For anyone who has studied military history, there are many parallels and strategies that one can take from the great generals. After the movie “300″, the Greco-Persian wars entered mainstream consciousness, and we all spent at least one week in the gym trying to become like Gerard Butler.
While we reserve the right to be wrong, we believe that there are many lessons a value investor can learn from the way Leonidas of Sparta took on the world’s first Empire.
Choose your battleground
Leonidas knew that with a small force, he would be unable to take on the might of the Persians on an open field. Thus, he chose to meet them at the Hot Gates, a small mountain pass that was just 12 metres wide, forcing the enemy into 1-on-1 combat.
As a value investor, trying to take on the market in the short term is futile. That is why we choose our battleground of the medium- to long-term. In the short term, where a price goes or reacts is anyone’s guess, but over a longer period of time (five-seven years), as long as the thesis plays out, it is harder for the market to deny value.
“In the short run, the market is a voting machine, but in the long run, it is a weighing machine.”
Or, to put it another way, “day trading—holding stocks for a few hours at a time—is one of the best weapons ever invented for committing financial suicide.” – Both by Ben Graham.
Be dedicated to your profession
Upon seeing his 300 men, the Athenians questioned Leonidas’ small force and dedication to the defence of Greece. Leonidas then asked the Athenians, “What is your profession?” “Potter… blacksmith… sculptor.” He turned to the Spartans with the same question, receiving a battle cry. “See, I brought more soldiers than you,” remarked Leonidas.
I wouldn’t want my tax accountant drilling my teeth nor my lawyer fixing my car (especially on their charge-out rates), but why do many people from other professions—consultants, businessmen, engineers—even if they are great in their field, rely on their own “instinct,” WhatsApp tips, and a brief analysis of a broker report to then invest sizeable amounts of money? It is because the market seems relatively easy for everyone to invest in; there is an element of gamification, and when things look good, the market calls out to them like a siren with the promise of easy returns, interesting stories, and the promise of glories.
But how can one expect to consistently outperform the market when there are teams of full-time managers and analysts also competing for that Alpha. Thus, it is probably better to look for the right dedicated manager than to Do-It-Yourself.
Even full-time dedication doesn’t always work, as it is well documented that a lot of managers do not outperform the market (at least in the US).
And of course, Warren Buffett won his famous USD 1 million bet that the S&P 500 would beat a portfolio of hand-picked hedge funds.
Manage one’s downside
Knowing that the odds of survival were limited, Leonidas chose his 300 men based on the fact that they all had at least one son to carry on the family bloodline. As with the case of investing, there are many ways of ensuring that one limits one’s downside, including ensuring that one is appropriately diversified, not taking leverage, taking money off the table, de-risking one’s positions, and even picking stocks with asymmetric risk and returns, etc.
Don’t look for ‘signs’ to be the reason to invest
Both the Greek and Persian sides looked to the Gods for guidance and signs that they would be the victors. Today we may have the Oracle of Omaha, but back then it was the Oracle of Delphi. When initially consulted by the Spartans, they received – “The strength of bulls or lions cannot stop the foe. No, he will not leave off, I say, until he tears the city or the king limb from limb.”
It doesn’t sound too rosy, and as always with big money, it was suspected that the Oracle had been paid off by the Persians to demoralise the Greek side. On pushing the Oracle again, the Spartans were told that in order for the city to live, a king must die. Again, while not sounding much more exciting, it at least gave Leonidas the ability to continue with his plan, as he knew that the Greeks were not ready and his stand would at least slow the enemy down, giving the country time.
While it is sometimes useful to look at charts, completely depending on them and the various price patterns that they form, it is unlikely to create Alpha. Much like the prophecies from the Oracle, they are open to interpretation, and without understanding the fundamentals of a company, how can one build conviction.
Be an optimist
Let’s face it, given that the Persians had come with a force of over 300,000 men, the odds weren’t looking so good. When told that the enemy would fire so many arrows into the sky that they would blot out the sun, the Spartans replied, “Good, then we shall fight in the shade.”
The market is as violent as the battlefield – and by violent, I mean volatile. If we look at India’s BSE 500 from 2003 to 2023, the average return was 13.7%. But how many times did the annual return range between 10% and 15%? The answer is zero. Investors have had to sit through the negative returns of minus 58% (the crash of 2008) and minus 27% and upswings as high as 90% (the bounceback of 2009) and 63%.
When there is a financial crisis, geopolitics, COVID, or any negative event, the investor’s light is blotted out by fear, painful red drawdowns, and constant headlines reminding us that we are facing a depression, or even worse, another great depression. But it is in these moments that we need to remind ourselves that while both markets and history don’t repeat, they do rhyme, and that there are both economic bear and bull cycles, both of which do not last forever.
If Leonidas had been born today, he may not have had the chance to be a great king, but he could’ve been a great investor.
The views expressed are the authors own. Please consult your financial advisor before making any investment decisions.
