The Martial Artist's Guide to Investing

The Martial Artist's Guide to Investing by Vincent Cooper

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Becoming involved in martial arts is the best thing I have done in my life.

Learning how to invest is the second best thing I have ever done in my life.

While there is a direct correlation between my childhood experiences of watching TV shows like Monkey (Journey to the West), The Water Margin and, later, Kung Fu and Shogu, my path to successful investing has been somewhat more circuitous.

Basically I had zero interest in learning how to make money work for me throughout my childhood...and my teens...and my twenties...

In my early thirties however I was faced with one immediate problem and a second one wasn't far behind.

My immediate problem was that I was working for a very large language school in Japan (the largest in Asia in fact at that time) and held a fairly senior position. (By the time I quit the area that I was educational director for comprised of more than 60 schools throughout Kyushu and Okinawa, several hundred instructors and thousands and thousands of students). In this position I was required to complete individual projects that were fairly large in scope. I found out that my boss had been presenting work - these individual projects that I was completing - to his seniors as being his own.

Needless to say I was more than a little irked by this.

The problem I had though was that I was, to a large extent, financially trapped. There was nothing preventing me from quitting per se, but I was by then very well paid, I had a great schedule with lots of variation in it, my main branch was 5 minutes walk from my home and I had 28 paid holidays a year. There was simply nothing better available for me to walk into and so I decided to stick it out. I did however decide to make plans for quitting at some point.

Shortly after this a second problem arose - though this one a very good 'problem'. My wife became pregnant. At the time we had individual medical coverage that didn't include things like childbirth. In Japan there is a social insurance program that you can join through your company that includes full medical coverage as well as unemployment benefits and a state pension. Your company pays half of the fee and so I decided to join this (thereby also cementing my ties with a company - or rather a boss - that I didn't really want to work for).

As part of my monthly contribution was now going into a pension fund I decided that I should take things a little more seriously in that department and did some research.

What I found wasn't encouraging.

Japan was then (and still is I believe) the only first world nation that not only has an ageing population, but in fact has a shrinking population.

That's right. More people die in Japan every year than are replaced through childbirth or immigration.

The government then (and now) had no coherent policy to deal with the problem and it became obvious to me that the only way the issue could possibly be resolved would be to increase the retirement age. This is happening now in Japan as well as in other first world nations.

So in short I was working with a boss I didn't want to work with (let alone under) with no prospect of any change for what could turn out to be a very long time if the retirement age was in fact raised.

Not too good a situation to be in.

What was more annoying is that I didn't feel I had done anything wrong. I had done everything I was supposed to do. I was educated, worked hard, received good pay increases, was granted promotions...and yet things weren't looking too bright for me.

Enter Robert Kiyosaki.

At this time Robert Kiyosaki's Rich Dad Poor Dad series of books were international bestsellers. So much so that even in the limited space available in Japanese book stores for English language books his tomes were heavily promoted.

Given how clearly commercial they were, I obviously didn't read any of them.

It wasn't quite as simple as that in fact. What put me off is that several of my friends and co-workers had read Rich Dad Poor Dad and were strutting around talking about how easy it was to make money and about how they would be retired in the next few years and so on. Bearing in mind that these people were English conversation instructors with no financial background whatsoever the situation struck me as ridiculous.

Yet every time I went into the bookstore, there it was: Rich Dad Poor Dad.

Then one day something caught my eye. Next to Rich Dad Poor Dad was another book written by Robert Kiyosaki: If You Want to be Rich and Happy Don't go to School. It turned out that this was his first book, published before Rich Dad Poor Dad.

As a teacher who often taught younger Japanese students who were studying English as a means to get out of Japan and find their own happiness...and as something of a career rebel myself...I was intrigued by the title. I read a few pages and was instantly hooked. I paid a ridiculous amount of money for it (it being imported) and devoured the book in hours. It remains to this day one of the most thought provoking books I have ever read.

Needless to say I went back to the store the next week and bought Rich Dad Poor Dad which I found to be equally stimulating.

What I discovered, among other things, is that my friends had missed out a crucial message that Kiyosaki gives: spend time developing your financial literacy. Or, take time to educate yourself in financial matters.

I took this to heart and was soon busy reading as much as I could on people like Warren Buffett (I didn't even know who he was except through Kiyosaki) and Peter Lynch.

As enjoyable as all this was, I was also stumped. Throughout my life martial arts had always answered whatever I had asked. Now, for the first time, I was facing a problem that my training had no apparent answer for. I was happy to treat training and investing as two separate disciplines, but always at the back of my mind I found it somewhat odd that here, for the first time, there appeared to be a gap in the application and usefulness of martial arts.

