Set patterns, incapable of adaptability, of pliability, only offer a better cage. Truth is outside of all patterns ~ Bruce Lee

Bruce Lee was a martial artist, actor, philosopher, and the founder of a martial art style he named ‘Jeet Kune Do’. JKD was a hybridization of Bruce’s various martial, philosophical and athletic learnings, captured in the book ‘The Tao of Jeet kune Do’, which was published as an amalgam of his many writings after his death. 

One of Bruce’s many quotes was “Absorb what is useful, discard what is not, add what is uniquely your own.” This quote reflects the ideals of open mindedness, adaptation, and integration, while discarding the unuseful. It encourages individuals to be creative in their approach, to learning, embodying an open mindset to optimize their personal growth and effectiveness. 

When it came to martial arts, Bruce was a very progressive thinker. He eschewed favouring ‘styles’ of fighting and instead, embraced a modern approach to both combat and learning. The world of Martial Arts, up to that point, was effectively a world of styles and systems that were dogmatic – And often opposed to each other, and competitive in terms of which approach was considered ‘the best’.  Bruce started to change that, challenging people to become ‘formless’. 

“Don’t get set into one form, adapt it and build your own, and let it grow, be like water. Empty your mind, be formless, shapeless — like water. Now you put water in a cup, it becomes the cup; You put water into a bottle it becomes the bottle; You put it in a teapot it becomes the teapot. Now water can flow or it can crash. Be water, my friend.” ~  Bruce Lee

How does this relate to investing? In many ways, investors adhere to the same dogma that martial artists of yore did. They set themselves up in ‘styles’ and ‘disciplines’ and execute their strategies in accordance with what they have been taught. Is this the ‘best’ way to invest? Can we incorporate a more open minded approach to investing that can yield better results?

Indeed, systems and forms can be effective, but they are equally limiting. But, they are useful, and learning these styles allow the development of skills, and a system that can yield successes. Think of it this way. If you want to be a successful investor, you have to learn a process, a strategy, a style.  

And when one learns a strategy and has a base of knowledge and experience, one can then step outside of the box without getting killed, to learn other things. Lets think about the various major approaches to investing in companies and consider how they work.  The end goal of investing is of course to grow your capital by predicting the future value of a company. 

Amidst the multitude of approaches available, four key strategies stand out: fundamental analysis, technical analysis, discounted cash flow (DCF) analysis, and macroeconomic analysis. Each strategy offers a unique lens through which investors can evaluate and project a company’s future value.

1. Fundamental Analysis: Peering into the Company’s DNA

A core of style of investment is fundamental analysis, akin to peering into a company’s DNA to understand its intrinsic value. This strategy involves a meticulous examination of financial statements, the management team, and industry dynamics. By scrutinizing income statements and balance sheets, investors gain insights into a company’s financial health. Additionally, evaluating the management team’s track record provides a glimpse into its ability to steer the company through challenges. Industry analysis further allows investors to gauge growth potential within the broader economic landscape. The goal with fundamental analysis is to determine a value – Or project a future value – that the market does not yet recognize, and acquire the investment at a discount to that valuation. 

Example: Analyze factors such as the debt-to-equity ratio, a fundamental metric that reflects a company’s financial leverage. A lower ratio indicates a more conservative capital structure, potentially signalling a financially sound investment.

2. Technical Analysis: Decoding Market Patterns

Example: Employ the moving average convergence divergence (MACD) to spot potential trend reversals. A bullish crossover, where the MACD line surpasses the signal line, may signal an impending uptrend.

Technical analysis, often associated with short-term trading, involves decoding historical price and volume data to identify patterns and trends. Traders use various tools such as moving averages, chart patterns, and indicators like the relative strength index (RSI) to make investment decisions based on market momentum and sentiment.

3. Discounted Cash Flow (DCF) Analysis: Unveiling Future Cash Flows

For investors seeking a more comprehensive valuation model, DCF analysis reigns supreme. This strategy involves estimating a company’s future cash flows and discounting them back to their present value. By forecasting revenue growth, operating expenses, and capital expenditures, investors gain a nuanced understanding of a company’s financial outlook.

Example: Engage in detailed financial modeling to project future cash flows accurately. This may involve forecasting revenue growth rates, operating expenses, and capital expenditures.

4. Macroeconomic Analysis: Navigating External Forces

Beyond the confines of a company’s financials, macroeconomic analysis considers external factors that could impact a company’s future value. Investors analyze interest rates, inflation rates, and geopolitical events to anticipate broader economic trends that may influence financial markets.

An Example: Keep a close eye on interest rate trends. If central banks signal a rate cut due to economic concerns, this could have specific impacts on different sectors or investments, influencing investment decisions accordingly.

Four unique styles. What would Bruce Lee think? How would he invest? 

Bruce would probably weave together these four strategies into a comprehensive flowing tapestry. Each strategy could contribute a unique thread, offering ingredients that, when combined, could help provide a more wholesome understanding of a company’s potential future worth. With that in mind, Bruce would likely disregard as much as possible to make his process ruthlessly efficient. And he wouldn’t be afraid to change, learn or grow. 

Now keep in mind that although Bruce rejected ‘styles’ and ‘disciplines’, he himself was a student and eventually teacher of a very specific discipline of Kung Fu called ‘Wing Chun’. He gained the fundamental skills required to be successful by being schooled in a structured discipline – and only then, after he had the ability, functional knowledge and experience – did he open his mind and embrace many other ‘ways’. 

How would this relate to being an investor? It is simple. If you are going to put your money to work, risk your capital, you have to be educated – learn – the discipline(s) of investing. And those disciplines are learned through styles that have unique characteristics and strategies (some of which I mentioned above). Another way of saying it: You can’t be free to fly until you know how to get off the ground, or you’ll hurt yourself. This is a common issue among most investors. They invest without having learned how to do it. It’s akin to stepping into the UFC ring without possessing specific fighting skills to survive the match.

In summary, skills learned from the various investment disciplines – deciphering financial statements, decoding market patterns, projecting future cash flows, or navigating macroeconomic forces – Can give investors the knowledge and skills to be successful. If you want to invest successfully, you have to learn at least one approach. But using them flexibly with an open mind, as Bruce Lee would, will help one survive and even thrive in the combative world that is investing. 

If mere mechanical efficiency can make everyone a martial artist, then all is well. Unfortunately, combat, like freedom, is something that can not be preconceived  ~ Bruce Lee