Of Kamikazes, Lifeguards and Traders

In 1941 Japan possessed the most powerful fleet air arm in the world, its pilots and aircraft were second to none and they had introduced the world to the power of the carrier battle group. The 1st Air Fleet of the Imperial Japanese Navy which was also known as the Kido Butai had devastated Pearl Harbor and powered the Japanese sweep across the Pacific pushing aside Allied forces wherever it encountered them. But within six months the tide had slowly begun to shift as the Americans hammered the Japanese Fleet at the Battle of Midway.

Much of the turning of the tide is put down to the extraordinary industrial output of the United States and this undoubtedly played a part. To get a sense of the energy of US production you need only consider that in October 1942 the US fleet only had one operational but damaged aircraft carrier. By the end of 1945 US shipyards had produced a staggering 28 fleet carriers and 71 light carriers in addition to 28 battleships, 72 cruisers, 377 destroyers, 420 convoy escorts and 232 submarines. A level of production that was unprecedented and will never be matched.

The popular impression is that the US by dent of its massive output simply flooded the Pacific with ships and pushed the Japanese aside. There is an element of truth to this, but it is to be expected simply because of the way US society and industry were organised. In 1941 there were 261 cars per 1000 people in the US. In Japan there were 1.9 cars per 1000 people. Such a disparity starkly illustrates the different ways the countries were organised. Japan was still had a largely feudal piecemeal economy whereas the US was a fully industrialised nation with massive surplus capacity.

However, to say that the US simply buried their enemies under their industrial might misses several key cultural differences between Japan and the US. Both sides had been expecting that war would eventually come but the approach both sides took to the build-up was very different. The Japanese were battle hardened through years of war in China whereas the US relied upon its citizens to fill the ranks of their arm forces when required. The Japanese were aware of this and it factored into their planning. They believed that their highly trained and experienced military would more than over match US industrial capacity and citizen soldiers. In the early months of the war this was certainly true as the Allies suffered some savage defeats.

However, the US military displayed a remarkable capacity for flexibility in tactics and a capacity to learn very quickly. Part of this comes down to the level of planning that had taken place decades before the outbreak of hostilities. The original plan known as War Plan Orange was first laid out on 1911 and it underwent review and testing in the decades before Pearl Harbor. The eventual strategy used by the US to defeat Japan was not much different to the one set out three decades earlier. But it had been stress tested in countless exercises and where it was found wanting or outdated due to advances in technology  it was changed. Evolution and learning were a key part of US strategy.

Japanese doctrine was very different, whilst they too had planned for a war against the US they failed to make any alteration to their plans at all when they were shown to be inadequate. The Japanese and the Americans to a lesser degree were obsessed with the idea of a decisive clash between battle fleets. Each side had envisaged a decisive encounter between battleships in the tradition of Nelson at Trafalgar. The Japanese clung to this idea even after their own success with aircraft carriers had shown this notion to be obsolete.  For the most part the US accepted that the war in the Pacific would be a grind of island hopping and naval attrition powered by carrier battle groups.

The most extreme example of this clinging to dogma can be found with kamikaze attacks against the US Pacific Fleet late in the war. The kamikazes did inflict damage on the US fleet – estimates vary between 47 and 52 ships were sunk by these attacks. Despite being the main target not a single US fleet carrier was sunk by a kamikaze attack. Three light carriers were sunk along with 14 destroyers which bore the brunt of the attacks – the remaining vessels sunk could be considered to auxiliary vessels such as transports and landing craft. Whilst undoubtedly terrifying to those on the receiving end of these tactics the overall impact of them was minimal. Japans greatest fighter ace Suburo Sakai decried the needless waste of pilots and planes in the pursuit of national honour. But once dogma has taken hold there is no shaking it particularly when it is the centrepiece of one’s identity. The US simply pressed on and the Japanese lost what remaining aircraft and pilots they had.

Contrary to this cavalier attitude to their own people was the approach of the US military – it was long understood that carrier pilots are very valuable. They take a long time to train and their skills are invaluable but more importantly they can pass those skills onto others. When considering the war in the Pacific it needs to be remembered that most clashes occurred often hundreds of miles away from land over vast stretches of oceans. Opposing fleets rarely saw each other and for a pilot who was shot down the chances of rescue were slim.

As such the US instigated a technique aptly known as Lifeguards. Before a battle submarines would be deployed along the route and close to the actual battle. The role of these submarines was simple – pick up downed fliers and return them to their units. It is estimated that submarines on lifeguard  duty rescued some 530 downed aviators and returned them to their carriers. The Japanese had no such protocol, once one of their fliers was downed unless they were very close to their own units they were lost forever. Whilst, this technique of placing submarines close to the battle undoubtedly lifted morale it had an immense pragmatic value. Resources are valuable and shouldn’t be squandered no matter how deep you think your reserves are.

Whenever you start to delve into the world of trading psychology the impression is always given that the insights generated are unique in the field of human endeavour. That somehow trading generates behaviours from the dark recesses of the human psyche that have never been seen before. I am not so certain that this is true simply because the vessel that is the human mind only contains a limited number of behaviours and none of these seem all that mysterious when viewed through the prism of history. Consider the themes  central to this piece, planning, flexibility, dogma and the husbanding of resources. All are behaviours vital to successful trading, but they are also reflected throughout history.

For example, the Japanese were obsessed with a single decisive clash and simply could not let go of that idea. Even after it had proved to be an illusion. Traders are obsessed with the idea of a single winning trade. One that will catapult them into the realms of the super wealthy. One need only look at the hysteria surrounding cryptocurrencies. I overhead many a conversation whilst having breakfast of people who were steadfastly locked onto the idea that Bicoin could never ever go down. I even heard one person regaling others with tales of it going to a million dollars and what they would do when it did. I can guarantee you they are still clinging to their idea of the single decisive trade.

The question is often posited as to how the Americans were able to fight a global war. I have already mentioned that US industrial capacity turned out hundreds of ships at the same time as producing almost 100,000 tanks and self-propelled guns, 100,000 fighter aircraft, 110,000 bombers, 250,000 artillery pieces and some 2.5 million trucks. Along with all the other bits and pieces that a modern military need to function. When looking at the statistics you could simply take them at face value and say it was inevitable, but this is simplistic and doesn’t take into account that in 1942 it didn’t look inevitable at all. The Allies were in full retreat around the globe. If I were to offer a reason as to why the US were able to mobilise in such a way I would simply offer because they planned to. When the plan was shown to be inadequate or faulty they changed it. Intriguingly even professional traders are unable to change their plans when they are shown not to be working. How else would you explain the continued under performance of domestic superannuation funds if it were not for some desire to cling to an outmoded idea.

It has been my observation over the past several decades that the majority of traders have more in common with kamikazes than they realise. Why else would traders ride trades into the ground if it were not for some misplaced sense of pride. That somehow what they are doing is glorious. Traders are all too apt to engage in acts of self-immolation simply to try and spite the market. As a function of this they fail to understand the need to husband resources – to in effect set up your own lifeguard for your own protection. Such a simple mechanism of self-preservation enables traders to learn from their failings instead of being consumed by them.

Behavioural economists might wax lyrically about the uniqueness of trading and the challenges it poses but all this does is expose their lack of knowledge about the depth of human history. Whenever, you sit back and look at historical events and think about the motivations, fears and foibles of those involved you begin to understand something interesting. There are no new things under the sun.