React vs Respond
(1/23)
(1/23)
These are two similar sounding words. Infact, one word is often used in explaining the meaning of the other.
However, there's a sea of difference between the two, INHO.
...and the difference is a plan. A plan to deal with contingencies and uncertainties.
However, there's a sea of difference between the two, INHO.
...and the difference is a plan. A plan to deal with contingencies and uncertainties.
Life is a complex system by definition. Some characteristics of life:
1) It's composed of simple events - personal or extraneous
2) These simple events interact with our lives and make a profound path breaking impact
3) Such interactions lead to more events and more impacts
1) It's composed of simple events - personal or extraneous
2) These simple events interact with our lives and make a profound path breaking impact
3) Such interactions lead to more events and more impacts
4) These interactions have a non-linear effect, i.e. the net result of such events is far bigger that what you could have ever imagined. (Whole is bigger than the sum of the parts)
As these events unfold, good or bad things happen to you in varying degrees. 2 practical examples:
As these events unfold, good or bad things happen to you in varying degrees. 2 practical examples:
You set up a Chinese restaurant. You're hoping that this venture will be a big success and bring stability & prosperity to you.
(5/23)
(5/23)
While setting it up, you're thinking what could possibly go wrong - a bigger & better Chinese restaurant, Chef running away, people preferring other cuisines over Chinese, poor location, administrative issues, working capital issues, earthquake...
Take another example: look at any investor presentation in 2019. After all the embellished projections for a bright future, there would be one slide on risks, with bullet points such as:
Global Trade War
Middle East tension may spike Crude
Terrorist Attack
Political instability
Global Trade War
Middle East tension may spike Crude
Terrorist Attack
Political instability
Guess what, nothing of those happen, apparently someone ate a virus infested bat 1000s of Kms away, which leads to a global lockdown. People are scared and prohibited to step out of the house. Even if the lockdown ends, they're unlikely to visit a restaurant for months to come.
Even if they're ready to return, you're not in a position to serve because the staff has ran away to their villages. The business collapses even before it stands on its feet. You took a loan, which you can't service. The bank may threaten to take over the property soon.
The Investment Manager assured to make their portfolios risk proof. But, they were looking at specific risk events through a hind view mirror...risks from the events that were happening around them...as if once those events are off the table, "we"ll live happily ever after"!
Risk came as a bolt from the blue while everyone was expecting it to enter with their permission from the few doors that they had listed on that slide!
(11/23)
(11/23)
Every once in a while, when things go south on you, they go all the way to Antarctica....And all that you can do is keep your winter wear handy!
What could have you done....
What could have you done....
By the way, the same applies to upside too. While you're grappling with your challenges, new doors, new opportunities, open and your ventures soars.
What could have you done....
What could have you done....
Such is the complexity of life, that it is essential to plan for the "Collective" rather than the "elements". This gives you the ultimate protection from the risk of ruin - the permanent inability to spring back!
(14/23)
(14/23)
As a restaurant owner, you need to be prepared for slowdown or disruption, no matter where it comes from. As a portfolio manager, you need to be prepared for a sharp fall or bear market, no matter what's the cause.
And, the preparation has to be done in advance.
Set Rules in sane times to deal with insane times. Rules based on some core principles.
Set Rules in sane times to deal with insane times. Rules based on some core principles.
You're reacting when you're running pillar to post as directed by your destiny.
You're responding, when you work with self efficacy. You have set algos in advance. You've drawn the broad contours for your response as the "Collective" unfolds.
Now, I try to tie things up.
You're responding, when you work with self efficacy. You have set algos in advance. You've drawn the broad contours for your response as the "Collective" unfolds.
Now, I try to tie things up.
What's the objective of preparing such response?
Luck is nothing but, randomness of varying degrees on either side - good or bad. As I illustrated in the points on complexities of life, most of these things are beyond your control.
(18/23)
Luck is nothing but, randomness of varying degrees on either side - good or bad. As I illustrated in the points on complexities of life, most of these things are beyond your control.
(18/23)
The objective of being prepared is to respond (as against react without preparation) by trying to minimise the damage when the luck goes against you, and maximise the gains when the randomness of events unfold in your favour!
While the traffic on the road is not in your control, you should know, when to take it easy and when to press the gas.
You should have your plan ready to capitalise on the opportunity if the nearby restaurant closes down. And to protect your capital if the business gets disrupted due to #coronavirus or for any other reason.
(21/23)
(21/23)
You should be ready to add to your stocks if they show strength, and cut your losses and not staying married to your opinions, if you see the reverse. No matter what the reason or cause is.
Key Message:
Be prepared on how to deal with the "Collective"and respond as it unfolds. Minimise the damage, maximise the gains. Heads you win, tails you don't lose much.
Respond, not react!
(23/23)
Be prepared on how to deal with the "Collective"and respond as it unfolds. Minimise the damage, maximise the gains. Heads you win, tails you don't lose much.
Respond, not react!
(23/23)
