Investing Like a Chinese General
Posted by Wayne on January 26, 2008 – 2:23 amI hope my mid-week market update was helpful. I’m not trying to be an overbearing parent here or anything - really, the people on TickerHound are more than capable of answering any questions or concerns about the market you may have. But after a 450 point drop in a single day, I felt I had to say something.
And it wasn’t just to make sure everybody kept their cool. It was to smack some sense into the people out there who thought it was time to run for cover. That’s right, I can’t tell you how many people wrote in that day wondering if it was time to pull out of the market completely! I couldn’t believe my eyes.
After being through some really rough markets an investor starts to get a “sixth sense” for these types of situations. This reminds me of a story actually. Let me take a minute to share it with you…
There was a Chinese general who was marching his men through the countryside in search of the enemy army. They approached a clearing in the woods and the general had his men come to a complete halt. He said he had a “gut feeling” that they could be walking into an ambush. So he ordered his scouts to survey the area and low and behold there was in fact an ambush waiting for them. Needless to say the general defeated his enemy.
The interesting part of this story was when the general was later asked “how” he knew the ambush was waiting for them. Again, he said it was his gut telling him that the enemy was waiting on the other side of the clearing. But when pressed for a better answer the general began to recount different possibilities for his fortunate intuition. There were several things that told him something wasn’t quite right - for example, the fact that he didn’t hear the normal rustling of the tree’s leaves indicating there were no birds nearby, usually a sign that something had scared them off. After being in the trenches for so long, this general just instinctively knew when something wasn’t quite right - and that instinct was merely an accumulation of many different experiences.
And that’s how an experienced investor plays the market. After accumulating enough experience - or learning through the experiences of others (my personal preference since you don’t have to lose as much money in order to profit) - an investor begins to get a good feel for the market. A real investor knows when it’s time to hold ‘em and when it’s time to really fold ‘em.
This last Tuesday was definitely NOT the time to fold ‘em. So if you stayed cool and made use of TickerHound to figure out how to profit from panics - then congratulations, you probably did reasonably well this week.
That’s not to say the blood letting is over yet - we still have some issues to work through this year but my point remains the same. As intelligent investors we can’t let our emotions lead us in the market - we have to keep our cool, use our heads and let experience be our guides.
A good rule of thumb, be greedy when other’s are fearful and fearful when others are greedy. If you look back over the course of your investing career, I think that you’ll find that if you followed that general rule of thumb you would’ve done great in times like these.
Just like the Chinese general you need to keep your eyes and ears open and wait for the right signs.
Have a great weekend!
