THE WAY OF THE SAMURAI
“What is the way of the samurai?”
Those Japanese warriors of old would answer this question in one word –
“Death.”
We begin by looking at two of the foremost writers of the samurai and bushido traditions – Miyamoto Musashi, one of the greatest swordsmen of the high-point era of Japanese swordsmanship, and Yamamoto Tsunetomo, whose Hagakure
is one of the definitive works on bushido.
“It is said the warrior's is the twofold Way of pen and sword, and he should have a taste for both Ways. Even if a man has no natural ability he can be a warrior by sticking assiduously to both divisions of the Way. Generally speaking, the Way of the warrior is resolute acceptance of death.”
-- Miyamoto Musashi,
The Book of Five Rings
, 1645
“The Way of the Samurai is found in death. When it comes to either/or, there is only the quick choice of death. It is not particularly difficult. Be determined and advance. To say that dying without reaching one’s aim is to die a dog’s death is the frivolous way of sophisticates. When pressed with the choice of life or death, it is not necessary to gain one’s aim.
“We all want to live. And in large part we make our logic according to what we like. But not having attained our aim and continuing to live is cowardice.
This is a thin dangerous line.
To die without gaming one’s aim is a dog’s death and fanaticism. But there is no shame in this. This is the substance of the Way of the Samurai. If by setting one’s heart right every morning and evening, one is able to live as though his body were already dead, he gains freedom in the Way. His whole life will be without blame, and he will succeed in his calling.”
-- Yamamoto Tsunetomo,
The Hagakure
, 1709-1716
So – we are on interesting ground. Do note the sentence I bolded – “a thin dangerous line” – but we see broad agreement on choosing death
and not life
as the way of the samurai. Carrying on…
“The primary thing when you take a sword in your hands is your intention to cut the enemy, whatever the means. Whenever you parry, hit, spring, strike or touch the enemy's cutting sword, you must cut the enemy in the same movement. It is essential to attain this. If you think only of hitting, springing, striking or touching the enemy, you will not be able actually to cut him. More than anything, you must be thinking of carrying your movement through to cutting him. You must thoroughly research this.”
-- Musashi
“People think that they can clear up profound matters if they consider them deeply, but they exercise perverse thoughts and come to no good because they do their reflecting with only self-interest at the center.
“It is difficult for a fool’s habits to change to selflessness. In confronting a matter, however, if at first you leave it alone, fix the four vows in your heart, exclude self-interest, and make an effort, you will not go far from your mark.
“Because we do most things relying only on our own sagacity we become self-interested and turn our backs on reason, and things do not turn out well. As seen by other people this is sordid, weak, narrow and inefficient. When one is not capable of true intelligence, it is good to consult with someone of good sense. An advisor will fulfill the Way when he makes a decision by selfless and frank intelligence because he is not personally involved.”
-- Tsunetomo
“Study strategy over the years and achieve the spirit of the warrior. Today is victory over yourself of yesterday; tomorrow is your victory over lesser men. Next, in order to beat more skillful men, train according to this book, not allowing your heart to be swayed along a side-track. Even if you kill an enemy, if it is not based on what you have learned it is not the true Way.”
-- Musashi
“Calculating people are contemptible. The reason for this is that calculation deals with loss and gain, and the loss and gain mind never stops. Death is considered loss and life is considered gain. Thus, death is something that such a person does not care for, and he is contemptible.”
-- Tsunetomo
… and then we seem to see a mix of contradictions – there is a view towards hyper-action and not thinking
, but also strong advice to train constantly
, use strategy
, and consult with people who are wise
… and then, Yamamoto Tsunetomo seems to walk it all back and say “Calculating people are contemptible.”
Hmm. This is, at least, interesting.
***
THE LEAST USEFUL INFORMATION YOU CAN TRACK
Well, let’s step back from the samurai code for a moment, set aside those epic life-and-death struggles with the sword and bow, and check in on one of the greatest investors of the 20th century.
“With survival at stake, it’s the rare professional who has the guts to traffic in an unknown La Quinta.
In fact, between the chance of making an unusually large profit on an unknown company and the assurance of losing only a small amount on an established company, the normal mutual-fund manager, pension-fund manager, or corporate-portfolio manager would jump at the latter.
