Overview
A key attribute of most sophisticated institutional investors and risk managers is recognizing change early and adjusting accordingly. Military developments are instructive.
World-beating tank
The Abrams was named after the storied General Creighton Williams Abrams, Jr., a United States Army general who commanded military operations in Vietnam and served as Chief of Staff of the Army from 1972.¹ The weapon was world-class, easily surpassing any other tank on the battlefield.
During the Middle East Desert Storm Operation (to take Kuwait), the Abrams massively outclassed Saddam Hussein’s Iraqi army with night vision capability, longer range, and better weaponry:
“Thanks to new thermal imaging technology on the M1A1 Abrams, the Coalition forces won another lopsided victory at Norfolk, losing a handful of tanks while destroying close to 600 Iraqi tanks.” ²
The Pentagon could rest assured that no tank could rival the Abrams.
You can run, but you can’t hide
However, as is often the case, times change, and what was once invincible becomes vulnerable. The change is bomb-fitted FPV (first-person view) drones. For the cost of merely $500 or less, a drone operator can spot and attack a $10+ Million³ Abrams with little risk to themselves. In fact, drone operators can skip the typical boot camp and simply apply their video game expertise to the easy-to-use drone operations platform. Additionally, drones can be equipped with anti-tank and anti-personnel bombs along with grenades to make the opponent’s life hellish. Lastly, even wounded soldiers can serve as drone operators, as the physical demands are minimal. In fact, HOOTL (human-out-of-the-loop) self-piloted killer drones have already been deployed in Ukraine.
Wrong Response
Pentagon senior officers claim that the conditions and the utilization of the Abrams are wrong and that the tanks remain a superior weapons system.⁴ However, our view is that tanks, in general, are just the latest victim in the “faster, cheaper, better” paradigm. Prior victims include forts, rendered obsolete by rifled cannons; battleships, superseded by aircraft carriers; and soon aircraft carriers, likely defenseless against newer missile systems and drone swarms.
In all of warfare, there is a cat-and-mouse game of offensive and defensive capabilities. Some innovations lead to modification of existing platforms (such as rifles), while others are abandoned entirely (such as cavalry). There is no doubt that the paradigm will continue to shift.
Conclusion
In terms of relevance to sophisticated investment and risk managers, the theme is perhaps that technology continues to make old forms of commerce obsolete at a fairly rapid pace. Just as early leaders in the computer revolution are no longer the leaders today (think Xerox, Hewlett-Packard, Intel), it is probably unrealistic to expect that General Dynamics, the manufacturer of the Abrams, or even General Atomics (maker of the $20M Predator drones), to have the expertise or ability to lead future paradigm shifts.
Sources
[1] https://www.reaganfoundation.org/library-museum/permanent-exhibitions/m-1-abrams-tank
[2] https://www.history.com/news/tanks-abrams-persian-gulf-war
[3] Google search: Abrams tank cost; AI Overview
[4] https://www.youtube.com/watch?v=39dzo99G-XE&t=7s