Japanese Wisdom

It is interesting where you come across little points of history that are applicable to trading. I was rereading a Japanese poem about three of Japan’s most famous warlords and a hototogisu. The hototogisu is a small songbird and is also known as the lesser cuckoo – a much more boring description that the Japanese original.

This short poem is used to demonstrate different characters and temperaments as well as being a very subtle history lesson. The poem refers to Oda Nobunaga, Hideyoshi Toyotomi and Ieyasu Tokugawa – for those who remember their Japanese history from high school the names will be familiar. From the fourteenth to the sixteenth century, each attempted to bring a unified rule to Japan which at the time suffered from what seemed to be eternal internecine conflict between different clans. The attempts at unification began with Oda Nobunaga and ended with Ieyasu Tokugawa.

Oda Nobunaga (1532 – 1582) was a savage individual who sought to rule by the application of tremendous violence. Such an approach brought him many supporters courtesy of his liberal application of terror. Many argue that Oda Nobunaga was merely a product of his time – that Japan’s social structure and history led to the creation of many who shared the same level of savagery. He just happened to be successful in a culture that prized violence as a means of problem solving. Whatever the reasons for his nature, as one might expect, Oda Nobunaga was assassinated by one of his own generals.

The line in the poem relating to Oda Nobunaga goes:

If the hototogisu
will not sing –
kill it

The second of our trio, Hideyoshi Toyotomi (1536 – 1598), was born into a peasant family and became a common soldier. His rise through the ranks was courtesy of his skill, timing and a measure of good luck. Hideyoshi was a cunning, manipulative individual who knew, unlike Oda Nobunaga, that you can get further with a kind word and a sword as opposed to just a sword. Part of his strategy was to expand his own family structure by marrying off many of his own family and his most trusted generals in an attempt to generate a familial brand of loyalty. He managed to unify large sections of Japan and, up until that time, was the most successful of the shoguns.

The line referring to Hideyoshi Toyotomi goes:

If the hototogisu
will not sing –
try to make it sing

The final member of our trio is Ieyasu Tokugawa (1542 – 1616) whilst the Tokugawa family had humble origins its impact upon Japan was such that its history was changed forever. Where the other members of our trio failed in their attempts to unite Japan Ieyasu Tokugawa succeeded and founded a dynasty that was to last three hundred years. Tokugawa was a master strategist who picked his allies carefully and whilst he suffered many defeats on his path towards unification none were fatal to his cause. Tokugawa seemed to possess a farsighted view not shared by his rivals – this ability to visualise a future that is different from today and to find a way to make that future real, separated Tokugawa from others. It is said of Tokugawa that he never took action until the time was perfect and the odds were in his favour.

The line referring to Ieyasu Tokugawa goes:

If the hototogisu
will not sing –
wait.

As I said in the introduction, this poem gives insights into the mindsets of different characters, and with a little perception it is easy to see the traits of various traders in the poem. Many are like Nobunaga – they believe the market must bend to their will and by the application of cash that they can change the course of the market. Generally such traders go out in a blaze of glory as they attempt to exert their will over the market. In the past I have written about magical thinking and its effect on traders. The Nobunagas of this world are prone to such thinking and whilst such thinking undoubtedly gets the testosterone going it is in the long run fruitless.

One of the components of my Mentor Program that people have difficulty with is the notion that a trading system, when properly constructed, is designed to not give you trading signals. Trading systems should act as information filters and thus weed out trades that are not viable according to the rules of the system. For many this is a difficult concept – their belief structure is that you should shotgun every market in the world in the hope of hitting something, and if the system is not giving you enough signals, change the rules of the system. Such traders are Hideyoshis – in the attempt to gain the results they desire, they attempt to selectively ignore rules. For most this means compressing the time frame of their indicators or simply ignoring the need for a set up.

It is probably no secret that the most successful of our trio was the most patient and undoubtedly the most opportunistic – never acting until all the odds were in his favour. Interestingly enough the most successful of traders seem to share this trait. In this respect trading is like being a sniper. There is no point pulling the trigger unless there is something to shoot at.

You need to ask yourself which of these three characters from history are you.