Key Messages
How To Profit By Not Investing: The Ancient Secrets Of Daoism Applied To Capital Markets
The Dao of Capital is a book that will teach you all the wisdom that having an understanding of Ancient Chinese philosophy can bring to your investing.
You’ll learn how applying the insight of Daoism, which teaches us that opposites bring balance, and withholding investments until the right moment can be more beneficial than directly pursuing profits.
You’ll also get to understand why Robinson Crusoe was a great investor, explore what a marshmallow has to do with unwise and hasty investments, how the market functions like a natural forest, why central banks should allow small market crashes from time to time and how Ancient Chinese wisdom was relevant to 19th century Vienna and is applicable today when it comes to investing wisely.
Austrian Investing: Pursuing Short-Term Loss For Long-Term Gain Inspired By Daoist Philosophy
Austrian investing refers to the application of the teachings and principles of the Chinese philosophies of Daoism to markets, in order to achieve success.
At its core, this philosophy dictates that going through a process of loss can be beneficial and can ultimately lead to gain.
This idea is put into practice through the concept of wei wuwei, which means ‘doing by not doing.’ In warfare, this concept applies by waiting for just the right moment when one’s opponent is vulnerable and turning their own force against them.
This same kind of strategy is echoed in the physical martial arts exercise known as tuishou or ‘push hands’, where two opponents go through a sequence of alternating feints and attacks in order to throw each other off balance.
Similarly, Austrian investing means waiting patiently and exploiting one’s opponent’s urgency or intolerance to small losses as a means for achieving profit.
The key here is patience– an attribute that many investors lack but which can nevertheless be acquired with time and practice!
Investing In The Long-Term Can Lead To Great Short-Term Gains Using The Strategy Of Austrian Investing
Robinson Crusoe and Henry Ford are prime examples of how Austrian investing can lead to success.
In the story of Robinson Crusoe, he had to take a risk by spending time building tools which could be used for efficient fishing – risking his own chance of starvation.
His sacrifice in the beginning was demanding, but far outweighed by the advantages it provided in the long run: with his efficient tools and process, eventually he was able to catch more fish faster than ever before.
The same goes for Henry Ford and his assembly line production process.
He spent a massive amount of money, time and energy implementing this new process – in an area which already showed little promise – yet it paid big dividends down the road; Ford Motor Company could suddenly produce cars for almost everyone at breakneck speeds after this investment.
This just proves that Austrian investing does work!
If you are patient enough and have a good strategy for success outlined, you can achieve your goals even if the short-term losses appear discouraging in comparison.
The Power Of Weiwuwei: How Conifers Teach Us To Persevere And Find Success
The Daoist concepts of indirect paths, competition avoidance and wei wuwei (the concept of doing by not doing) can all be seen in the growth pattern of conifers – one of the oldest tree species on the planet.
They teach us how to take advantage of situations without having to directly compete with other plants.
In a forest system, conifers have to compete with angiosperms, which grow quickly and generally have the advantage.
But conifers are able to overtake them by slowly developing very strong roots and thick bark over time.
Through this process, they eventually become more productive than angiosperms and secure their spot in the forest’s hierarchy.
Conifers also employ an indirect approach when reacting to a wildfire: As other plants scramble for space ruined by fire, these trees are already thriving due to their “seeding by not seeding” approach.
This subtle form of action is an example of wei wuwei in nature.
It is clear that Daoism has its place in nature, especially when it comes to growing and competing in a forest system – lessons that can also be applied in our own lives.
The Sunzi And Vom Kriege: A Comparison Of War Strategies From Ancient China To Nineteenth-Century Prussia
Daoist concepts have long been used in the military strategies of both Ancient China and 19th century Prussia.
For instance, Sunzi’s classic text on war strategy from ancient China emphasizes the concept of shi – a cluster of meanings that represent strategic value and positional advantage.
This concept endorses gaining influence through nonintervention and advancing one’s strategic position – similar to Daoism’s wei wuwei.
According to Sunzi, the best kind of victory is won without fighting at all.
Unlike ancient China; however, 19th century Prussia adopted a different but equally effective approach to war strategy inspired by Daoism.
Through Carl von Clausewitz’s “Vom Kriege”, three main German terms were introduced: Ziel (immediate aims), Mittel (means), and Zweck (ultimate end).
