Don't isolate your forces

Deploying your capital has some parallels to deploying forces on the battlefield.

In both cases, for instance, you don't have unlimited resources to accomplish everything you want to do. You can't put troops on every single hill -- you have to weigh the costs and the risks and decide where you are going to deploy your forces. Furthermore, you are making these decisions in a very fluid environment (constantly changing) and you never have perfect certainty. In military operations, you have to make decisions that have real consequences and you have to make those decisions in conditions of some uncertainty.

Similarly, in financial operations you are also making decisions in a fluid environment that changes constantly. You must make decisions that have real costs and consequences. And you must make those decisions in conditions of uncertainty as well (at any given time, some people are bullish and some bearish about the same issues, some people think jobs growth will be X and others feel it will be Y, some think the Fed will do A and others are certain it will do B).

Just like in military operations, you don't have unlimited troops to spread around everywhere that you want to put them. If you sign up for Long-Term Care Insurance, for instance, then you are committing resources (capital) on an ongoing basis, typically for many years, and that capital cannot be used towards buying a piece of real estate or investing in a promising company, for instance.

One very important principle of military operations is that you don't want to isolate your forces -- you want them to be "mutually supporting." In the map above, if you are in command of three platoons or three companies or three battalions, you don't want to send one force way off to the left "just in case" the enemy comes that way and then find that the enemy comes from the right and your unit is too far away to come back and support the unit on the right that is under attack. Far better, given the fluid conditions of uncertainty described above, is to be able to shift your forces to the place they are needed and to keep them in positions that can mutually support one another.

This same principle holds true with your capital. You want your capital to work in a "mutually supportive" manner. You don't want to isolate your resources by sending capital off in one direction "just in case" and then find out that you needed it somewhere completely different. However, most people tend to do just that (largely because the players in the financial world want you to "silo" your assets in their domain -- your financial market assets are usually not well coordinated with your real estate assets, and your insurance instruments are in a completely different "silo" and not integrated with either of the others).

Thinking in these terms about the way you are deploying capital is a good way to approach the financial battlefield. Look for ways in which you are "siloing" or isolating your forces and potentially causing attrition that you could avoid.


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