David and Goliath
A fascinating biblical account of a miraculous victory
Disclaimer: This post is not at all a siding or a comment in the current middle eastern war. It is an editorial of lessons that we could learn from history. The author wishes all wars to cease and may peace be found on earth.
Back in the day around 3,000 years ago, the Philistine army wanted to occupy and split the Kingdom of Israel. Philistine was of coastal origins and Israelites lived in the highlands. Connecting this coastal line and the mountainous region was a place called Shephelah (Shefola) that is made up of various gorgeous valleys and ridges. The King of Israel (King Saul) caught wind of this intention and decided to bring his army down from the highland to Shephelah to encounter the Philistine army.
They had a stand off in the Valley of Elah for weeks. Situation was deadlock because neither army could go down to the valley and go up to the other side without getting exposed and attacked by their enemies. So the Philistine decided to send Goliath down to the valley and challenged Israelite army to settle the war with a one on one combat. Winning the combat would mean winning the war without incurring a major bloodshed.
Goliath was a Philistine giant who’s at least 6 feet 9 inch (200cm) tall. He was equipped with heavy bronze armour, javelin and a sword. No weapon would be strong enough to pierce Goliath's elaborate defense. Looking at his sheer appearance, no body in the Israel army dared to battle him.
All of the sudden, David, a shepherd boy decided to volunteer to fight Goliath. When David volunteered to fight Goliath, King Saul thought that he was volunteering to die. King Saul attempted to give David an armour, but David refused the help offered from King Saul. Adamant, David proceeded down to the valley to fight. To reiterate, David was this young shepherd boy who’s only armed with a sling with no other equipment. Quite literally, one full strike from Goliath would mean death to David.
So David picked up 5 Barium Sulfate stones, smooth and white in color and put them in his bag. He then spun his sling and fling the rock straight to Goliath’s forehead, his only undefended and most vulnerable spot. The impact was devastating and it immediately knocked out Goliath. David quickly ran over to the unconscious Goliath, picked up his sword and cut his head off. Against all odds, Israel won the combat.
A closer look to the fight between David and Goliath
As a casual reader, we would look into this story and be amazed at:
David’s courage to stand off against Goliath
God’s miracle (if one is not an atheist) that made David victor of the combat
An astute writer, Malcolm Gladwell, made a contrarian opinion in his book David and Goliath. He thinks that we have understood nothing about the fight between David and Goliath. And he made a broader argument that:
What society considers as an advantage, might not necessarily be an advantage. It can be a disadvantage.
What society considers as a disadvantage, might not necessarily be a disadvantage. It can be an advantage.
Wait what? What do you mean David is the one having the advantage? And Goliath is disadvantaged?
Actually, yes. Let’s discuss Gladwell’s views on the battle that ensued.
David was a sherpherd’s boy and with only 5 stones and a sling we think that he stood no chance of victory.
But David was an experienced slinger that wards off his flock from dangerous lions and bears.
He would do this by spinning his sling at 7 - 8 revolutions per second (RPS) and have an accuracy up to 180 metres.
The stopping power of a sling at that RPS with a hard Barium Sulfate stone as a bullet is equivalent to that of a modern day hand gun.
In a one to one combat, David here was obviously carrying a superior weapon. David did not even have to go near to his opponent to launch an attack. He had a weapon that is long range, accurate and it can easily knock out an opponent with one clean hit.
Considering David’s advantage, let’s take a look at Goliath’s plausible disadvantage.
Goliath was a monster.
But he was more of a giant, accounted to be at least 200cm tall.
People who are this tall likely has a condition called *acromegaly.* A benign tumour that grew in the pituitary gland, causing excess growth hormones.
One of the complications of having acromegaly is having visual problems as excess growth hormones would compress one’s optic chiasm.
So when Goliath said to David:
“Come to me so I can feed your flesh to the birds of the heavens and the beasts of the fields”
It might most likely mean that Goliath said “come to me” because he can’t see David properly due to his condition. And as Gladwell put it very nicely, Goliath was a sitting duck to David’s superior long range weapon.
With a closer observation of the story, I’d like to highlight again that what is deemed as valuable, powerful and resource rich by society (normal people at large), might actually be a source of weakness. And what is deemed as a weak, resource constrained, and inadequate by the society might actually be a source of strength.
David and Goliath in the Finance World
Retail vs institutional investors
In the investing world, it is easy for us to see retails as the underdog or as the David in the story. It is also easy for us to see that institutional investors, such as foreign funds to be the Goliath in the story.
Let’s highlight the “weakness” of retails:
Retails have limited money to invest unless you are an ultra high net worth individual (but even then your capital likely won’t stand a chance against institutional guys). Let’s say if a stock goes down in price, retails cannot average down forever.
Retails don’t have fancy analysts that graduated from prestigious universities to help with their investing.
So retails don’t stand a chance against the prowess of institutional investors:
Institutional investors have a lot of money to invest.
Institutional investors have super smart analysts that got paid a big salary.
How can retails perform better in their investments against institutional investors? They simply don’t stand a chance!
This is not really the case because..
Let’s discuss this “weaknesses” and “strengths” one by one.
Retails have limited money, while institutions have much more money to invest
We can see this as a blessing for retails because retails would have way more investment options compared to institutional guys. Their Rp 100 juta practically allows them to buy good and undervalued companies that have a small market capitalisation. Even if their Rp 100 juta accounts for 10% of their entire portfolio, a 50% increase in that investment position accounts for a 5% increase to the entire portfolio!
In contrast, an institutional investor will have a much harder time investing a small cap company. Because they have liquidity concerns if they’d like to enter and exit a position. I.e. they are afraid that there will not be enough buyers to buy off their position if they want to sell or there’s not enough seller at the price of the stock they’d like to purchase.
So naturally they cannot take a large position. Even if we assume they can allocate 1% of their portfolio to this small cap opportunity. A 50% increase would only account for a 0.5% increase to the portfolio 😟
In short, having limited money as retails gives them much much more flexibility in their investment options which naturally creates more opportunity as well.
Institutional investors have super smart analysts. Retails don’t have super smart analysts.
I am not saying that super smart analysts are not super smart investors. What I am saying is two things:
Super smart analysts don’t have to be super good investors in practice. They just have to do well in their finance exams in college, take a couple of theoretical finance examinations, and they are good to work in an asset management house. So they have to know all the theoretical knowledge in finance, but that does not always mean that they are practically great investors.
Super smart analysts have to be paid a fixed salary. And a fixed salary is cost. Again, not saying that paying your employee is bad. What I am saying is that the benefit of the organisation paying an employee must outweigh the cost of that employee so that the company can run sustainably. In the context of institutional investors, the fund must perform well enough such that it justifies the operational costs of running the fund.
As for retails? 0 cost man 🙂 Well, barring some taxes and transaction fees that you need to pay to trade. So as for retails, as long as you focus on making intelligent bets with a proper framework and patience, you are usually good.
Highlighting both points above is a good reminder that institutional investors who have to manage more funds are likely to have it way more difficult than an average Joe like you and me. So we’d be wise to focus on our strength to achieve the best possible outcome instead of paying too much attention to what the other guys have and what we don’t have.
Closing Remarks
Hopefully this light editorial has shown an entity with more resources does not mean that entity is stronger than its counterpart with way less resources. It is neat to find teachings that are both timeless and applicable in many of our life circumstances today.