The phrase “months of boredom punctuated by moments of terror” is more than a century old. You can find it in the New York Times’ “Current History of the European War,” published in 1915, as a description of infantry work in the trenches.

The concept still applies to modern warfare today. It also applies to investing, to the extent that markets switch between long periods of calm and occasional bursts of hair-raising volatility.

In the United States Navy, warship crews prepare for high stakes moments by developing something called a “battle rhythm.” The routines of the battle rhythm ensure a calm and smart response in the midst of dangerous situations. Investors can adopt this concept, too.

For the U.S. Navy, a smooth response is critical because the wrong move could be disastrous. If a military incident is wrongly interpreted as a hostile action, a shooting war could be the result, with a cascading series of events then spiraling out of control. And naval conflict on the high seas is now a recurring theme:

  • On June 7, 2019, a billion-dollar U.S. warship barely avoided a collision with a Russian destroyer 200 miles off the coast of Japan. The Russian ship had closed within 100 feet and seemed determined not to change course.
  • In October 2018, a Chinese destroyer nearly struck the USS Decatur.
  • The U.S. Navy is now on high alert in the Middle East due to tanker attacks near the Strait of Hormuz, one of the most geopolitically sensitive waterways in the world.

The greater the risk of conflict, the more important it becomes to maintain flawless execution in every situation. The Wall Street Journal explains how warship crews accomplish this in a recent piece titled, “In Menacing Seas, the Navy Relies on Battle Rhythm.”

Here is how WSJ reporter Sam Walker describes it:

“A battle rhythm isn’t quite as dramatic as it sounds. It has very little to do with firing weapons and everything to do with setting a routine…

Once the captain’s cadence is honed to perfection, the crew begins to function at a uniform pace. Department leads organize their own workflows around it, devising new synergies that make the ship’s operations more efficient.

The ultimate goal, of course, is to help the crew prevail in a crisis. When a team does the same things at the same times at the same pace for months, the thinking goes, habits form. Muscle memory begins to crowd out the mind space that might otherwise be flooded with panic and hesitation.

In other words, a crew in sync wins at war because it makes good decisions quickly and unconsciously with minimal oversight.”

There is a neuroscience concept at work here known as “automaticity,” which is the ability to carry out tasks with minimal conscious effort.

Think of the difference between learning to drive a car versus driving a car for decades. The teenager has to think about everything, and consciously focus on every important aspect of the driving experience. For the experienced driver, driving requires little conscious effort at all. The difference is automaticity, which is acquired via practice over time.

Automaticity, which is powered by familiarity, habit, and routine, becomes crucial in high-stress situations, and especially crisis situations, because the stress of the event crowds out the ability to think and focus. In times like these, the mind and body fall back on routines learned by heart. If a high-quality routine is not available, the mind may substitute a bad one — or worse yet, a panic reaction.

This explains why it’s important to establish routines and habits well before a crisis starts. If a Navy warship captain, or an investor for that matter, tried to devise a high-stress response plan in the midst of a real-time situation, it would probably be too late.

The time to develop established routines and methods — and then practice them to perfection — is during the calm period before the storm hits, which is exactly what the battle rhythm is all about.

Another way in which Naval patrols and investing are similar is that, when it comes to high stakes situations, 5% of the actions can drive 95% of the results.

In other words, the career success of a Naval warship captain may not be judged by the thousands of hours when nothing happened; it will likely be judged by the small handful of hours when mission-critical decisions were made.

Similarly, one of the biggest challenges in preserving and growing investment capital over decades is not sticking with an intelligent plan when things are calm; it’s sticking with the plan when volatility hits.

Investors can develop their own battle rhythms by creating routines and planning out scenario responses in advance. With routines that are deeply familiar, it’s easier to “keep calm and carry on” in the midst of raging volatility storms. And if scenario responses are planned out in advance, a checklist of actions reduces the “cognitive load” of having to decide things in the moment, making it easier to stay on track.

Investment software can play a role in devising battle rhythms by helping investors make concrete decisions. This happens through a combination of information and alerts. The software can present data in an informationally useful way, giving the investor visibility on exactly what’s happening; and it can also provide alerts, giving the investor a reliable “heads up” when action is needed.

If you have a plan to exit a position if the TradeStops trailing stop is hit, for example — and if you have a natural routine in which you pay attention to TradeStops’ position alerts and follow through on them automatically — the mental energy requirements for decision-making will be lower in high-stress periods.

Developing a battle rhythm also has a payoff in calm periods — not just those rare windows of time when volatility storms hit — to the extent that a well-designed routine encourages day-to-day best practices.

If you establish a habit of practicing high-quality investment discipline on a small scale, over hundreds or thousands of day-to-day decisions accumulated across decades’ worth of investing, you create the opportunity to compound the gains from all those good decisions over time.


Founder, TradeSmith