity with courage: as fast as wind, plunder as fire

Waiting is not an end but a means; it only applies when no opportunity comes. Once the opportunity comes, be brave enough to jump on it. As Qiu Guogen said, “When the opportunity comes, you must dare to take a heavy attack and set foot on both feet.” Buffett's statement was: “When loading and unloading gold that day, you should use a large barrel to pick it up, not a small ring.” When a financial crisis occurs, it is often when Buffett sweeps the market. The more you watch Buffett's investment operations, the more you'll discover that he is like a sophisticated hunter. He has superhuman patience and perseverance. He always waits quietly until his prey does not appear. Once the prey appears, he attacks decisively and hits it with one blow.

“Sun Tzu's Art of War” also focuses on fighting or not. Once the military acts, it must “move ahead of nine days”; it is “as fast as wind,” “plunder like fire,” and “move like thunder.” In other words, an army that is really good at attacking is like a divine soldier falling from the sky, sweeping thousands of armies, like wind, fire, and thunder.

Win with stability and risk: win with balance and surprise

There is a limit to everything; it's too late. A heavy punch does not mean “ALL IN” (full investment) or excessive leverage. Because leverage is a double-edged sword, it can both make you rich overnight and return to zero overnight. There is always uncertainty in the investment world. The “black swan” market is popping up, so remember to keep your hands on it. Buffett will always “lie” at least $30 billion in cash and cash equivalents on his accounts. Although they have very low returns, they can make Buffett sleep very well. Once the financial crisis broke out, while other companies were struggling to survive, Buffett still had plenty of “bullets.”

“Sun Tzu's Art of War” says, “Every fighter wins by right and by chance. Therefore, those who excel at it are as endless as heaven and earth, as inexhaustible as rivers.”

To overcome stature: military is impermanent, water is impermanent

Buffett's investment method is like a thousand-year turtle when slow; you can wait quietly for years or even decades; when it's fast, it's like lightning. Munger summed up this approach as “when conditions change, we have to change.” This kind of wisdom is like water. “Sun Tzu's Art of War” says “Soldiers have no power, water has no shape.” Water is soft yet can overcome everything, precisely because it is good at changing.

Using Familiarity to Avoid Life: Those Who Know They Can Fight and Those Who Can't Fight Win

To complete the first 7 steps, an important prerequisite is to know each other and know oneself. Investing comes down to two things: one is understanding the objective world, and the other is understanding the subjective self. Buffett argues that you are not familiar with it, that is, you must first have a clear understanding of yourself, avoid unfamiliar things, and never step out of your circle of ability. The second is judging the target. This requires investors, on the one hand, to continuously learn all kinds of knowledge and skills to understand the objective world, and on the other hand, to face themselves honestly, analyze all kinds of cognitive biases, and avoid becoming a fool who “doesn't know what they don't know.”

“Sun Tzu's Art of War” says “those who know they can fight and those who can't win”, that is, only those who know what battles they can fight and what battles they can't win.

Using strength to win against weakness: win first and then fight

Buffett said, “On the investment side, we've been very successful because we're focused on finding 1-foot railings and avoiding 7-foot railings that we can't cross.”

“Sun Tzu's Art of War” says, “In ancient times, good fighters are better than easy wins”. Everyone likes legendary stories of winning more with less and winning against strength with weakness. In fact, these stories are very wrong; winning against the weak with more is the right way to fight. People who are really good at fighting have already won before the war starts; this is called “win first, fight later.”

All-victory mentality: conquering the army without fighting

There are tens of millions of paths in the world, and there are quite a few ways to invest, but value investing is the closest thing to investing. It requires buying good companies at minimal cost, taking care of the invested enterprises, and helping them grow by improving governance when necessary. It's not a zero-sum game; it's a win-win strategy.

“Sun Tzu's Art of War” says, “Soldiers, important national events, places of life and death, and ways to survive and die must also be discovered.” Victory first is a means, and total victory is the ultimate goal. This is because fighting a war is a major national event; it can cost lives, and even the survival of a country. Therefore, winning a battle also has a cost. It is called the “law of using the military, the whole country comes first, breaking the country second; the whole army comes first, and breaking the army second.” The method of using military forces is the best policy; defeating the enemy country by force is a secondary choice; surrendering the entire enemy army is the best policy; defeating the enemy army is a secondary choice. It is the ultimate value of “Sun Tzu's Art of War” — the idea of complete victory.

Editor/Corrine