Just-in-time strategy for an investment/trading portfolio

 

There is value from reading older work on strategic management and applying it to the money management industry. It gives a different perspective with needed structure for making better investment and business decisions. I found an old work "Just-in-time strategy for a turbulent world" by Lowell L Bryan useful for investment thinking. The core concept is that there should be diversification of projects - a diversification of timing for payback and risk as measured by familiarity.

In this just-in-time thinking, there are trade-offs between risk and timing horizon for an investment. Investor should think about having a mix of strategic trades and investments that may have different times to payoff with different types of risk. An investor should also think about the commitment of resources based on timing of pay-offs and the level of risk or familiarity of the project.

Risks can be classified according to relative knowledge or familiarity. There are low risks taken when you may have a high degree of distinctive knowledge that is unique to your organization. There are increased risks when others may have greater knowledge, and there is true uncertainty when there is difficulty with estimating payoffs. 

Your level of trading or commitment to investing should vary with your level of familiarity. Greater investments and risks should be taken in highly familiar areas while low amounts of capital should be given to truly uncertain projects where there is low familiarity. When others have greater knowledge, limited investments should be made as a test or as basis for gaining knowledge. Nevertheless, if you only invest in project and trades where there is great familiarity, there will be a limit on growth and opportunity. If you only invest in uncertain projects, time commitments before a payoff will often be great.  

The timing of resource investments can have an immediate payoff or will take time to provide a return. Firms should have a mix of projects to allow for long-term strategic growth. This thinking can be applied to research. There are short-term projects based on high familiarity, but those should be balanced against longer-term higher risk projects.