Sun Tzu’s four rules regarding the importance of speed in feedback and reaction.
“Mastering speed is the essence of war.”
Sun Tzu’s The Art of War 11:2:16 “There are no speed limits on the road to excellence.”
Anonymous
General Rule: Faster cycle times are the essential element of com- petition.
Situation:
In the unpredictable environment of competition, situations are unpredictable and turn around quickly. Actions often fail. Rewards are always uncertain. Though certain courses of action are more probably to succeed over time, any given instance can fail, sometimes spectacu- larly. The problem is that we simply do not have enough information or control in a competitive environment to direct events.
When we think of all actions as a feedback loop rather than steps in a process, every action succeeds--at least in the sense of giving us more information. Even if the information is “that won’t work,” we learn from each experience. In using Sun Tzu’s Rules, every action is an experiment, an exploration. If we think of the goal in terms of gathering information, there are some things that will always work better, espe- cially when comparing our situation to those of others.
Sun Tzu’s Rules:
1. In every aspect of competitive strategy, nothing is more impor- tant than speed. This is especially important in the feedback loop. The
faster we go through the loop of gathering information, making deci- sions, taking actions, and establishing positions, the more successful we will be. At each stage of this cycle, the use of speed makes success more likely and puts those who might oppose us at a disadvantage (5.3 Reaction Time).
2. The speed of the entire cycle is called cycle time. Cycle time
measures how long it takes us to recognize and respond to the situations with which we are faced. In the adaptive world of strategy, faster cycle times always beat slower cycle times (1.8.2 The Adaptive Loop).
3. Speed in gathering information is critical. Since the environ-
ment is constantly changing, the older our information, the more out of date it must be. The faster that we acquire information, the more infor- mation we can get in the limited amount of time we have to make deci- sions. We must discover opportunities quickly because all opportunities only last for a limited period of time (3.1.6 Time Limitations).
4. Speed in making decisions is critical. Choosing the exact right
form of action isn’t nearly as important as deciding quickly so we can test our judgment against reality. Quick decisions require a good start- ing picture of the situation from which to judge changes. Leaders who cannot quickly recognize high-probability opportunities, react quickly, and choose actions that can be quickly executed are at a serious disad- vantage (2.5 The Big Picture, 5.3 Reaction Time,). Speed in moving is
critical. The faster we move, the harder it is for opponents to respond
and adjust to our movements. One of the most important aspects of strategy is situation response, where we recognize and respond the the situations instantly (6.1.1 Instant Reflexes, 5.4 Minimizing Action).
5. Speed in claiming positions is critical. We cannot get rewarded
until we clearly establish our position. The more time that elapses between our accomplishments and our claims of a reward, the less likely we are to get rewarded at all (8.1 Successful Positions).
6. The faster our cycle time, the more quickly we can correct our course. Since strategy is based on probabilities, we are going to make
wrong decisions along with the correct ones. The faster our cycle time, the less we waste in incorrect actions and the more quickly we are rewarded for correct actions (1.8.4 Probabilistic Process).
Illustration:
Let us look at how these ideas work when applied to investment. In every aspect of competitive strategy, nothing is more important than speed. If we are going to be successful in investing, as opposed to lucky, we must respond to the up and down movement of the market. We must buy and sell before others do. If we are behind the market, we will lose money consistently, buying high and selling low.
The speed of the entire cycle is called cycle time. The cycle time of an investment is the time between buying and selling. A fast cycle time depends on the horizons we are working in. A day trader works on a faster cycle than weekly or monthly traders, but both must work ahead of their particular cycle.
Speed in gathering information is critical. It takes any news affecting an investment time to spread to everyone interested. Investors who get the news first, good or bad, always have an advantage.
Speed in making decisions is critical. To make good decisions about the news that we get about a particular investment, we have to start with some understanding of what it means to that investment. Without an existing picture of its situation, gathering the information to understand the impact of the news takes too much time.
Speed in moving is critical. It used to be that private traders were at a real disadvantage as far as executing trades. At one time, it took hours and even days to make an investment. Speed in claiming positions is critical. The investment doesn’t pay when the investment is made, it
pays when the position is claimed or closed out. Taking a ten percent profit in a day is better than
waiting a month for a twenty percent gain that may vanish. The faster our cycle time, the more quickly we can correct our course. Not all of our trades are going to work. We must get out of our losing positions as quickly as we can. We must limit our losses if we are to profit from our gains.