It's Loud Out There Part 2

How to cut through the noise to focus on what actually matters

August 15, 2022

Growing up, my brothers and I were fascinated by WWII history. We built model WWII airplanes, tanks and ships. At age 6, I can remember watching the original Midway (1976) and Tora! Tora! Tora! (1970) films that included actual wartime footage of the battles being depicted in the movies. To this day, when I want to read for pleasure, I invariably pick up a book about WWII history. I recently read the book, A Game of Birds and Wolves by Simon Parkin. The book tells the story of Gilbert Roberts and a team of young women whose strategic war games simulations uncovered why German U-boats were so adept at taking out British ships in the early years of the war — more than 1,200 in 1940 alone, with relatively few losses of U-boats.

Among hundreds of young women who had joined the Women’s Royal Naval Service, a handful were chosen for their math and tactical skills to work with Roberts. The women, some in their late teens, were dubbed the Wrens by Roberts.

Roberts and the Wrens were given the task of filtering through the reams of information, reconnaissance data, after-battle reports and questionable German intelligence to devise a system to combat the German U-boat attacks that threatened the lifeline of food, supplies and weapons from the west. They created a Battleship-like game that used detection systems, board game simulations and help from the Enigma machine, whose encrypted messages by the Germans were famously cracked by mathematician Alan Turing (the subject of the movie, The Imitation Game).

The results of their game simulations uncovered a central error in anti-U-boat tactics. They essentially wrote a new tactical guide (a system that reduced emotional errors or gut impulses) to help defend and defeat the German U-boat attacks. The new tactics bible was issued to Royal Navy escorts, as well as American and Canadian convoys. These new tactics were a precursor to what is now deemed “decision theory” or “game theory.” The Wrens essentially built an algorithm that allowed better decisions to made with each new piece of information that was presented to a naval captain and its crew. In doing so, the Allies greatly improved the success of the convoys crossing the Atlantic.

As previously discussed in Part One, decision theory is the study of principles and algorithms for making better decisions—that is, decisions that allow one to achieve better outcomes with respect to its goals. I promised that we would use this post to discuss our own disciplines and strategies that help us make better financial decisions.

There are two central truths that build the foundation of our discipline.

The first truth helps us reduce the noise and narrow our focus on only the things that matter AND that we can control. As previously discussed in my last post, it can be very easy to get lost in the latest research report, economic outlook or the forecast of some random market strategist and feel like that new information must lead you to make a decision based on this new knowledge. This is when I ask myself these two questions; Can I control the outcome? And does this matter? If BOTH answers are yes, then we have a data point that needs to be included in our decision making.

The second truth that completes the foundation of our discipline is the idea “that those who do not learn history are doomed to repeat it.” There is a wealth of information to be gleaned from history. And the markets provide us ample data to build a statistical/probabilities-based methodology for decision making.

Big, and often little, decisions are hard. Left to our own devices we consult friends and family, try to make sense of confusing “expert” advice we Googled online or read a self-help book to guide us. In the end, we more often than not just trust our gut. The problem? Our gut is directly tied to our emotion – and emotion is the enemy of every investor. We believe the single most difficult task of an investor is removing emotion from the decision-making process. Our “probability investing” system is based on historical truths (and probabilities). We map your assets to your goals and expected outflows with the objective of providing you with an optimal asset allocation to both, protect near-term outflows and grow your long-term assets. In doing so, have taken a page from Gilbert Roberts and the women of the WRNS by developing a decision-making process, based on extensive historical research and utilizing statistical probabilities to help reduce the influence of emotion and increase the probabilities of long-term success.

This discipline, coupled with the financial plan, provides the comprehensive data set to effectively help our clients live their best life today – as we all know, we are not guaranteed tomorrow – and ensure that we have all we need should we live well into our 90’s.

We will delve into the fundamental historical data that we hold as our foundational truths in a later post. If you would like to discuss this further or need help with some major financial decisions, please do not hesitate to reach out!

Best Regards,

The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Josh Miles and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Holding stocks for the long-term does not insure a profitable outcome. Investing involves risk and you may incur a profit or loss regardless of strategy selected, including asset allocation and diversification. This is not a recommendation to purchase or sell the stocks of the companies pictured/mentioned. Past performance does not guarantee future results. Future investment performance cannot be guaranteed, investment yields will fluctuate with market conditions.