Invest Only When It's Easy To Make Money!

Sun Tzu was no speculator. He was unwilling to take any unnecessary risks - patiently waiting and continuously 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 parallels 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 an old stock scenario and put things into perspective, let's use my old favourite, Mieco.

Way back in 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 solely on this factor (err.. would it be wrong to define it as 'speculating' that the new factory will deliver?).

But what were the other issues faced by the investor?

Should we be delusional and act as if it did not exist? And should one invest simply because of iCapital?

What about the reasoning and the justifications behind the recommendation?

Well, iCapital and the investor should have known that one 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 importantly, how much earnings will the new factory deliver and when will one see the positive 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 let's reason out the justifications and weigh the pro versus the cons.

Isn't this a simple commonsense thing to do?

Now based on the variables that were present then, would one define Mieco as an easy stock picking?

Reasoning for earnings to improve was there if and if the new plant could deliver.

Reasoning to be cautious was there. Stock wasn't cheap and worse of all, the fundamentals were worsening.

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

Do you know what the price of Mieco now?

0.505!!!!

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

Or how now?

Look at the current economic variables.

What do you see?

Yes, things could get better in the future. In the long run, surely there's a better tomorrow.

But what about now?

What kind of business environment do we see out there?

Aren't most companies enjoying their best ever earnings currently?

Ask yourself this, do you reckon that these companies could improve their earnings in the near future, given the current changes in the local economic environment? Petrol, gas and electricity tariffs have all increased at the same time. Can the companies pass the buck down and shaft it to their customers? Or do you reckon that most companies will be forced to bear this new burden?

Most of all, do you think earnings would improve or decline?

Do you think that now represents a period where it is easy for any investor to make money?

Or do you think that that it makes good sense to be a ninja turtle and obediently hide in the turtle shell once the going is tough and only fight when i KNOW very well that i can whack and hantem the bugger kow-kow!!!

ps: what was Billy Ocean singing about When the Going Gets tough...