Whenever Possible
Instead of wasting breath on the macro headline of the day, investors would be better off focusing on understanding their current situation the best they can with the information at hand and investing accordingly.
Capital Thinking • Issue #1166 • View online
Given December 7th marked the 81st anniversary of Pearl Harbor and America’s entrance into World War II, many Americans will think of generals like Douglas MacArthur, Dwight Eisenhower, George Marshall, and George Patton. Few will remember Chester Nimitz.
Yet, by commanding the entire Pacific Fleet from the attack on Pearl Harbor to the Japanese surrender in Tokyo Bay, Nimitz played as large a role as anyone in the Allied victory.
Take Calculated Risks
Ted Lamade | Managing Director at The Carnegie Institution for Science:
Each Allied general was under enormous pressure, but as Craig Simon highlights in his recent book, “Nimitz at War,” the pressures facing Nimitz were unique given the timing and scope of his assignment.
“Following the attack on Pearl Harbor, Nimitz was expected to mount an early offensive, but first had to revive morale of those who served under him. He had to corral independent-minded subordinates and keep them focused on shared objectives. He had to maintain relationships with his difficult counterpart Douglas MacArthur, as well as with his superiors. He carried the expectations of a nation impatient for revenge and eventual victory, while confronting a formidable and implacable enemy in the Japanese Navy.”
Most uniquely, with his fleet operating thousands of miles from the U.S. homeland and given that the Japanese could intercept most communications, Nimitz had to make countless decisions with extremely limited information.
Often times, Nimitz would not hear from his subordinates for several days, or even weeks. This meant that in advance of a battle, he would have to make decisions without knowing exactly how the enemy was positioned. In their wake, he would then have to issue orders without knowing how many ships or soldiers either side had lost. Then, when the numbers were eventually reported, they were consistently under- or over-counted.
So, how did Nimitz navigate these challenging circumstances? How did he make the critical decisions that led to victories at Midway and the Coral Sea in the absence of so much information? By ascribing to the mantra,
“Whenever possible, take calculated risks as may be warranted”
A simple concept on the surface, but one that is vastly underappreciated, especially today.
THE PRESENT DAY
Eight decades removed from Pearl Harbor, we live in a much different world. Instead of being delayed and limited, information is instantaneous and endless. Yet, despite this new reality, why does it seem that decision making is often more flawed than ever?
My sense is that today’s deluge of information is creating a false sense of confidence in people’s belief that they can forecast the future. Therefore, instead of “taking calculated risks when warranted,” many are taking outsized risks when they are not.
Need a few obvious, and recent, examples?
Look no further than the likes of Sequoia, Insight, NEA, and Tiger Global betting and losing hundreds of millions of dollars on FTX after becoming enamored with the company’s future prospects and its founder, Sam Bankman-Fried. Or, the “expert” pollsters who forecasted that Republicans would win the 2022 midterms in a “red tsunami.” Or, those who believed that the energy sector was no longer investable less than two years ago, only to see it outperform the rest of the market by more than 120%.
Nimitz’s philosophy of “taking calculated risks when warranted” is just the start. His approach to leadership and wisdom extends much further.
TRADE OFFS
Nimitz was obsessed with the issue of tradeoffs. In preparation for every military advance, he would weigh the costs of doing so by asking the question,
“If we push further, is the possibility of inflicting more damage on the enemy worth the odds of losing a carrier?”
In this case, Nimitz knew his carriers would determine the fate of the war in the Pacific. Therefore, he was incredibly judicious about putting them at risk.
Warren Buffet has taken a similar stance throughout his career often saying,
“Never risk what you have and need for what we don’t have and don’t need.”
Over the past few years, I have been surprised by how rarely this logic has been applied to decision making.
Ted Lamade
*Featured post photo by Annie Spratt on Unsplash