Can You Invest in an Industry You Don’t Understand? The Meng Hexagram Says Enlightenment Works, Gambling Doesn’t

A friend who runs a factory heard that energy storage is a profitable business and asked me if he should invest two million yuan. I asked him if he knew anything about the industry. He said he didn’t, but a friend of his was in the business and claimed the initial investment could be recouped in a year. I told him to look at the Meng (Youthful Folly) hexagram. He said, “Isn’t Meng about education? What does it have to do with my investment?”

It has everything to do with it. Meng is all about “what to do when you don’t know what you’re doing” — and that’s exactly the hardest part of any investment.

Meng Hexagram Is All About “Not Knowing”

Hexagram Judgment: Success. It is not I who seek the young fool; the young fool seeks me. At the first divination I inform him. If he asks a second or third time, that is importunity, and I give him no information. Perseverance is favorable.

The hexagram is Gen (Keeping Still Mountain) above and Kan (The Abysmal Water) below — a spring emerging from beneath a mountain. The spring water is blocked by the mountain and cannot flow out. That image perfectly captures “not knowing”: the water (potential) is there, but the path is blocked.

Notice the first word of the judgment is “Success.” Meng is not an inauspicious hexagram. Not knowing is nothing to be ashamed of — the hexagram itself says it brings success.

The problem is never “not knowing” — it’s pretending to know when you don’t.

初六「发蒙，利用刑人，用说桎梏，以往吝」 (Six at the Beginning: “To bring out the youthful folly, it furthers to use punishment, to remove the fetters. Going on leads to humiliation.”)

This line is the most critical one in the entire hexagram.

“Fa meng” means to initiate the process of learning, to open the mind. “Li yong xing ren” means using discipline to restrain oneself. “Yong shuo zhi gu” means removing the shackles later. “Yi wang lin” means if you throw caution to the wind right from the start, you will face humiliation.

In modern terms: when you’re starting out in something new, set rules for yourself first, put your own “shackles” on. Only take them off once the rules are firmly established. If you go all out and improvise from day one, you’ll get burned.

The order is extremely important.

Many people get it backwards: the moment they step into a new field, they demand full freedom, want to go all in, want to take a heavy position — without setting any rules, stop-loss limits, or exit conditions.

The first lesson of Meng when it comes to wealth is: put the shackles on first.

上九「击蒙，不利为寇，利御寇」 (Nine at the Top: “To strike at youthful folly. It is not favorable to act as a robber; it is favorable to ward off robbers.”)

Line Text: To strike at youthful folly. It is not favorable to act as a robber; it is favorable to ward off robbers.

“Ji meng” means to rouse oneself from ignorance. “Bu li wei kou” means an offensive stance is not advisable. “Li yu kou” means a defensive stance is appropriate.

This line teaches: to correct cognitive biases, you should take a defensive approach, not an offensive one.

What does “offensive” mean? Hearing a single tip and taking a heavy position, seeing a trend and going all in, thinking you’ve figured it out this time and can make a fortune in one go.

What does “defensive” mean? Testing the waters with a small position first, setting a clear loss limit before you enter, thinking through the worst-case scenario first.

Meng’s answer is clear: at this stage, you are on the defensive, not the offensive.

Three Pools of Money for Wealth Decisions

This is a rough method I came up with myself, but it lines up perfectly with the Meng hexagram.

First pool: tuition money. Money you won’t feel bad about losing. The point of this money isn’t to make a profit — it’s to buy knowledge. Only after losing it will you understand how the industry actually works.

Second pool: core capital. Money that would affect your quality of life if you lost it. None of this money should go into an industry you don’t understand — not a single cent.

Third pool: leverage. Borrowed money. For an industry you don’t understand, leverage should be zero — not “a little.”

People who mix these three pools usually end up losing the first pool, dipping into the second to cover losses, and getting wiped out by the third.

What the Factory Owner Did Next

He didn’t invest the two million.

He started with 200,000 yuan, became a minority shareholder alongside his friend, and got involved in every part of the business: reviewing financial statements, visiting job sites, taking clients out to meals.

After a year, he realized the payment terms in the industry were far worse than he’d imagined — it took nine months to get paid, and he had to front all the costs in the meantime.

He told me, “I’m so glad I only put in 200,000. If I’d put in two million, the cash flow from my main business would have dried up.”

He never increased his investment after that. He said, “This industry isn’t for someone with my cash flow structure.”

This isn’t cowardice. This is what Meng means by “it is favorable to ward off robbers.”

Three Quick Checks You Can Use Right Now

First, can you explain how the industry makes money in three sentences? If you can’t, don’t invest. Investing when you can’t explain it is just gambling.

Second, how much money would you have to lose to lose sleep? That number is your position limit — not your “tolerance limit.” The two are very different.

Third, are you testing, or are you betting? People who are testing plan for what happens if they lose. People who are betting only plan for what happens if they win.

Final Thought

When applied to wealth, the Meng hexagram boils down to this:

Not knowing isn’t a mistake. Betting as if you know, when you don’t, is.

A spring emerging from under a mountain finds its way out through tiny cracks, little by little. It never tries to burst through the entire mountain in a single day. That’s the most practical reminder Meng has for anyone making financial decisions.

If you really want to get into this business, start by being the person who looks for the cracks.