Sun Tzu: Fight Only When It Is Easy to Win

Sun Tzu was no speculator. He was unwilling to take any unneccessary risks - patiently waiting and continuosly preparing, gathering information and honing useful skills - until the day arrived when victory was assured. His timeless advice was, "fight only when it is easy to win."

The most accomplished investors are noted for their uncanny ability to make decisive moves at just the right time. When you dig deep to investigate their strategies, and look at them from a SunTzu perspective, the mystery will vanish. To win when it is easy to win requires self-control to wait for the right circumstances to arrive, and to prepare thoroughly in order to recognize the opportune time for confident and decisive action. If the preparation is not done ahead of time, the opportunity passes unnoticed.

pg.24 of Sun Tzu On Investing

Hmm... here are some famous Warren Buffett wisdom which parrallels Sun tzu teaching of fighting only when it is easy to win

"I like to go for cinches. I like to shoot fish in a barrel. But I like to do it after the water has run out."- Warren Buffett, Oct. 2003 talking with Wharton MBA students

"The important thing is to keep playing, to play against weak opponents and to play for big stakes."- Warren Buffett, Nov. 2002 talking with students at Gaston Hall

Playing against weak opponents and to play for big stakes... fight only when it is easy to win.. really, really makes sense, doesn't it?

Let's take a real stock scenerio and put things into perspective, let's use like Mieco . (sorry for being so repititive but this example really highlights what is being mentioned here)

Last Aug 2004, the stock fell from a high. And because of the fall, folks like iCapital was calling it a long term buy based on one factor, Mieco's new factory equated to good prospect.

Now, an investor, investing in Mieco, the investor was actually investing based soley on this factor (err.. would it be wrong to define it as 'speculating' that the new factory will deliver?).

The issues faced by the investor? The investor was investing in a company that was witnessing a huge decline in earnings and earnings margins. Fundamentals changed from a company in a nett cash position to a company in a nett debt position. And more importanly, how much earnings will the new factory deliver and when will one see the postive effect of the new earnings. And more importantly, the price around 2.30 for Mieco, wasn't cheap when one based it on current earnings.

Now weigh the pro versus the cons.. would one define Mieco as an easy stock picking?

So ass-u-me one followed iCapital kind advice and bought and hold for the long term (doh!) at around 2.30.

Do you know what the price of Mieco now? 1.20!!!!

Look at the end result of fighting a difficult battle!!

Or how about a more clear and present example?

Take Megan.

Now the clear dangers are all over the place. Declining profits, declining profit margins, soaring debts, soaring trade receivables, soaring inventories.

The plus part? Err... err... err... maybe Megan's earnings will improve?

How? At a price of around 70 sen for Megan, do you reckon that this is an easy peasy stock pick?

Me?

I think it makes good sense to be a ninja turtle and obediently hide in the turtle shell once the going is tough (lol.. even Billy Ocean sang When the Going gets tough, the tough gets going...) and only fight when i KNOW very well that i can whack and hantem the bugger kow-kow!!!

:P