The Dao of Capital summary

You've got to tolerate initial setbacks to make gains using the strategy of Austrian investing. Let's look a bit more at what this means.

The Robinson Crusoe parable illustrates this principle well. When Crusoe gets stranded on his remote island, his first priorities are the basic necessities of life. To feed himself, he first tries to catch fish using his bare hands, which is clumsy and rarely works well.

Nature is our greatest teacher. It’s also an important part of Daoism: a major Daoist theme is to observe and learn from nature, from things like the growth of conifers.

Conifers (also called pines, spruces and firs) illustrate the Daoist indirect path that leads to a position of advantage. They’re also the oldest tree species on the planet, having first appeared roughly 300 million years ago.

Ancient China and nineteenth century Prussia might seem worlds apart, but they have an important commonality: in both regions, wars gave rise to canonical texts on war strategy. In Ancient China, it was Sunzi, by the general Sun Wu. In Prussia, it was Vom Kriege (On War), by the general Carl von Clausewitz.

Sunzi applies the Daoist indirect approach to military strategy. It’s one of the most important works on the topic, and has greatly influenced both Eastern and Western military thinking.

Austrian investing originated from a new school of economic thought, the Austrian School, in late nineteenth and early twentieth century Vienna. The economist Ludwig von Mises, one of the school’s pioneers, famously proclaimed, “The market is a process!” which has become a tenet in Austrian investing.

His statement is true; the market can only be understood as a process. In Daoism, this process or path is called the Dao.

A system should naturally achieve balance through internal guidance. Any attempts at intervention are typically counterproductive. The Austrian School teaches this in regard to markets: government intervention doesn’t balance markets – it distorts them.

The market is like a forest: it has natural regulators that keep it balanced. A forest is kept in balance by the constant battle for resources among the creatures that live there.

We can only succeed with Austrian investing if we can stop being so focused on the moment. This is extremely challenging, however. Why exactly is this so hard for us?

Well, humans are simply designed to prefer things that are immediate and direct, rather than intermediate or indirect. We want things that benefit us now.

So how can we go about implementing Austrian investing? How do we set up for the moment when our patience can pay off? How do we know in which firms to invest?

The first step in Austrian investing is to stay out of the market when distortion is high.