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James Sogi Philosopher, Juris Doctor, surfer, trader, investor, musician, black belt, sailor, semi-centenarian. He lives on the mountain in Kona, Hawaii, with his family.   Write to us at: (address is not clickable)

10/13/2005
Jim Sogi on Strategy

What is the strategy for a small combatant to fight a larger more powerful, better equipped opponent? A head on battle would not succeed. Indirect methods are needed.

1. Use traps such as IEDs  in places where the big opponent travels regularly but cannot see them.
2. Use stealth.  Attack in the dead of night while the enemy sleeps.
3. Lure small contingents of the opponent in to prearranged areas set up for defense where they can be knocked off singly or a  few at a time.
4. Hit, run, hide.
5. Observing the opponent's prior tactics and big movements from prior battles. Act accordingly. Different situations require different tactics.  Using what worked over and over against a different enemy or a different time may be as dangerous as fixed systems.
6. Listen to the opponent's communications, propaganda, and determine what makes the opponent tick. Act accordingly.
7. Always over estimate the opponent. Never become complacent.
8. Don't be diplomatically isolated. Keep strategic alliances in place.
9. Maintain good intelligence.
10. Spend adequate money for weapons, training.
11. Use your strengths, or turn weaknesses into advantage. Use asymmetry.
12. Play to the opponent's weakness.
13. If the opponent is slow, utilize speed.  If the opponent is fast, utilize patience.
14. Maintain credibility.
15. Never meet the large opponent head on. Attack from the side, while the opponent retreats, or is at the end of its operation.
16. Train, be prepared, alert.
17. When there is no advantage, retreat, hide, do nothing, prepare, train.

Patrick Wegner adds:

From my experience a stronger opponent will have knowledge of the most tactics so in a market/game which is fast moving and where moves are not always clear you have two different options:

1. Devise new ones that they cannot know about.
2. Change tactics frequently to keep the opponent guessing, this way they will know what you are doing, but by the time they know it it is already over and a new tactic is being used.

Nigel Davies remarks:

The problem is that a stronger opponent is likely to have a knowledge of all these strategies and will be able to do them better because of his strength and the resources under his command. I think the best chance for a weaker player is to randomize.

I should add that vis a vis markets a weaker player, who we'll assume has no edge, should probably avoid playing for money. If, for some unknown reason, he has to play and he needs to win a certain amount of money, he should make the game as random as possible by taking only one big trade and then calling it a day. Any kind of drawn out conflict will mean he's done for, though as with a chess game he might fantasize that he can win if only finds some special 'tactics' or 'variation'.

This delusion accounts for the industries that have arisen around chess, trading and other activities, the elusive search for 'the weak player's edge'. The reality is that weak players will never have an edge unless they become strong players. Until that time comes they're just different varieties of dinner.

Pitt Maner comments:

You can hire former Princeton basketball coach Pete Carril as an advisor. He demonstrated that even if your opponent is bigger, stronger, faster, more athletic/physically talented (e.g. Georgetown) you have a chance if you play with a patient, smart, percentages-aware, disciplined, mistake-free style. Even with the introduction of the shot clock his teams were successful. Just an amazing coach. He has a book out, appropriately titled The Smart Take from the Strong.

Steve Ellison adds:

A weaker basketball team can increase its probability of victory against a stronger opponent by taking many 3-point shots. Since 3-point shots have a higher variance than 2-point shots, 3-point shots stretch out the distribution of the team's point total, increasing the probability of a point total that exceeds the average of the stronger team. Since in basketball, unlike markets, a loss is a loss regardless of the margin, the simultaneous increase in the probability of a lopsided loss is of little concern.

J. Klein comments:

Judo is a philosophy that exploits asymmetries between contenders of different mass and strength. The idea is to manipulate the opponent's superior strength and mass to cause him to lose his mental and physical balance. In face to face combat, judo has developed techniques that are very effective.

