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I have been too busy to write for a while, but the recent events in the international news made me believe we are standing at a great fork of the recent human history. With the increased uncertainties (as in risks and opportunities), I'd like to point out a few things about strategies, and how to be a better strategist.
The definition of "Strategy" from Oxford Language is "a plan of action or policy designed to achieve a major or overall aim." But I want to stipulate and expand on the following:
A strategy is not:
The second half of point 1 is self-explanatory, you make a strategy to win a war, a game or a business plan. What I would like to stress on is the first part. The though process is only established after you have developed a belief system and appropriate information channels.
For example, to get from New York to London, you need to set the belief around your actual goalâ"Do I want to get there as quickly as possible, as leisurely as possible, or as cheaply as possible?" These are potentially diverging aspects. And then for the information, "can I consult Google Flights, Expedia, or if there are more accurate data sources? How about asking a friend who has taken these trips? What if the information is outdated/incomplete?"
As you can tell already, we cannot ensure the belief and information is deterministic and complete. What if you bumped into someone at a bar and he/she is going to London on a private jet and offers a free seat? What if you're flying into London Heathrow, and a substation caught fire which forces the entire airport to close, then you need to go back. The action plan can't be dead set solely based on historical trends or ideal scenarios.
This brings out point 2, where a strategy needs to be probablistic, reactive and time-sensitive. What is the probability you assign to bumping into someone who let you ride their jet? How about Heathrow Airport closure? If you assign 99.99% probability that Heathrow will remain open, shall we accept the 0.01% tail risk, or plan for it as well? What are the chances that London Gatwick will accept diverting traffic? This applies well to investment and product making, where you need to assign probabilities to scenarios and outcomes, based on incomplete information.
My writing here is also prompted by the recent Howard Marks' comment on Bloomberg TV about yields and tariff, where he frankly rebutts the host's word choice of "measure" for thinking about a paradigm shift. He states there is nothing "quantifiable" to be measured, and prefers to use the term "gauge." The schools and a lot of workplaces promotes the thinking of "if A, then B." So a lot of people go on to a fools errand to quantify A, thinking "oh if I have A and prove that I 100% have A, then B will occur." This is blatantly ignorant of the fact that in the real world:
I'd like to make the following claims on being a better strategist:
It is like being a chess player that thinks several steps ahead, on a board that moves by itself. When someone makes a strategy, he/she is accepting the tail risks or opportunities that it may bring, knowingly or unknowingly. By being conscious of them, the strategist can maximize the risk/reward ratio, and prepares for a doomsday sceario. Nassim Nicholas Taleb calls them black swans and offers quite good insights on them in his book.
Then to the second point, one has to be comfortable with gut feelings and uncertainties. When someone places an order on the stock market, or designs a product, it is highly unlikely that the price has stayed the same, or if the competitor hasn't advanced their offerings. One can either update the expectations and recalculate, which trades time drift for accuracy, or make an educated guess, which trades accuracy for time drift. Too much of a time drift, we're late to the market; Too much of inaccuracy, we are making unsuitable decisions. The ideal state is to find a state where the sum of both would be optimized, and this is often times relying on a priori speculation aka gut feeling.