This week the noted management consultant, Russell Ackoff, passed away. He was famous for gathering data and trying to use it to make the correct decision. His fundamental theory was this:
All of our social problems arise out of doing the wrong thing righter. The more efficient you are at doing the wrong thing, the wronger you become. It is much better to do the right thing wronger than the wrong thing righter! If you do the right thing wrong and correct it, you get better!
Since the origination of Modern Portfolio Theory in the 1950s, academics and practitioners have been polishing it up and implementing in better and better ways. It may just have been a case of getting more efficient at doing the wrong thing—and the wronger it got. After 2008, even many of its supporters began to acknowledge that there were problems with its implementation.
This recognition has fueled a rush to the new magic potion, tactical asset allocation. If tactical asset allocation is indeed the “right” thing, it should work out better than doing something wrong. Yet there are significant challenges in the design and execution of a systematic tactical asset allocation process as well. I think going forward, it’s going to be important to distinguish between marketers who are trying to exploit the latest fad and practitioners who have a well-thought-out and well-executed process for tactical asset allocation.