If the contender is an invincible machine (say, a superior computer program), the weak will fight the human operating the machine and not the machine. The idea is to get the operator to doubt the machine's performance and cause him to fidget with it or discard it. Fight the man in the tank, as we say here.

Russell Sears counters:

I would suggest the converse is the best strategy. Let the superior team shoot the 3 point shot, protect the middle.  If my recollection/assessment of the NCAA 2004 championship game, the Tarheels against Illinois, is correct, this worked great for the Tarheels.  In my opinion Illinois was superior and the better 3 point shooter, however the Tarheels guarded the middle whilst giving a lot of 3 point shots to Illinois.  It did not take all game of poor shooting, rather only a cluster of bad shots near the start. Instead of attributing it to random cluster,  Illinois lost confidence and became frustrated.

Lose of confidence and frustration can override skill and teamwork/cooperation. Illinois had both superior skill and teamwork, if the pre-game experts are to be believed.

There is an Indiana Hoosier adaptation to the proverbial sword saying, "live by the 3 point shot, die by it."

Volatility can cut deep in games, trading and life.

James Goldcamp responds:

As a small point of contention, Illinois had superior teamwork, but was not even close on the raw talent scale to the UNC team which boasted 4 first round NBA draft picks (including the # 2 draft pick, vs 2 picks I recall for Illinois). To win the game Illinois had to shoot 3's well as they were no match in the interior. Illinois excellence stemmed from their precise execution and ability to play near the top of their potential consistently.

I would contend that strength in basketball or football seeks to grind and extend the game (increase the N and reduce variability). In basketball this means throwing it in to your big men, in football it means running it down the opponent's throat as long as you dominate the lines. This brings to mind one of the dumbest pundit comments I remember hearing in sports when the Patriots beat the Rams in the super bowl some years ago. John Madden urged the then underdog patriots to sit on the ball and play for overtime in the remaining minutes, instead of driving down the field and kicking the eventual game wining field goal. The underdog has to go for the jugular (shoot the three, throw the bomb, and by all means don't go into overtime) and avoid conservatism. Time is not on their side.

Phillip J. McDonnell adds:

In any risky endeavor it pays to know when to use a high variance strategy and when to play it safe.  This is especially true in sports and investing.

In sports the metric is the win.  You either win or lose, or perhaps tie. The size of the victory is irrelevant.  Excess baskets, touchdowns or runs are ignored.  It only matters who won.  In markets it is not always like that.  How much you won or lost is quite relevant.  The quantity of winnings is passed on to the rest of your trading career.

In baseball the concept of the closing pitcher is entirely rooted in the idea of minimizing the variance for the team which is ahead.  Ostensibly the idea originated with a certain PhD in statistics who consulted for the Pittsburgh Pirates.  He recommended only using their hot short inning pitcher Roy Face as a closer.  If the game was close Face would come in the 8th or 9th inning to turn it into a sure thing - thus minimizing the variance.  If the Pirates were behind or the game wasn't even close the precious resource of his arm would not be wasted and a lesser pitcher would enter the game.  The closer concept persists to this day.  The indisputable all time best closer is Mariano Rivera.

However there are some scenarios where the game of investing more closely resembles classic sports competitions.  When a manager invests money for others without incentives the situation is different.  For a mutual fund manager the incentive is to keep one's job.  His mutual fund management company does not earn greater fees for better performance, they simply get a percent of the assets.  The incentive is to not do badly - minimize the variance.  Doing badly is how a manager gets fired.  The strategy for a mutual fund manger who is ahead a little bit for the year is to play it safe.  He disinvests to reduce his variance and the risk of  falling from positive to negative territory.

So the incentive for a manger who is a little bit ahead for the year at the end of September might be to pull in his horns, go to money market and avoid a down year.  One might even suppose that the market would decline in October of such years.  So the hypothesis is if the market is unchanged to slightly up in September does this presage a sub par October.

c

Jim Sogi, May 2005

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