太极生两仪，两仪生四象 : The Tao Of Investing
|image credit to livejapan.com|
This great blog post “ The 4 Seasons (click) “ from my friend and fellow blogger ( BULLy the BEAR ) inspired me to write something about market cycles. In his blog post, he tries to define the market in 4 seasons base on TA chart and interestingly highlighted that “ it can be a complicated year with more than 4 seasons. Blame it on climate change lol! We see winter-spring-summer-autumn then followed by a complex winter-spring-winter-spring and finally summer season. “ 😃
In ancient Chinese thought, two polar opposites known as “Yin and Yang “ (阴阳) are deemed to set the limits for change in the world. This traditional approach, known as the Tao or "Way or Path", holds that a wide range of cyclical changes observed in human existence result from the dynamic interplay between contrasting pairs of symbolic polar elements.
Well, how can we apply this so-called “ Yin – Yang “ in today’s market ？
Yin-Yang (阴阳) can be defined as positive or negative market returns and the 四象 ( Four seasons ) as market are moving in cycles.
|image credit to amarginofsafety.com|
Further reading: Definition of “ Tao “ from Wikipedia
Tao or Dao (English pronunciation: /daʊ/, DOW; from Chinese: 道; pinyin: Dào (help·info)) is a Chinese word signifying 'way', 'path', 'route', 'road', 'choose', 'key' or sometimes more loosely 'doctrine' or 'principle'.
Within the context of traditional Chinese philosophy and religion, the Tao is the intuitive knowing of "life" that cannot be grasped full-heartedly as just a concept but is known nonetheless through the actual living experience of one's everyday being.
The Tao reverses the typical [cultural] order of values: it emphasizes the weak over the strong, the feminine over the masculine, the water that wears down the rock, the space between things rather than the things themselves.
Laozi in the Tao Te Ching explains that the Tao is not a 'name' for a 'thing' but the underlying natural order of the Universe whose ultimate essence is difficult to circumscribe due to it being non-conceptual yet evident' in one's being of aliveness.
The Tao is "eternally nameless" (Tao Te Ching-32. Laozi) and to be distinguished from the countless 'named' things which are considered to be its manifestations, the reality of life before its descriptions of it.
You may read the full description ( here ).
In Chapter 7 of this book “ The Dao of Capital: Australian Investing in a Distorted World “ , written by Mark Spitznagel , the author clearly illustrate the failure of “mainstream economics” which emphasize the “rationality “ and “ equilibrium “ of market force and also very much “ physics centric “ base on empirical evidence and quantitative modelling has plunged the world back into years of the repeated global financial crisis and “Great Depression”.
Investors would do well to incorporate a little eastern philosophy and adopt a ‘Tao of Investing’ by understanding that market move in cycles and swing from positive to negative territory, quite often.
We knew that market cycles are impossible to predict. Their price movements are essentially random. But, we also know that markets will neither continue up indefinitely nor fall to zero. In the past, they have always “reverted to the mean.” ( which I have blogged about it here, here )
One should avoid “panic selling “ during harsh wintertime and adjusting our portfolio allocation between “Equity: Cash/Bond “ ratio during different seasons. We should also keep some “war chest “ during a good time in order to take advantage of market irrationality from time to time. Also, I don't think is wise to hold 100% in cash and waiting for the market to crash as we really don't know when the crash will happen.
I will try to increase my cash/bond position when seeing market moving above +1SD , but as I explained in my previous blog post , even we are not seeing a bubble in STI as of now ( which is just slightly above the long term mean level ), but remember when "The US Sneezes, the World catches a cold." ,
STI was down by -43.5 points (1.31%) at the time of writing due to geopolitical tensions between the US and North Korea, will the market continue to drop and jitters by this unexpected incident? Yet to see ...
Lastly, what do you think about the stage of the market cycle of STI index now ? are we in Spring or approaching Winter season soon? Will this geopolitical tensions turn ugly and force market towards winter season?
Quote Of The Day :
“The desire to get rich fast is pretty dangerous.” Except from the book “ Tao of Charlie Munger”