A lesson from the Cold War.
I’ve received even more mixed messages than usual in the last week. “The market is racing”, “Things have ground to a halt”, “We’re so busy we can’t cope”, “Where’s everyone gone?” are just a sample. Whilst Harold Wilson’s observation that “a week is a long time in politics”, has certainly been true so far this year, the reality is that for most businesses, reacting to every slight change in the market could be dangerous. That said we must all keep a constant eye on the prevailing wind and make sure we anticipate the major changes of direction without changing tack at every gust.
Talking of politics, I recall a wonderful conversation I enjoyed with one of our speakers at a dinner in the house of commons, where he sketched out this illustration on a piece of paper. What followed is one of the most incredible stories I’ve ever heard with a lesson I feel is very relevant for these choppy conditions.
Brian Warnes, who sadly passed away a decade ago, was on the one hand an accountant, engineer and venture capitalist. He was also a spy. I discovered this when quizzing him about his wartime experiences and doubt I’ll hear first hand from the likes of him again. He told me that whilst at GCHQ he was part of a team monitoring Russian testing of ICBM (Intercontinental Ballistic Missiles). In the cold war period following WW2, the US and the Soviet Union were frequently carrying out tests in both the Pacific and Arctic Oceans and the stakes were extraordinarily high as there was no known method of defence to these potential carriers of nuclear weapons. The Soviets had a headstart and the US and their allies, in particular the British, were extremely concerned and hence the resources of GCHQ were turned to the task of observing the Russians as best as they could. On one occasion, a rocket was launched that resulted in a cluster of splashdowns as per Brian’s initial sketch above. A week or so later a subsequent test had this grouping.
At first sight it appeared that the ability to accurately target the ICBMs was proving as elusive to Moscow as it was to Washington but then Brian and his team noticed something.
They took the two satellite images and orientated them to overlap one another with the following result.
Far from being the random deployment the spies first thought, it was clear that both tests had, with one marginal exception, been nearly identical. Whereas a year before the splashdowns had been erratic now they had an eerie precision. This became even more concerning when the satellite imagery was then overlaid onto a map of the USA.
But what about the slight change from the first to the second testing? A conversation with US allies confirmed their worst fears that after a near miss with the first attempt, the Soviets had adjusted their coordinates and found the precise location of NORAD, (North American Aerospace Defense Command), the supposedly top secret HQ for the cold war, and more, could develop the potential to drop a nuclear bomb on it whilst at the same time taking out several major US cities.
You might be wondering what this fascinating story has to do with the current vagaries of the economy and market conditions. Let me share Brian’s wisdom.
The satellite images were two from thousands that were taken. On each occasion there were interpretations that could have resulted in all manner of actions and changes of direction. For the most part though, they were noted and no action taken. It was only when there was irrefutable proof that things had changed that a corrective course was planned and taken.
Brian observed from working with many businesses that all too often, people overreacted to one-off events but failed to properly read that the tide had slowly turned. The Russian ICBM tests are a good example of this. Had there been a reaction to each one then when the real breakthrough occurred it might not have been picked up.
The market is volatile but given the circumstances is that any surprise? I suggest keeping focussed, having a clear sense of the overall desired result and measuring all relevant data but resisting a knee jerk response.
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