Success is one thing, but it’s more important not to look bad if you fail. There’s an unwritten rule on Wall Street: “You’ll never lose your job losing your client’s money in IBM.”
“If IBM goes bad and you bought it, the clients and the bosses will ask: “What’s wrong with that damn IBM lately?” But if La Quinta Motor Inns goes bad, they’ll ask: “What’s wrong with you?” That’s why security-conscious portfolio managers don’t buy La Quinta Motor Inns when two analysts cover the stock and it sells for $3 a share. They don’t buy Wal-Mart when the stock sells for $4, and it’s a dinky store in a dinky little town in Arkansas, but soon to expand. They buy Wal-Mart when there’s an outlet in every large population center in America, fifty analysts follow the company, and the chairman of Wal-Mart is featured in People magazine as the eccentric billionaire who drives a pickup truck to work. By then the stock sells for $40.”
-- Peter Lynch,
One Up on Wall Street
, 1990
***
LIMIT BREAKS, FINALE: CUTTING
You might think, on first blush, that there is very little relationship between the samurai – who eschewed money and commerce nearly entirely in a caste-based society ruled by fierce warriors – and a twentieth century mutual fund manager in Boston, who got his original start at Fidelity Investments when he caddied for a Fidelity boss on the golf course.
And that would be reasonable.
But perhaps mistaken.
Peter Lynch became one of the most successful investors of all time. He returned 29.2% annual financial returns at the Fidelity Magellan Fund from 1977-1990, which is really an unheard-of track record.
If you invested your money with Lynch, he doubled it every 2.5 years. Consistently. For 23 years.
His fund started as small and obscure with $14 million under management – a modest amount for a mutual fund – and he ended with $14 billion under management, growing his own net worth north of $300 million in the process.
And you know, there’s obvious differences between an investor like Lynch and a samurai like Musashi – it’s almost so obvious we don’t need to say it – but I dare say, they have far more similarities than differences in the way they think
than not.
We close our investigation of Limit Breaks
with the questions we started with –
What are the limits facing us on making a terrific life? How do we break through those limits?
So welcome to our finale on Limit Breaks
, the tenth chapter of this series:
Cutting.
***
CUTTING
Let’s repeat Musashi’s quote again –
“
The primary thing when you take a sword in your hands is your intention to cut the enemy, whatever the means. Whenever you parry, hit, spring, strike or touch the enemy's cutting sword, you must cut the enemy in the same movement. It is essential to attain this.
If you think only of hitting, springing, striking or touching the enemy, you will not be able actually to cut him. More than anything, you must be thinking of carrying your movement through to cutting him. You must thoroughly research this.”
We need not be obscure or dance around the point: all of the preparations, and work, and understanding we’ve built in this series, will be worth nothing if not applied towards what actually matters.
***
BEFORE YOU THINK ABOUT BUYING STOCKS
Lynch –
“Before you think about buying stocks, you ought to have made some basic decisions about the market, about how much you trust corporate America, about whether you need to invest in stocks and what you expect to get out of them, about whether you are a short-or long-term investor, and about how you will react to sudden, unexpected, and severe drops in price. It’s best to define your objectives and clarify your attitudes (do I really think stocks are riskier than bonds?) beforehand, because if you are undecided and lack conviction, then you are a potential market victim, who abandons all hope and reason at the worst moment and sells out at a loss. It is personal preparation, as much as knowledge and research, that distinguishes the successful stockpicker from the chronic loser. Ultimately it is not the stock market nor even the companies themselves that determine an investor’s fate. It is the investor.”
Tsunetomo –
“If by setting one’s heart right every morning and evening, one is able to live as though his body were already dead, he gains freedom in the Way. His whole life will be without blame, and he will succeed in his calling.”
It you told me that the average modern American investor had nothing in common with the average Tokugawa-era samurai, I would agree with you.
But again, I contend that the most successful samurai
and that the most successful investors
are very much cut of the same cloth.
You see in the best investors – Lynch, Munger, Dalio, etc – a strong philosophical streak
, a genuine curiosity and investigation into how the whole works.
But first and before that, they study themselves
. Half-measures on the battlefield are fatal to the warrior; half-measures in investing lead to nearly guaranteed losses.
Lynch: “It is personal preparation, as much as knowledge and research, that distinguishes the successful stockpicker from the chronic loser.”
