Fan Li
In a drought, stock boats
Buy it when nobody wants it
Records of the Grand Historian, Biographies of the Money-Makers
When is a thing cheapest? At the moment everybody agrees it is useless.
What actually happened?
Among the strategies Fan Li's teacher gave the state of Yue is one very simple rule: in drought, stock boats; in flood, stock carts; and so be ready for the shortage. In a drought nobody wants a boat and the price is lowest; after drought comes flood, and then a boat is dearest. He generalised it into a law of price: examine surplus and shortage and you know dear from cheap. What is dear to the extreme turns down; what is cheap to the extreme turns up. So sell the dear as if it were dung, and take the cheap as if it were pearls.
Buy when the demand has gone
Price is set by present demand; value by future demand. The entire difficulty of this rule is that at the moment of buying, every visible piece of evidence says the thing is worthless. A decision with no evidence behind it is exactly what the method requires.
Hiring during layoffs, signing long deals at the coldest point, starting a project nobody works on — each done without any external confirmation.
The cycle is the premise. Not everything comes back
Drought and flood alternate, which is what makes stocking boats correct. If a decline is structural and won't return, buying cheap is catching a falling knife. Before using the rule you have to judge: is this a cycle or an ending?
Capacity at the bottom of a cycle is worth buying. Capacity replaced by a technology isn't, at any price. Today the two price curves look identical.
Money has to keep moving
There's a line of his that gets skipped: money should flow like water. What you stockpile is goods, not capital. Locking your funds in one place to wait for an appreciation is no different from burying them in the ground.
Everything pressed into one appreciating asset means that even when the call is right, you lost every option in between.
How do I use it today?
Where you are: something is cheap right now and everyone says it has no future.
Ask first: is it cheap because the cycle is at a low, or because it has genuinely been replaced?
Where it goes wrong: bottom-fishing a structural decline as though it were a cyclical low; or being right and still locking every last resource inside it.
Lines to keep
In drought, stock boats. In flood, stock carts.
Sell the dear like dung. Take the cheap like pearls.
Money should keep moving, like water.