Sun Tzu's Art of War Ch. 5: Use of Energy in the Stock Market
阅读中文版 (with Audio)Momentum, energy, and combining standard beta with creative alpha.
Sun Tzu's Art of War Chapter 5: Use of Energy
"In all fighting, the direct method may be used for joining battle, but indirect methods will be needed in order to secure victory." — Sun Tzu
The Military Context
Chapter 5 introduces the concept of Momentum (势) and the combination of the Direct (正) and Indirect (奇) forces. Sun Tzu compares momentum to a round boulder rolling down a steep mountain—its energy is unstoppable. He advises commanders to use "direct" conventional forces to engage the enemy, and "indirect" creative forces to deliver the decisive blow.
The Wall Street Translation
In finance, "momentum" is a powerful, quantifiable anomaly. When a stock begins moving rapidly with institutional backing, it is like a boulder rolling down a mountain; do not stand in front of it. The "Direct" force is your Beta—your core portfolio of index funds that engages the market. The "Indirect" force is your Alpha—your satellite portfolio of asymmetric bets (options, momentum breakouts) that generates outsized returns.
Actionable Trading Rules
- Core and Satellite (Zheng and Qi): Keep 70-80% of your portfolio in broad, stable index funds (Direct), and use 20-30% for high-upside, creative trades (Indirect).
- Ride the Momentum: Do not short stocks that are breaking out to all-time highs. Ride the boulder down the mountain.
- Find the Setup, Let Momentum Do the Work: Do not exhaust yourself micromanaging a trade. Find a powerful macroeconomic trend and let its natural energy push your P&L higher.