Scenario Prepping as an Investment Strategy

I had an interesting idea last week about investing.

The idea is that you get a bunch of experts in history, economics, politics, and sociology into a single room to perform analysis on current events. They evaluate the news with the goal of predicting future events (but not so much when they’ll happen).

They build a set of scenarios that are likely to take place given current trends (think Assimov’s psychohistory). So imagine they’re analyzing some obscure news out of Africa, where a rebel group could possibly take control over a particular region within a couple of weeks.

Well, what they know, and virtually nobody else does, is that this will significantly affect the cost of diamonds, or gold, or some other commodity. Once this happens the news must first spread, then investors must parse the information and learn about the opportunity before seizing it.

The time between it happening and that point of “common knowledge” will be golden buy time, and anyone who is prepared to act on it immediately will have a completely dominant position.

So the idea is to have a number of these scenarios sitting with alarms on them. Each one of them is tied to specific investment actions which will take place upon the event triggering. And those actions will be defined by the analysis of what will likely take place (based on the combined analysis of this collective group of experts) once the event occurs. So:

• If North Korea attacks South Korea, there will be a run on x for the following reasons. Company a and b company sell the most x, so the moment we hear the news we will execute plans 1, 2, and 3 with regard to companies a and b.

• Obama is about to pick a new head of NASA. Out of the people he’s picking, which companies will benefit from each of them being elected? The moment he makes his choice, jump on those companies.

[ Retrospect: What companies benefit from manned space-flight missions? ]

These can range from rather obvious playouts like the ones above, to pretty obscure / unlikely scenarios–like what companies would benefit from a small terrorist within the United States. You could even have two different arms of the analysis team–one for the mainstream and one for the obscure [high vs. low risk / payout]

Essentially, this company would already have several plans pre-prepared based on trend analysis within multiple areas of expertise, and when those events did actually occur their investment arm would execute instead of scrambling to figure out how to do so. ::