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What fighter pilots know that could help your practice

The military’s four-part “OODA Loop”—observe, orient, decide, act—can help you keep a clear head and make fast, accurate calls, regardless of what happens with the market.

It’s May 1972, in the skies over North Vietnam. A squadron of Navy F-4 Phantom fighter jets comes under attack by MiG-17s. The MiGs are slower than F-4s, but North Vietnamese pilots are more experienced than American pilots. And in this case, the Americans are outnumbered as well. One F-4, flown by Lieutenant Randy “Duke” Cunningham, manages to shoot down one MiG, then a second. Most of the F-4 pilots then hit the throttle and head for home, but Cunningham spots a solo MiG and engages with that one as well.

At first, Cunningham’s in trouble—the MiG is solidly on his tail. Cunningham tries multiple maneuvers but can’t shake it. Finally, he hits the airbrakes and the MiG zooms past. Cunningham now has the advantage, and he shoots down his opponent with a Sidewinder missile. That gives Cunningham three kills on the day—five total—making him the first U.S. ace in Vietnam.1

That kind of steely nerve under pressure would come in handy for many financial advisors these days as volatility returns to the stock market. Consider that the S&P 500 experienced some major bumps in 2018—moving up or down at least 3 percent from its intraday low to its high 12 times last year alone. That’s the most in one year since 2011.2 The Dow Jones Industrial Average has also been a roller-coaster ride. Of the 10 biggest one-day gains or losses, fully half occurred in 2018.3

For many investors, and even some advisors, this volatility may seem unfamiliar. Over the long term, the volatility is actually about average with historical norms, but it feels like a big increase, in part because 2017 was such a slow, steady climb.3 But, when you throw in other factors, like ever-present competition and new disruptions like robo-advisors, it can be increasingly tough for financial advisors to plot their next move.

How to thrive in this kind of environment? Think like a fighter pilot. Or rather, make decisions like a fighter pilot. Fighter pilots may not seem like they have much in common with financial advisors, but both need to process and react to a high volume of information that is changing all the time. They also both have to worry about crashes (forgive the pun), but of different types.

In the U.S. military, pilots use a framework for making agile decisions in highly dynamic situations. The framework is called the OODA Loop, an acronym for the four steps it involves: observe, orient, decide and act. The concept was developed by an Air Force colonel and highly decorated pilot named John Boyd, who flew in the Korean War. Boyd specialized in ending dogfights—or close air-to-air battles between two pilots—in less than 40 seconds. He capitalized on the uncertainty of his opponents by making quick, effective decisions.4

The OODA Loop has been applied far beyond its roots in aerial combat. Military strategists have used it, as have intelligence experts and many non-military professionals: doctors, lawyers, politicians, coaches, and anyone else who needs to think clearly in tough situations.4

Here's a breakdown of the four steps.

1. Observe—Take in information. In the cockpit, this means the performance of your own plane—altitude, fuel, weather—as well as what the enemy is doing. A pilot may not know anything about an opponent, but he’ll know the operating specs of the opponent’s plane and how that country trains its pilots. In investing, the observation step means gathering information about the performance of specific sectors and asset classes, macroeconomic metrics and trends, and your clients’ expectations and goals, among other factors.

2. Orient—Determine meaning from that information based on a current analysis and your previous experience. For example, a plane may be able to climb higher or faster than the enemy, or it may be more maneuverable—all factors that can swing a dogfight.5 For financial advisors, the orient step means understanding things like the advantages that an in-person advisor has over a robo-advisor, or sensing how a new client who seemed nervous during some early-stage meetings may need more reassurance—like a proactive call—during a big stock market plunge.

3. Decide—Make a decision as to how best to capitalize on the observation and orientation steps. Pilots may opt for a specific maneuver, advisors for a particular investing strategy or trade. These decisions are usually not black-and-white—i.e., there isn’t one decision that’s clearly superior to all other options. Your task is to pick the best option, based on the earlier observation and orientation steps, and then create a hypothesis around it: a prediction that a particular action will lead to a specific outcome.6

4. Act—Last comes action, following through on the decision made in step 3. This may seem like the end of the process, but it’s really just an experiment to confirm the hypothesis. Did the action lead to the outcome you predicted?

Critically, the OODA Loop isn’t an isolated process that you can apply once and then call it a day. As the name suggests, it’s an ongoing loop that happens over and over again, in which each step is constantly changing in response to new conditions. Any action you take will change your situation, and new information is constantly emerging, requiring that you process it and reorient yourself, then make a decision.

Decisions made in aerial combat may have life-or-death consequences. In investing, the stakes are lower, yet they still cost money—for both you and your clients. The OODA Loop may seem simple, but this framework has—literally—been battle-tested. It gives you a structured process with concrete steps to follow, helping you make faster decisions in the face of uncertainty.

1 Sebastien Roblin, “The Shocking Story of the Vietnam War’s Mystery Fighter Ace,” The National Interest, Sept. 20, 2017.
2 Stephen Grocer, “Big Swings in Stock Market Are at Their Highest Level Since 2011,” New York Times, Dec. 14, 2018.
3 Sarah Hansen, “Market Volatility: A Return to the Old Normal,” Forbes.com, Dec. 12, 2018.
4 “What You Can Learn from Fighter Pilots about Making Fast and Accurate Decisions,” Farnham Street Blog.
5 Richard Feloni and Anaele Pelisson, “A Retired Marine and Elite Figher Pilot Breaks Down the OODA Loop, the Military Decision-Making Process that Guides ‘Every Single Thing’ in Life,” Business Insider, Aug. 13, 2017.
6 Mike Sturm, “The OODA Loop: A Tool for Better Decision-Making,” Merdium, March 11, 2017.

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