Market Participants: The Crocodile's Louse and the Water Snake

(Translated by AI)

I recently had the good fortune to find a copy of The Hong Kong Gold Market by Wu Hon-fai — the man they once called Hong Kong's Gold King. Buried inside it is a pair of metaphors for the two kinds of people who inhabit a trading market, and they cut so close to the truth that I want to record them here — partly as a note to myself: be the louse on the crocodile, never the water snake at the sluice gate.

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Let me offer two images, then, for the cast of characters who fill the gold market.

(I) The Water Snake at the Sluice Gate — The trading floor is loud and crowded, packed shoulder to shoulder, yet it has always been carved into regional cliques: the Cantonese faction, the Chiuchow faction, the Shanghainese faction, and so on. Within the Cantonese faction sits the Shunde group. As everyone knows, Shunde County lies on the lower reaches of the West River in the Pearl River Delta — fertile land, famous for its mulberry groves and fish ponds. The water in those ponds is murky, standing water; from time to time the farmer must drain off the stale water and let fresh water in, or the fish will die. But while draining and refilling, he fears the fish will slip away, so at the mouth of the outlet he sets a wooden grille. That drainage outlet is what the Shunde people call a dau — a sluice gate. Because the gate is the one place where living water flows in, the fish of every size in the pond crowd toward it to drink the fresh current. The smaller fish and shrimp, however, often slip straight through the grille and out beyond the gate. And so certain water snakes learn to lie in wait just outside, making an easy living on the small fry that wander out. But as the saying goes, the mantis stalks the cicada, unaware of the oriole behind — and just as the water snake gorges itself on minnows and shrimp, the farmers seize the moment to catch the snakes, one by one, alive, for the soup pot. The lesson is plain: in a speculative market, big fish eating small fish is simply unavoidable. The small-time punter, or the one who blindly copies others, pockets a little money each day and goes home delighted, convinced his fortune is made — and then a great move arrives out of nowhere and wipes him out, capital and all. He is exactly that water snake: feeding and feeding on tiny shrimp and minnows, until in the end he forfeits his own life. Let this be a blow over the head to every eager amateur swordsman who thrills at the chase. Be careful.

(II) The Louse on the Crocodile — In a speculative market there are, of course, the big players, the small players, and the day-traders. The big players are ruthless; with one turn of the hand they summon clouds, with the next they summon rain. In the stock market of old, people even distinguished between the saltwater crocodiles and the freshwater crocodiles. But for all that a crocodile is a beast that devours men without blinking, it still has its nemesis: the louse that lives among the scales of its armor. The louse cannot kill it, but it makes the crocodile itch unbearably — and there is nothing the crocodile can do about it. Those lice are the small folk who spend all day darting around the market for scraps. They listen in eight directions and watch in four; they are quick, clever, and seasoned by experience. The moment they sense the big players stirring — about to buy, about to sell — they swarm ahead of the move, getting there first, leaving the big players stuck, caught between laughter and tears, forced to let the small folk taste a little sweetness before the large order can finally be filled. The lice, delighted, make a hundred or a few hundred dollars and start chattering that afternoon tea and dinner are now taken care of. But the big players are full of cunning, and at times they unsheathe a few killing strokes. On the surface they shout that they are selling; quietly, sideways, they are buying. In situations like this the lice can be tricked and caught out. Yet the moment a louse senses something is wrong, it will close its position without hesitation — even at a loss. Some will even turn with the wind and give chase, hoping to claw back to even. Their style is never to carry a position overnight; their gains and losses are never large, but two square meals a day are never in doubt. The market needs these people — the ones who wave the flags and beat the drums, who add momentum to the tide. With them the market has life, and their contribution must not be dismissed.

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As retail investors, our greatest advantage is agility — knowing when to advance and when to retreat. Never overestimate your own ability; never grow so greedy for the win that you forget how to lose. Do that, and in the end you win a piece of candy and lose the whole factory.