I came across this Bruce Lee clip on the web the other day and was quite taken by it. I don’t have any martial arts background, but listening to this, I thought there is a lot of investing wisdom here. Let’s run through it.
To Have No Technique
Do not wall yourself off into one asset class or style. Do not just be an equity investor, or a bond investor, or a gold bug, or bitcoin investor, or a volatility investor, etc. Diversify, but don’t lock in your style within that diversification. Don’t just invest passive, or 60/40, or risk parity or permanent portfolio. Allow yourself to adjust your “technique” to match the market your are operating in.
There is No Opponent
Is investing a competition? Are you trying to beat someone else? I don’t think you are.
You may think there are winners and losers. That it’s a zero sum game for many investments. A buyer for every seller. Maybe, but investing isn’t about sums, its about products. Returns don’t add, they compound. Because they compound, a winning trade for you may be a losing trade for someone else in isolation, but a benefit to them in the totality of their portfolio. Some trades can increase the expected geometric return for both parties.
Therefore, it’s not a competition, but in some ways a cooperation.
The Word I Does Not Exist
The market is way bigger than you. It doesn’t care what you think, or what trades you are making. If you go away, the market won’t care. Stay humble.
A Good Martial Artist Does Not Become Tense But Ready, Not Thinking Yet Not Dreaming, Ready For Whatever May Come
Investing can be stressful. When things go poorly, do not become tense and make rash decisions. On the flip side, when things are going well don’t start dreaming about your new yacht or vacation house. Be ready because both conditions will change.
Furthermore, don’t out smart yourself. Be ready for whatever the market throws at you. Trying to anticipate it’s moves will put you out of balance, open to exploitation, which is problematic in both martial arts and investing.
When the Opponent Expands, I Contract. When He Contracts, I Expand
Use the Kelly criteria. When the market volatility expands, contract your portfolio. When market volatility contracts, expand your portfolio. Let the portfolio size and risk allocation flow in and out, opposite to moves of market volatility.
The Enemy Has Only Images and Illusions, Behind Which He Hides His True Motives. Destroy the Image and You Will Break the Enemy.
Investing is full of “stories”. In hindsight you see most of these narratives were illusions; they were false. The narratives that percolate through the investing landscape often don’t help. Sometimes it feels like these stories are placed there purposely to mislead inventors.
The market is mostly random. Don’t pay attention to these “images”, as they are not there to help you.
Take Responsibility for Yourself and Accept the Consequence of Your Own Doing
Don’t blame others for your investing results. You made the trades. You invested the money. You are responsible for it. It’s not the Fed’s fault. It’s not RobinHood trader’s fault. It’s not passive investing’s fault. It’s not anyone else’s fault your investment went bad. Blaming others just hampers your own understanding and growth.
When There is an Opportunity, I Do Not Hit. It Hits All By Itself
This is my favorite quote in the scene. I believe Bruce Lee is talking about the subconscious and developing muscle memory so that your subconscious and muscles actually react before your conscious mind does. It’s essentially the hot hand in sports, but all the time.1
In investing this translates to: make your investing automatic, invest with a system, and build that system to match your goals. Therefore, “you” are not buying or selling, it’s the system’s rules that buy and sell. Separate the system from yourself. They system has been trained through years of practice and study to “hit” when the opportunity arises. Get out of its way let it “hit”.
1-I suspect this feeling is more common in more “active” sports, but I believe I’ve felt this when playing golf. There isn’t any thought. Just see the ball, unconsciously think “flighted cut held against the wind to the back right flag”. No thoughts on how to do that, or if the shot is even appropriate. Just me trying to stay out of my own way, and let the “flow” take over. Swing with no thoughts at all, and then move on to the next shot with no memory what-so-ever of the prior shot.
Maybe this is what great veteran traders do. They don’t necessary consciously know why they should get into and out of a trade, but their subconscious has picked up all sorts of clues through the years telling them what to do. It’s not them “hitting” per say, but their years of experience codified in their subconscious. In the event you are not a great veteran trader, your next best options is to build a good system.