Musashi: “Do not, under any circumstances, depend on a partial feeling.”
***
INVESTING AS CUTTING
Lynch, from chapter “Earnings, Earnings, Earnings” –
“Let’s say you noticed Sensormatic, the company that invented the clever tag and buzzer system for foiling shoplifters, and whose stock rose from $2 to $42 as the business expanded between 1979 and 1983. Your broker tells you it’s a small company and a fast grower. Or perhaps you’ve reviewed your portfolio and you’ve found two stalwarts and three cyclicals. What possible assurance do you have that Sensormatic, or any of the stocks you own already, will go up in price? And if you’re buying, how much should you pay?
“
What you’re asking here is what makes a company valuable, and why it will be more valuable tomorrow than it is today. There are many theories, but to me, it always comes down to earnings and assets. Especially earnings. Sometimes it takes years for the stock price to catch up to a company’s value, and the down periods last so long that investors begin to doubt that will ever happen. But value always wins out—or at least in enough cases that it’s worthwhile to believe it.
“Analyzing a company’s stock on the basis of earnings and assets is no different from analyzing a local laundromat, drugstore, or apartment building that you might want to buy. Although it’s easy to forget sometimes, a share of stock is not a lottery ticket. It’s part ownership of a business.”
That, in a nutshell, is cutting
for Lynch.
He looks for businesses that can be invested in cheaply who have good earnings but are unpopular, or have a great product and the potential for good growth in earnings.
One Up On Wall Street
is a great read – my second favorite book on finance, and highly recommended for just getting smarted in general, even if you never plan to invest in stocks at all.
What cutting
is for Lynch is buying a business (1) with a good product, and (2) good or growing earnings, at (3) a good price.
And that’s it. He ignores nearly everything else. Here’s him slagging on the late-90’s dot-com boom –
“Owing to the lack of earnings in dot.com land, most dot.coms can’t be rated using the standard price/earnings yardstick. In other words, there’s no “e” in the all-important “p/e” ratio. Without a “p/e” ratio to track, investors focus on the one bit of data that shows up everywhere: the stock price!
To my mind, the stock price is the least useful information you can track, and it’s the most widely tracked.
When One Up was written in 1989, a lone ticker tape ran across the bottom of the Financial News Network. Today you can find a ticker tape on a variety of channels, while others display little boxes that showcase the Dow, the S&P 500, and so forth. Channel surfers can’t avoid knowing where the market closed. On the popular Internet portals, you can click on your customized portfolio and get the latest gyrations for every holding. Or you can get stock prices on 800 lines, pagers, and voice mail.
“To me, this barrage of price tags sends the wrong message. If my favorite Internet company sells for $30 a share, and yours sells for $10, then people who focus on price would say that mine is the superior company. This is a dangerous delusion. What Mr. Market pays for a stock today or next week doesn’t tell you which company has the best chance to succeed two to three years down the information superhighway.
If you can follow only one bit of data, follow the earnings
—assuming the company in question has earnings. As you’ll see in this text, I subscribe to the crusty notion that sooner or later earnings make or break an investment in equities.
What the stock price does today, tomorrow, or next week is only a distraction.
”
***
CUTTING AS CUTTING
The final testament of Miyamoto Musashi is my favorite short document of all time. His
Dokkodo
– “the Way of Walking Alone” – is just 21 sentences, of immense wisdom.
It begins,
1. Accept everything just the way it is.
2. Do not seek pleasure for its own sake.
3. Do not, under any circumstances, depend on a partial feeling.
And his forth precept is my favorite quote of all time –
4. Think lightly of yourself and deeply of the world.
The old man who wrote that final testament on his deathbed traveled a long way to get there – Musashi was undefeated in 60 duels, most of them to the death. In an era filled with master warriors and intense battlefields. He developed a radical style for the day of using two swords at the same time, but he wasn’t married to any style.
“The primary thing when you take a sword in your hands is your intention to cut the enemy, whatever the means.”
In Musashi’s most famous duel with Sasaki Kojiro, his opponent was armed with one of the largest Japanese swords – a nodachi
, which is about 50% longer and around double the heaviness of a katana. Instead of facing Kojiro with his normal weaponry, Musashi carved a wooden sword out of the oar of a boat, a weapon slightly longer but much lighter than Kojiro’s greatsword – and he cracked his head open with it in the opening movements of the duel.
