Mar 19, 2020 – It’s May 1972, in the skies over North Vietnam. A squadron of Navy F-4 Phantom fighter jets comes under attack by MiG-17s. The MiGs are slower than F-4s, but North Vietnamese pilots are more experienced than American pilots. And in this case, the Americans are outnumbered as well. One F-4, flown by Lieutenant Randy “Duke” Cunningham, manages to shoot down one MiG, then a second. Most of the F-4 pilots then hit the throttle and head for home, but Cunningham spots a solo MiG and engages with that one as well.

At first, Cunningham’s in trouble—the MiG is solidly on his tail. Cunningham tries multiple maneuvers but can’t shake it. Finally, he hits the airbrakes and the MiG zooms past. Cunningham now has the advantage, and he shoots down his opponent with a Sidewinder missile. That gives Cunningham three kills on the day—five total—making him the first U.S. ace in Vietnam.¹

That kind of steely nerve under pressure would come in handy for many financial professionals these days as volatility rattles the stock market. The COVID-19 pandemic has driven the S&P 500 from its all-time high on Feb. 19, 2020 down into bear market territory in March.² The Dow Jones Industrial Average has also been a roller-coaster ride. Its biggest single-day gains and losses both occurred in March.³

For many investors, and even some financial professionals, this volatility may seem unfamiliar. We watched stock prices rise in a record-long bull market for 11 years.⁴ In contrast, a global crisis and potential bear market have made it increasingly difficult for financial professionals to plot their next move.

How to thrive in this kind of environment? Think like a fighter pilot. Or rather, make decisions like a fighter pilot. Fighter pilots may not seem like they have much in common with financial professionals, but both need to process and react to a high volume of information that is changing all the time. They also both have to worry about crashes (forgive the pun), but of different types.

In the U.S. military, pilots use a framework for making agile decisions in highly dynamic situations. The framework is called the OODA Loop, an acronym for the four steps it involves: observe, orient, decide and act. The concept was developed by an Air Force colonel and highly decorated pilot named John Boyd, who flew in the Korean War. Boyd specialized in ending dogfights—or close air-to-air battles between two pilots—in less than 40 seconds. He capitalized on the uncertainty of his opponents by making quick, effective decisions.⁵

The OODA Loop has been applied far beyond its roots in aerial combat. Military strategists have used it, as have intelligence experts and many non-military professionals: doctors, lawyers, politicians, coaches, and anyone else who needs to think clearly in tough situations.⁵

Here’s a breakdown of the four steps.

1. Observe—Take in information. In the cockpit, this means the performance of your own plane—altitude, fuel, weather—as well as what the enemy is doing. A pilot may not know anything about an opponent, but he’ll know the operating specs of the opponent’s plane and how that country trains its pilots. In investing, the observation step means gathering information about the performance of specific sectors and asset classes, macroeconomic metrics and trends, and your clients’ expectations and goals, among other factors.

2. Orient—Determine meaning from that information based on a current analysis and your previous experience. For example, a plane may be able to climb higher or faster than the enemy, or it may be more maneuverable—all factors that can swing a dogfight.⁶ For financial professionals, the orient step means understanding things like the advantages that an in-person financial professional has over a robo-advisor, or sensing how a new client who seemed nervous during some early-stage meetings may need more reassurance—like a proactive call—during a big stock market plunge.

3. Decide—Make a decision as to how best to capitalize on the observation and orientation steps. Pilots may opt for a specific maneuver, financial professionals for a particular investing strategy or trade. These decisions are usually not black-and-white—i.e., there isn’t one decision that’s clearly superior to all other options. Your task is to pick the best option, based on the earlier observation and orientation steps, and then create a hypothesis around it: a prediction that a particular action will lead to a specific outcome.⁷

4. Act—Last comes action, following through on the decision made in step 3. This may seem like the end of the process, but it’s really just an experiment to confirm the hypothesis. Did the action lead to the outcome you predicted?

Critically, the OODA Loop isn’t an isolated process that you can apply once and then call it a day. As the name suggests, it’s an ongoing loop that happens over and over again, in which each step is constantly changing in response to new conditions. Any action you take will change your situation, and new information is constantly emerging, requiring that you process it and reorient yourself, then make a decision.

Decisions made in aerial combat may have life-or-death consequences. In investing, the stakes are lower, yet they still cost money—for both you and your clients. The OODA Loop may seem simple, but this framework has—literally—been battle-tested. It gives you a structured process with concrete steps to follow, helping you make faster decisions in the face of uncertainty.