“strategy is about looking for turning points. Politics is too predictable. Look at Hillary. She is an empty carapace with ambition rattling inside. You can predict everything she does. Strategy is about being unpredictable.”
“But doesn’t that unpredictability become predictable?” I asked. “What happens when every army in the world abides by strategic logic?”
“But they never will,” said Luttwak, “because most people cannot master their emotions. Above all, strategy is about mastering your emotions.” And the emotions of others, he might have added.
It’s somewhat reminiscent of “The Checklist Manifesto“, the authors argue that simple rules can enhance process in complex systems such as medical care, sports nutrition, online dating, poker, and stock market investing. I don’t think there is anything groundbreaking but it’s an interesting read, especially the examples and stories.
Some highlights as it relates to trading/finance:
A simple 1/n rule in portfolio allocation outperforms traditional mean-variance optimization. Some light reading on the subject can be found here but let’s just say 1/n provides more robustness over optimal when the future is uncertain.
Raghu Shukla become a professional-level poker player in under 2 years and used the following simple rules:
1) Limit loss per game. He only had enough cash at the game he was comfortable losing.
2) FOCUS ON PROCESS OVER OUTCOME. I LOVE this rule, if he played hands well and even if he still lost money he would buy an Oreo Milk Shake. If he played poorly, even if he won money, he couldn’t eat fast food for two weeks. Process > Results.
3) He only wanted to play ‘easy’ games so he would bet small for about an hour at the table to find out if he was the shark or the fish. This is a bit tougher to do in investing but I could see some value when it comes to certain special situations, distressed, or merger arbitrage situations. If an insider or judge controls the fate of a situation, perhaps it’s best to pass…
There’s a lot more interesting examples of rules in the book from a wide variety of sources. I would recommend it for light reading.
Fascinating article. I don’t know how well Au Bon Pain is doing now but it seemed to work in the 80’s. It reminded me of a prop shop, or multi-manager hedge fund, low base, big cut of upside, but you’re on your own…okay maybe that’s a stretch.