This strategy suggests weakening the opposing enemy using focal points in order to gain a positional advantage – ultimately allowing them to reach their ultimate goal of winning the war without having to fight.
It is evident that Daoist concepts have shaped both ancient Chinese and Prussian military strategies throughout history – something that continues to be influential even today.
The Market Is Elusive And Can Only Be Understood As A Process: Understanding Austrian Investing Through The Dao
The Dao of Capital explains how the market is not static and can only be accurately viewed as an ongoing process.
It’s a series of causes and effects, driven by the unpredictable actions of countless individuals.
Because of this lack of control or predictability, economists cannot rely much on historical patterns.
It’s impossible to conduct experiments on markets or observe the behavior of an individual participant isolated from other participants.
Therefore, it follows that the market can’t be considered empirical either.
Any attempts at predicting market movements using empirical data will always be a bit nebulous, making them unreliable when it comes to understanding what will happen in the future.
The 2008 global financial crisis serves as a clear proof for this fact; its enormity was so unexpected that it took the entire world by surprise.
The Dao teaches us to understand the market more deeply; it’s unpredictable, chaotic nature means we must accept that there are no constants in human behavior like we experience in the natural sciences.
The Natural Balance Of Forests And Markets Should Not Be Disturbed By Human Intervention
The Dao of Capital teaches us that the market is naturally self-correcting, and any external intervention can weaken its internal forces of balance.
Just like a forest is kept in balance by the natural struggle for resources among its inhabitants, so too a market can achieve equilibrium through its normal functionings.
For example, when certain areas of a financial ‘forest’ experience overgrowth of certain plants, they become vulnerable to small ‘fires’.
These fires clear out unnecessary build-up and reset the land to allow other vegetation – such as conifers – to thrive again.
This fire can be seen not just as destruction but also as a natural form of renewal and cleansing which benefits the overall system.
Similar processes occur in markets, where small corrections help free up resources by redistributing capital towards new areas.
Unfortunately this process can be interfered with from outside: if smaller events are suppressed it causes imbalances (such as malinvestment) which tend to be much more difficult and costly to correct than if left along.
Moreover it becomes impossible for new players to enter the game since the larger entities have established their positions within the system.
So next time you think about intervening within a market remember: nature can do it better!
Austrian Investing Is Hard To Follow Because It Challenges Our Human Tendency To Focus On The Immediate
Austrian investing is difficult to implement because it challenges our natural instinct to seek out immediate gratification.
We want things that benefit us now, something that was clearly demonstrated in the famous Marshalllow Test conducted by psychologist Walter Mischel.
In this test, children were given a choice between eating one marshmellow now or waiting 15 minutes and getting two – only a few could resist the temptation for the delayed reward.
Our brains mature as we age but our basic instinct does not go away and can even be amplified by our culture.
The focus on immediate results is everywhere – people are more apt to waste finite resources rather than save them and look into long-term returns.
This is why Austrian investing calls us to go against our natural instincts and instead shift focus on intermediate or indirect results which will eventually bring beneficial outcomes in the future.
The Key To Austrian Investing: Patience And Productive Capital
If you are looking to benefit from Austrian investing, the key is to practice patience and seek out highly productive capital.
To start, you must stay out of the market when distortion is high – caused by central banks printing too much money and leading to artificially low interest rates.
This type of distorted market can lead to serious crashes, so it is better that you wait until distortion passes before investing.
When looking for productive capital, look for firms with a high ratio of reinvested profits that make them more efficient.
Additionally, target firms with low market values – those which may be overlooked by other investors because they grow too slowly are likely to offer greater gains if given time.
Remember that in order to take this indirect route towards power investing you must have patience – waiting for markets and technologies to mature enough for your investments to pay off require dedication and trust in your own strategies.
Wrap Up
The Dao of Capital is a fascinating book that provides investors with an approach to long-term profits and the conceptual ideas behind Austrian investing.
It’s based on ancient Chinese Daoist concepts, which were later developed in the Austrian School of Economics and can also be found in nature.
At its core, this investment approach emphasizes taking a roundabout route that initially involves some losses before setting you up for much bigger gains in the future.
It also encourages avoiding distorted markets because they are highly prone to crashing, leaving investors worse off than before.
Ultimately, The Dao of Capital is an invaluable resource to any investor or financial professional looking to develop their own long-term approach to investing for success.
By following its advice, your wallet can thank you later!
