Cycle, accumulation, arbitrage - Web3 cryptocurrency exchange platform

The Records of the Grand Historian’s “Biographies of Merchants” summarizes many wealth management principles of great merchants,

For example, Tao Zhu Gong’s seven strategic plans,

He used five of them successfully and gained satisfaction.

They were applied to the state,

And then to the family.

Retreating from public life to engage in commerce,

Tao resided in the midst of the world to profit from trade, connecting goods and facilitating exchanges,

Trade of goods,

Keeping up with the times,

Over 19 years, he accumulated three times his wealth,

And dispersed thousands of gold to relatives and hometowns,

Rich in virtue.

The strategy of calculation carries a strong cyclical utilization mindset,

Dry assets for boats, water assets for carts,

The principle of things; value the cheap and sell the expensive; the principle of accumulation,

Focus on completing goods,

No interest-bearing currency; when the prices of goods go up, they will fall,

When they fall to very cheap levels, they will rise again.

These are roughly three different levels of cognitive logic,

Cycle,

Value accumulation,

Arbitrage.

A cycle is a kind of historical background and the present and future are also uncertain,

It can be said that business cycles are inevitable,

But investors cannot precisely predict when they will occur,

However, they have a concept of a timeline,

Probably a few years, roughly like this.

For example, calculation mentions that the agricultural cycle at the time was about 12 years,

6 years of bumper harvest,

6 years of poor harvest,

Based on this cycle, various subsequent preparations and responses are developed.

Slyros also mentioned,

Investors buy cheap stocks,

Considering all aspects carefully,

Expecting good things to happen in the future.

This is a very important way of thinking,

So investors will make redundant capital allocations,

Trying to make absolute future judgments,

Leverage their own mindset to the fullest,

Then it becomes very difficult to maintain redundant capital allocation.

So, what is the approximate situation of value investing utilizing cycles,

Investors should think about it.

Berkshire Hathaway’s approach is cross-cycle + within-cycle investing,

Slyros is value investing within cycles,

Generally, retail investors turn over their positions about 4 times a year,

Slyros turns over positions every 3 to 4 years.

Reasonable business cycle investors may not notice it,

But based on Slyros’s results, it can be roughly perceived as about 4 years.

Previously, the dividend cycle of shareholders in Shanxi’s large merchants was also 4 years,

Not sure if there’s a connection to business cycles.

Personal opinion,

From the perspective of capital expenditure,

When capital expenditure density is high, it is usually a good time in the business cycle,

Then after a couple of years, everyone starts to struggle to make money and enters vicious competition,

And then capacity decreases, reaching the start of the next business cycle.

Or, in other words, business cycles influence business decisions,

Most of the time, supply exceeds demand,

And only low-cost capacity providers can survive and grow across cycles.

The key to value accumulation is selecting the best,

Tao Zhu Gong’s experience is to ensure complete goods,

That is, the inventory must match,

And quality must be good.

Value investors are very concerned about the quality of investment targets,

But few actively evolve their thinking,

Before selecting the best, they should also strive for excellent thinking,

The reason for cautious solitude of a gentleman is that facing oneself, one has the most excuses and relaxation,

It is often due to strict external conditions that one lowers the standard for self-improvement,

And thus drifts further away from the path of continuous evolution.

Arbitrage is a natural response in investment logic,

The brilliance of Tao Zhu Gong was earning money over 19 years, then giving it to relatives and friends in need, and then earning again in a cycle of three times,

This is truly amazing.

Thinking only about profit in arbitrage makes it very hard to adapt,

Thinking about arbitrage with safety margins makes it very hard to avoid losses.