We might call Musashi a radical pragmatist
– form, ceremony, weaponry, flourish – none of this meant anything to him; winning
meant everything to him. In everything he did, it was about cutting the enemy.
***
CUTTING AS THE
LIMIT BREAK
There are 10,000 things we might all do – if not infinite.
Just a few of those things are the most important to your life.
Cutting.
What determines success where you’re at?
This, of course, varies tremendously.
Apple’s renaissance over the last 15 years was about an obsession with perfection and aesthetics. Walmart’s rise was in radically low costs, incredibly fast inventory turnover, and the best logistics. Toyota’s comes from relentlessly eliminating waste, down to the smallest details of a workman having to bend over to pick up a wrench. (They see any human movement to rearrange one’s tools or materials as waste, and constantly redesign their factories to eliminate all wasteful movements.)
The architect Frank Lloyd Wright was unreliable, but often enough he created a brilliant synthesis between structure and environment that people put up with his unreliability.
Pixar’s success in movies and Blizzard’s success in video games comes from a radical perfectionism, never putting out a single bad product in multi-decade runs.
The mathematician Paul Erdos worked on as many mathematical problems, with as many contributors as possible, concurrently – and sacrificed everything in his life that wasn’t related to mathematics.
The physicist Richard Feynman was the opposite – he constantly cultivated socializing, curiosity, and many of his breakthroughs came from playing around with random inputs and little puzzles in physics.
And of course, Lynch focused relentlessly on companies with a good product, good earnings, and at a good price.
What’s cutting
for you? What makes the difference that, if you do it extraordinarily well and focus on that, means winning every battle?
You don’t have a run as the highest returning mutual fund manager for 23 years in a row by accident.
You don’t go undefeated in 60 duels-to-the-death by accident.
Those who succeed, figure out what cutting is, and cut the enemy.
What’s cutting?
***
ON COURAGE AND PRECOMMITMENT, OR: CUTTING IS HARD
“When the time comes, there is no moment for reasoning. And if you have not done your inquiring beforehand, there is most often shame.”
-- Tsunetomo
"Prior to World War II it had always been assumed that the average soldier would kill in combat simply because his country and his leaders had told him to do so and because it was essential to defend his own life and the lives of his friends. When the point came that he didn't kill, it was assumed that he panicked and ran.
“[General S.L.A. Marshall's studies] were consistently the same: only 15 to 20 percent of the American riflemen in combat during World War II would fire at the enemy. Those who would not fire did not run and hide (in many cases they were willing to risk great danger to rescue comrades, get ammunition, or run messages), but they simply would not fire their weapons at the enemy, even when faced with repeated waves of banzai charges.”
-- Lt. Colonel Dave Grossman,
On Killing
, 1996
Grossman’s book, On Killing
, is one of those that changed the way I saw all of humanity – permanently.
It’s a trope in modern slasher/horror movies that anyone pushed far enough could become a killer. You see that in the dreadful torture-franchise Saw
, where random people are made to kill each other in order to survive by some insane diabolical criminal.
But it’s wrong.
Most people aren’t killers.
Of course, that’s a good thing.
But I’ve recommended On Killing
to dozens of people, and talked about it some with the few people that read it. (It’s not always an easy read.)
The samurai era of Japan feels like a very long time ago; it’s not alive
the way current days affairs and tragedies are alive. All of the combatants are dead and gone; their descendants only have a foggy familiarity at best with their ancestors.
But there is no doubt, when Musashi cracked Sasaki Kojiri in the head, a man of flesh and blood fell to the ground with his skull fractured into pieces and embedded in his brain; the lights then went off for him, forever. Anything he wished to do in his life, that wasn’t done, now never would be.
And of course, the majority of readers flinch at that paragraph – I flinched while writing it.
I hesitate to generalize too far, but I think that many of us have the same resistance to cutting as a metaphor
as we would to cutting an enemy
, or firing a rifle in combat at a charging Imperial Japanese infantryman.
I think it’s telling, a little bit telling, that we often describe people who are very effective at business as killers
. You see someone that closes lots of business deals and you say, “Yeah, he’s a killer.”
It’s very easy to intellectually say, “Oh, yes, cutting
. Yes, pick the most important thing and drive at that.
