Mario's gone rogue. He's all sweary and angry that you don't know about an acronym that's making it BIG in strategic leadership circles (although he'll never be as angry as me thinking about the existence of strategic leadership circles).

Pushing aside the anger issues that I share with a fictional Italian plumber, VUCA is actually a thing. It goes back to a couple of leadership guys in the '80s, was used in American Military Colleges, and it can be applied to markets. 👇

The deeper meaning of each element of VUCA serves to enhance the strategic significance of VUCA foresight and insight as well as the behaviour of groups and individuals in organizations.
It discusses systemic failures and behavioural failures, which are characteristic of organisational failure.

Weak start I know. Sounds a bit like something you'll hear at one of those sh*t leadership seminars your boss sends you on because they're too scared to tell you that you have no people skills.


We're not going that deep, Elon.

The acronyms are where this becomes useful. These are the things we deal with (struggle with?) in markets every single day.

  • V = Volatility: the nature and dynamics of change, and the nature and speed of change forces and change catalysts
  • U = Uncertainty: the lack of predictability, the prospects for surprise, and the sense of awareness and understanding of issues and events
  • C = Complexity: the multiplex of forces, the confounding of issues, no cause-and-effect chain and confusion that surrounds organisation
  • A = Ambiguity: the haziness of reality, the potential for misreads, and the mixed meanings of conditions; cause-and-effect confusion

How is this useful...?


Markets tend to go through volatility regimes. Because the pound's been in the headlines lately, let's focus on GBPUSD 👇

Perhaps a bit of overload on the chart... Ignore the spikes and follow the 'line' you'll get the idea that volatility expands and contracts over time, often along with the rate of change and uncertainty in a given period.

Obviously it's no surprise that the biggest spikes coincided with the GFC & Brexit vote. So, what does 'normal' volatility look like?

Again, it depends on the regime, daily events, and so on, but this is a basic visualisation of the last 4200 GBPUSD daily ranges (shown in 10 pip increments).

Maths types will excitedly tell you how this looks a lot like a distribution...

And there's merit to that in terms of understanding typical volatility vs abnormal volatility.

Strong odds that when markets are behaving 'normally' the daily range will be between 70 & 140 pips. Now that you understand the volatility in your market, you could build a model around that and profit, right?

Sort of, but not really. It's a useful input, but nowhere near robust enough to generate returns. Especially when you add 👇


Look at the right of that last chart. There have been 54 days when cable traded with a daily range above 400 pips. Those are often the days when things stop working and simple models that were built around what usually happens lose their pot of gold...

The Brexit vote (1792 pips) and GFC (1065 pips) were the two largest, volatile moves in the sample. Two days characterised by massive uncertainty. Everything changed in an instant, and nobody knew what it meant.

Maximum uncertainty goes hand in hand with maximum volatility.

Not that things are ever certain. It's more the case that we can deal with deviations and variance around smaller events. Like when a central bank hikes by more than expected, it can introduce temporary uncertainty ("what does this mean?"), which quickly passes as models are adjusted and probabilities repriced.

Understanding that uncertainty is a permanent feature of markets is one of the toughest challenges. 👇

There Are No Answers: Stop Looking
What’s going to happen next? What does this mean for stocks? Spoiler Alert! Nobody ‘knows’

It will always be an unsolvable puzzle. That's the beauty...

Because the world's a complex place!


This quote from Marks' Illusion of Knowledge sums it up brilliantly

Consider for a moment what we are implicitly asking when we pose the question: Has inflation peaked? We are not only asking about the supply of and demand for 94,000 different commodities, manufactures and services.
We are also asking about the future path of interest rates set by the Fed, which – despite the much-vaunted policy of “forward guidance” – is far from certain.
We are asking about how long the strength of the dollar will be sustained, as it is currently holding down the price of U.S. imports.
The Illusion Of Knowledge
“No amount of sophistication is going to allay the fact that all of your knowledge is about the past and all your decisions are about the future”

And just how complex will the future be? Less than three years ago, who could've predicted Covid, the S&P 500 at 4800, crypto yield-farming, massive inflation, war in Ukraine, election results, and everything else that's 'dominoed' between then and now?

That chaotic mix is what we call everyday life. And we really don't appreciate that complexity because everyone does their little bit and stuff just happens, as if by magic.

We click a few buttons and things arrive on our doorstep. The lights are on at home, but have you ever traced back that process? Like, REALLY, traced it back to the root? All of those inputs into the things that find the energy, extract the energy, convert it to electricity, send it via an electrical grid etc.

It's complex! Even something as 'simple' as making a pencil is ridiculous when you stop and think about it (or read this) 👇

“I, Pencil: My Family Tree as told to Leonard E. Read” - Econlib
I am a lead pencil–the ordinary wooden pencil familiar to all boys and girls and adults who can read and write…. [From “I, Pencil”]
“It is even more astounding that the pencil was ever produced.
No one sitting in a central office gave orders to these thousands of people. No military police enforced the orders that were not given.
These people live in many lands, speak different languages, practice different religions, may even hate one another—yet none of these differences prevented them from cooperating to produce a pencil.
How did it happen?
Adam Smith gave us the answer two hundred years ago.”

Last, but by no means least...


Stuff happens every day that doesn't impact asset prices. Other stuff happens that does.

Separating those things out into direct, quantifiable cause and effect is impossible.
You just end up with unanswerable questions, like these 👇

So much ambiguity, so much noise. And yet, over time, we somehow tune in to what matters and what doesn't.

Maybe then we roll the dice if we think it matters...

Maybe we roll the dice if others are responding to something that we think doesn't matter...

Summing up, do as Mario says. Go VUCA yourself. Those factors all play a massive role in this thing we call markets and are well worth understanding.

(thanks to Adrian for sending me the VUCA framework)