Sun Tzu and Wealth Building
He who is prudent and lies in wait for an enemy who is not, will be victorious. He who knows when he can fight and when he cannot, will be victorious. Invincibility lies in the defense; the possibility of victory in the attack.
These are bunch quotes from Sun Tzu, the ancient Chinese war strategist. Basically, the idea is to stay still and be less aggressive when the conditions are bad, but do take positions to gain and be ready when the time is right. Well, I found the application of this idea when I attended my CFP friend’s seminar last Sunday.
He is a solid guy when it comes to investment strategies because he manages a private fund himself. He showed a very cool comparison between a portfolio with small but steady returns and another one with fluctuating returns with rates ranging from high to negative from time to time. The one with low but steady returns comes out as winner in the long run.
There you go. You have your classic investment strategy to preserve wealth and still manage to grow in an economic down turn. I’ve seen hybrid financial products out there where they guarantee a basic rate of return, which is still higher than your bank accounts, and at the same time they set a upper limit for your gain.
In other words, the company behind that product will take the risk by promising you a nice basic return, even thought the actual return could be lower in the current market condition, but they are betting on a much greater upside profit in future. For investors who have less apatite for speculating in a very uncertain time like we have now, we have a very good strategic position to fall on to.
Let the big guys play their games out there and possibly they will win big eventually. Well they have enough resource to take short-term big risks. For us, we can not afford to let the ball drop, the risk of bad investment will take away our hard-earned principal. From mathematically point of view, such setback will slow down the wealth building momentum.
As Sun Tzu’s advices, now it a time to lie down, take a conservative path and play defense, but still keep your pace by continuing growth. I don’t mean this is the only strategy for our time, but it surely will help to select products along this line of reasoning for your investment portfolios.
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