”
But it’s actually hard to do. In that way, then, you see some of the seeming contradiction between Musashi and Tsunetomo writing about strategy and preparation, and then fully disregarding one’s life when entering combat.
Tsunetomo –
“
When the time comes, there is no moment for reasoning.
And if you have not done your inquiring beforehand, there is most often shame.”
***
AND SOCIETAL APPEARANCES, OR: LOOKING GOOD VS BEING RIGHT
Tsunetomo –
“Calculating people are contemptible. The reason for this is that calculation deals with loss and gain, and the loss and gain mind never stops. Death is considered loss and life is considered gain. Thus, death is something that such a person does not care for, and he is contemptible.”
Lynch –
“With every spectacular stock I’ve managed to ferret out, the virtues seemed so obvious that if 100 professionals had been free to add it to their portfolios, I’m convinced that 99 would have done so. But for reasons I’m about to describe, they couldn’t. There are simply too many obstacles between them and the tenbaggers.
“Under the current system, a stock isn’t truly attractive until a number of large institutions have recognized its suitability and an equal number of respected Wall Street analysts (the researchers who track the various industries and companies) have put it on the recommended list. With so many people waiting for others to make the first move, it’s amazing that anything gets bought.”
And to wrap up, one of the last lessons that’s very explicit from Lynch, and hiding in plain sight in the samurai writings, is how attempting to appear good
rather than be right
is at least detrimental, if not fatal.
I’ll just recommend reading Lynch’s book, but he lists many reasons why institutional investors are unable to make good investments – not least among them, the point that “You’ll never lose your job losing your client’s money in IBM.”
There’s a variety of societal reasons
why we can’t be on the forefront of doing what we need to do to flourish. Some of them are good, but most of them frankly aren’t.
Actually, the next paragraph of Tsunetomo’s is worthwhile to look at as well –
“Calculating people are contemptible. The reason for this is that calculation deals with loss and pain, and the loss and gain mind never stops. Death is considered loss and life is considered gain. Thus, death is something that such a person does not care for, and he is contemptible.
“
Furthermore, scholars and their like are men who with wit and speech hide their own true cowardice and greed.
People often misjudge this.”
Now, this is not Tsunetomo being anti-intellectual – he has immense regard for Confucious and genuine sages – but rather, he is chastising the same people that Lynch would, three centuries later.
Most investors want to justify their own errors to keep this jobs, rather than take smart risks. They’d rather look good
than be right
.
This is probably as natural an even more natural fear in humans – being different and especially being ostracized for being different – than even violence is.
Lynch’s methods weren’t exactly rocket science – he looked for good products at good companies, at a good price. But this meant investing in upstart companies no one had heard of, where he’d look like an idiot if they failed – instead of merely guaranteeing small failure by buying overpriced mainstream stocks. But the vast majority of people are unable to accept being potentially ostracized, and are thus unable to drive on what matters
. To cut.
***
CONCLUDING LIMIT BREAKS
On the surface, this might seem philosophical – maybe it is somewhat philosophical.
But I dare say, everyone who thrives to a very high degree in any domain is to some extent a philosopher. Mastery anywhere is, to some extent, mastery everywhere.
You can organize your days, your weeks, your minutes, your projects, your business and personal ops, you can apply methodologies like the Theory of Constraints and principles like Combined Arms and Overwhelming Force – but it will do you almost no good
if you don’t drive on what matters.
“It is said the warrior's is the twofold Way of pen and sword, and he should have a taste for both Ways. Even if a man has no natural ability he can be a warrior by sticking assiduously to both divisions of the Way. Generally speaking, the Way of the warrior is resolute acceptance of death.”
To conclude, then –
1. You must identify what really matters
to drive at it.
2. You must study yourself to understand your weak points, particularly where your conviction will waver.
3. You must “set your heart” to your work every morning and every evening.
4. You must constantly train in your field towards mastery.
5. When it actually comes down to it, you must cut the enemy
– whatever cutting is in your field. Not worrying about looking good – or even staying alive
.
Perhaps we can understand a little more, then, what Musashi means when he says “the Way of the warrior is resolute acceptance of death.”
And now, as we end Limit Breaks,
one final note from Musashi –
“Study strategy over the years and achieve the spirit of the warrior. Today is victory over yourself of yesterday; tomorrow is your victory over lesser men.”