Then Robert Kiyosaki talked about leverage.

Leverage is the ability to generate a disproportionate effect. It means you get more out than you put in.

A simple example of this relating to the generation of wealth is a standard savings account. You put in your money and in return the bank pays you interest thereby allowing you to ultimately withdraw more than you put in.

Another example is a simple strategy named The Dogs of the Dow. This is riskier than putting your money in a bank but despite a terrible 2008 the strategy has averaged a 17.7% annual return since 1973 (September 2010). Again, you are getting out more than you put in.

Kiyosaki talks about using leverage to acquire assets, principally homes to either rent out or sell for a profit. Back in 2000 when Rich Dad Poor Dad was first published this arguably made sense (but not now). The principal he is demonstrating nevertheless remains valid: leverage your money for maximum effect.

This intrigued me because another word for leverage is efficiency.

And efficiency is exactly what martial arts are all about.

In martial arts we learn to use our bodies efficiently. With practice we are able to produce greater results with less and less effort. At a conceptual level this is what Kiyosaki (among others) is promoting: The efficient use of the resources available to us.

Once I recognized that there was in fact a link between martial arts and investing I began to look for more examples.

I quickly realized that timing was also important. As I said, Rich Dad Poor Dad was first published in 2000 and if you had read it and entered the property market at that time you could have potentially made a great deal of money as property prices rose throughout the 2000s. If, on the other hand, you bought property in the summer of 2007 then you would have been looking most likely at a significant loss.

Timing.

We know from martial arts that a perfect technique delivered with poor timing will not get the job done, while a substandard but adequate technique delivered at the correct time can end the fight immediately.

Timing.

Here are a few other points to consider that link martial arts to investing on a conceptual level.

Be prepared. We train hard so that if a fight comes or we need to use our skills in some other way we are prepared. Investing requires the same commitment and dedication. You can't simply turn up at the market (stock, Forex, property or whatever) and expect to make money. You need to be prepared.

Meet yin with yang; yang with yin. Or, meet hard with soft; soft with hard. In investing terms this is referred to as the contrarian approach and is used by no less a person than Warren Buffett. His advice is 'When the market is cautious, be fearless; when the market is fearless be cautious.'

Ichi go, ichi e. Okay, so this is taken from the tea ceremony (One meeting, one chance) but a similar sentiment is found in the phrase ikken hissatsu (To kill with one blow). You need to concentrate and get things right the first time. Don't go into the market with a less-than-serious attitude.

Don't overexpose yourself. In order to get yourself into a position to be able to deal damage in a fight you need to expose yourself to being damaged. In the market, to make money you need to take on risk. But just as you would keep your guard up when bridging the gap with an opponent, you need to also make sure you are well guarded when investing. Don't take any stupid risks and don't go all in leaving yourself open to financial ruin.

Understanding investing and trading from this perspective I made my first trade. It was a simple affair of buying Euros with Yen, taking advantage of a short term dip in price. I paid a ridiculous amount in commission charges as I did the trade directly through my bank. However, a few weeks later, once the market had corrected itself, I sold my Euros and walked away with a small profit. Nothing great, just about the equivalent of what was then a days pay. But I had proven to myself that my approach was sound. Soon after I entered the stock market - that was about five years ago now - and have been making enough money since then that I was able to quit my job and forget about my boss. I'm no financial genius and I'm not expecting a call to manage a multi-billion dollar Wall Street hedge fund anytime soon, but I am able to make good money, don't have to work and when I do reach the official retirement age rather than see a decline in my income I will be able to keep on generating wealth for another 20 odd years before I die.

Now to be fair, Robert Kiyosaki is now without his critics and I do NOT recommend that you simply read Rich Dad Poor Dad and, like my friends, come away from it thinking you know everything there is to know about money. But I do encourage you to read it if you have no background in personal finance and I definitely think it would be a good move for you to start working on developing your financial literacy. Below is a list of books that are gentle, easy-to-read introductions and here is a link to a series of articles from Investing Blog on investing that are provided for readers of Martial Arts Insight.

Right now the financial markets are not in good shape (September 2010) but if you start working on developing your financial literacy now you will be in an excellent position to make money once the problems are solved and the markets recover.

Recommended Book List

Rich Dad Poor Dad

The Richest Man in Babylon

Buffett: The Making of an American Capitalist

The Snowball: Warren Buffett and the Business of Life

The Warren Buffett Way, Second Edition

Learn to Earn: A Beginner's Guide to the Basics of Investing and Business

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