From Griffith's translation:
"The character hsing means 'shape', 'form', or 'appearance' or in a more restricted sense, 'disposition' or 'formation'. The Martial Classics edition apparently followed Ts'ao Ts'as and titled the chapter Chun Hsing 'Shape [or 'Dispositions'] of the Army'. As will appear, the character connotes more than mere physical dispositions."
Opportunistic Flexibility In Adapting Strategies And Tactics To Situation
"The good fighters of old first put themselves beyond the possibility of defeat, and then waited for an opportunity of defeating the enemy."
"To secure ourselves against defeat lies in our own hands, but the opportunity of defeating the enemy is provided by the enemy himself."
"Security against defeat implies defensive tactics; ability to defeat the enemy means taking the offensive."
"Hence the skillful fighter puts himself into a position that makes defeat impossible and does not miss the moment for defeating the enemy."
Portfolio Management and Risk Management Corollaries:
Have a well organized plan. Select and test the alternative strategies that are suitable to the market phase, section, swing level, and volatility. Have the patience to wait for the markets to provide qualifying high reward/low risk situations for implementing the selected strategy. Have the discipline to execute again and again.
Be prompt in making tactical adjustments in implementing strategies as market conditions change (opportunity perceived, reaction time, and, results).
Adhere to sound money management practices to avoid catastrophic loss of capital, and especially,
Cut losses short and let profits run -- large losses are the most counterproductive outcome possible.
Intelligent Questioning Of All Situations
"To see victory only when it is within the ken of the common herd is not the acme of excellence."
Portfolio Management and Risk Management Corollaries:
Herd instinct.
Market discounting.
Contrary opinion.
Sustainable Success
"Nor is it the acme of excellence if you fight and conquer and the whole empire says, 'Well done!' True excellence is to plan secretly, to move surreptitiously, to foil the enemy's intentions and balk his schemes, so that at last the day may be won without shedding a drop of blood."
"What the ancients called a clever fighter is one who not only wins, but excels in winning with ease. But his victories bring him neither reputation for wisdom nor credit for courage. For in as much as they are gained over circumstances that have not come to light, the world at large knows nothing of them, and he therefore wins no reputation for wisdom; and inasmuch as the hostile state submits before there has been any bloodshed, he receives no credit for courage."
Portfolio Management and Risk Management Corollary:
The objective of portfolio management is to secure hard dollar rewards that, in turn, are to be utilized/leveraged for constructive purposes. The objective is in no way related to supporting the wasteful trappings of satisfying the ego gratification need of the portfolio manager, risk manager, or anyone else.
Avoidance Of Catastrophic Loss
"He (the clever fighter) 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."
Portfolio Management and Risk Management Corollary:
Seldom has a human being accomplished anything without making a mistake. Accordingly, I have interpreted the use of the phrase "mistakes" to mean catastrophic mistakes leading to defeat, not the mistakes that come from being human. Mistakes leading to catastrophic loss of capital tend to result from our failure to capture and isolate our intentions (plans, strategies, and tactics). Therefore, this Corollary becomes sevenfold;
1. Study past market conditions to know how each market tends to behave in given situations and conditions.
2. Maintain discipline of strategy implementation guidelines and acceptable tactical adjustments.
3. Avoid repeating and compounding small mistakes to the point that catastrophic loss of capital results.
4. Deliberately study every strategy and tactic implemented and endeavor to learn from it.
5. Accept the inevitability of being wrong. Conserve capital during the bad times by limiting losses to a predetermined percent of capital.
6. Do not necessarily equate losses to mistakes or defeat. Within the context of our philosophy, losses, when controlled as a part of adapting to market conditions, are simply a part of the cost of doing business.
7. To be a successful portfolio manager or risk manager, be willing and able to take losses with limited emotional response.
Ethical Conduct
"The consummate leader cultivates the Moral Law and strictly adheres to method and discipline; thus it is in his power to control success."
From Griffith's translation:
"Those skilled in war cultivate the Tao and preserve the laws and are therefore able to formulate victorious policies.
Tu Mu: The Tao is the way of humanity and justice; 'laws' are regulations and institutions. Those who excel in war first cultivate their own humanity and justice and maintain their laws and institutions. By these means they make their governments invincible."
Portfolio Management and Risk Management Corollary:
Again, regardless of philosophical or religious inclination, employ all resources in a moral and ethical manner at all times. Be generous in rewarding all who constructively participate in portfolio management and risk management efforts, and be generous in supporting worthy endeavors regardless of material return.
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