Thursday, May 26, 2005

Be Water My Friend...

"If you want to understand the truth in martial arts, to see any opponent clearly, you must throw away the notion of styles or schools, prejudices, likes and dislikes, and so forth. Then, your mind will cease all conflict and come to rest. In this silence, you will see totally and freshly."

"If any style teaches you a method of fighting, then you might be able to fight according to the limit of that method, but that is not fighting."

Any idea as to the origin of these quotes? None other than the great Bruce Lee. I find these quotes most useful in my approach to understanding the markets. And I'm using these quotes to respond to a recent comment from my post that asks the question, "Are Bloggers Relevant?"

The readers responds, "As long as you can articulate any useful observation on the area of interest there is relevance. It may not be relevant to some -- only the ones who want to learn more."

I agree with the responders point but my true question lies in are we indeed sharing useful observations in regard to the market. More importantly are we enabling our readers with the insights needed to truly make money from the market? Or are we just frothing at the mouth espousing generalized concepts and ideas with no true tests or experiences backing them up?

Again I will say, it's a great question. And I'm afraid of the answer. You see, people get blinded by rules, methodologies, and logic. There are many things in this world that make perfect sense. But, when tested against real data are found wanting. Why is this so? I believe its due to the ever changing nature of the markets. It's a game. And being a game...the players are constantly evolving their strategies. Much like the differences you see in the first episode of Survivor versus the Survivor All-Stars.

They played the game for the first time with one set of rules (to be honest they had no rules)...and then learned and revised and when the time came around to play again...the game was different. Reminds me of the Ultimate Fighting Championship. A real walk-forward test if you will.

I can still remember watching the first UFC. I was so excited because I would finally get to see all these different martial arts forms compete against each other in a real fight. Nothing scripted...nothing expected...and the outcome completely unexpected. It must have been humbling to so many practicioners of the traditional arts. I watched as Karate-Do, Tae Kwon Do, and yes even Jeet Kun Do fighters get taken down hard and fast. In the end it was an opponent so small and seemingly harmless that put the fear of God into his opponents and won the championship hands-down. This fighter, Royce Gracie, excelled in ground fighting...something almost all of the traditional martial arts avoid in their practice. And soon ground fighting took the world by storm and everyone was doing it. Several of the great fighters incorporated ground fighting into their practice. The UFC evolved and the game changed because the fighters changed.

That's what happens with the market. Investing styles are much like those traditional martial arts. They look good and sound good on paper and in a controlled setting. But, out in the real world...they just don't cut it. Because somebody always has some edge to exploit the weakness of the players. Once this weakness is shown for the world to see much like Gracie showing the world the arts of ground fighting...the fight changes.

I think this ever evolving nature of the fight is what Bruce Lee was after in his quest to develop the ultimate fighting art. All the traditional disciplines failed him when tested in actual fighting conditions against worthy opponents. So, he developed Jeet Kun of the first modern form of mixed martial arts. The basic JKD theory is to do whatever is necessary to defend yourself. Break down the limiting factors in the traditional styles and use only those elements that could be found in a fight. Hence the quote by Lee, "The fancy mess solidifies and conditions that which was once fluid, and when you look at it realistically, it is nothing but blind devotion to the systematic uselessness of practicing routines or stunts that lead nowhere."

But, back to offering value. If we do indeed offer value to our readers...does that value instantly become worthless as the opportunity is showcased and known by the public to exploit? Much like Gary B. Smith has found in his original GBS Breakout Method? Or do we hold back some of the vital pieces to the puzzle from our readers much like the following story illustrates...

Bruce did not even show all of his students every way that he himself trained, or present all skills that he himself developed or advocated. Besides the reason of every person having their own "way", there is the following:

This is an excerpt from a letter from James W. DeMile to the editor and staff of Inside Kung Fu, and Hawkins Cheung. The latter who had a series of articles published on Bruce and JKD, to which resulted in the following reply.

"What Sifu Cheung did not feel when he touched hands with Bruce's second- and third-generation students is some key elements that Bruce left out in his later teaching. Bruce made a statement to me that made everything clear as to why he changed certain aspects of his teaching. Jessie Glover, Bruce's first student and probably the best fighter in our group, and I were visiting Bruce when he was teaching a Jun Fan class in a Chinatown basement (Oakland). We noted that Bruce was teaching some things that seemed incomplete. We asked Bruce about this and he said, "Why should I teach someone to beat me?" It was true. Why should he spend all his time developing his personal style and then give it away to someone else who might one day challenge him."

Another example of this phenom is Warren Buffett. So, many investors have tried to emulate his investing style...when in actuality...his investment style is a farce to the general public. How he really generates his billions does not resemble anything close to what he espouses to the investing public.

So, what do we do? Continue to listen and follow the traditional investing arts? Or forge ahead and create our own JKD? Discard anything that does not work in the real world of the market and keep only those things that do. Follow the philosophy of Lee's in response to a question of "What would you do if a skillful wrestler pinned you to the floor? Lee replied, "I'd bite you, of course." May not be pretty...might not fit all the teachings the great masters have given you...but works nonetheless.

Creating our own JKD would mean giving up many of the lessons and teachings that we investors have spent many years learning. Throwing away that 200 day moving average, breakout to new highs, low PE's, overbought, oversold, cut losses short and let your profits run. And only add to your style what works after they are thoroughly tested in the only arena that matters...the true fight...the market.

This would also involve reading media differently. Instead of reading bloggers and the financial media to learn principles and rules to follow...we'd cast a skeptical eye...always looking for the latest weakness to test. Watching and waiting for popular techniques to catch on and giving us opportunities to take the other side. Observing, Testing, and Revising all in the hopes of adding another piece to our arsenal of fighting styles.

That is my quest anyway.

"Empty your mind, be formless. Shapeless, like water. If you put water into a cup, it becomes the cup. You put water into a bottle and it becomes the bottle. You put it in a teapot it becomes the teapot. Now, water can flow or it can crash. Be water my friend." -- Bruce Lee

Later Trades,



Anonymous said...

Wow! a very refreshing & thought provoking article.

Mike Taylor said...

Thank you.