Jeff Muhlenkamp: Include ‘War-Game’ Scenarios In Your Investment Selection Process

In this interview with the Excess Returns Podcast, Jeff Muhlenkamp discusses how he includes war-game scenarios in his investment selection process. Here’s an excerpt from the interview:

Muhlenkamp: When you plan an operation in the Army you have to ‘war-game’ out what you think the enemy is going to do, right.

So the enemy’s always got a vote and they’ve always got choices about how they engage with you. And I didn’t actually do this in the war but this was during training exercise stuff.

So you learn how to war-game potential futures and you think about what might happen and then how you should react. And what’s the earliest point at which you know the enemy is going to take a certain course of action.

So if I’m defending for instance a hilltop and the enemy can come at me from the center, or the left or the right, well how do you know what are his decision points that is the last point where he can change his mind.

And so once he passes this point he’s now committed and then you’ve got kind of a read on what he’s doing.

So that way of thinking where there are multiple possibilities, and you have to track which one is starting to develop, I think is very useful today. I use that method every time I think about what the future of the economy is going to be, or what the future of a stock is going to be. It’s similar to how punters analyze trends when choosing the best horse racing bookmakers, considering various factors before placing their bets. That kind of approach—examining the broad spectrum of possibilities and then gradually eliminating options—proves to be a valuable strategy in making more informed decisions.

You can watch the entire discussion here: