Too much speculation, not enough investment

John Bogle

The title and inspiration of this blog comes from Chapter 2 of John Bogle’s book “Enough: True Measures of Money, Business and Life”. In it, Bogle highlights the fact that in today’s financial sector there is far too much focus on speculation (i.e. “short-term trading of financial instruments – pieces of paper”) and not enough on investment (“long-term holding of businesses” – i.e. real and lasting assets).

Bogle argues forcefully that speculation is literally a zero-sum game – for every winner there is a loser and the net gain over time across all the players is always exactly zero. Speculation is basically betting on market movements and markets are essentially chaotic. While some people might sometimes win in the short term, as any gambler knows, consistently betting on the completely unpredictable never pays-off long term.

Investment, on the other hand, is a win-win game: over time, because the asset base as a whole always increases in value over the long-term, so there is a net gain across all the players, and it is possible for each and every player to make gains from their investments.

We do not have to look too far in the world of IT and product development to find some clear resonance and obvious parallels to Bogle’s characterisation of the world of financial investment. Software development is increasingly being recognised as behaving like a highly chaotic system in which there is continuous ongoing change to all aspects of our endeavours, including both our understanding and the underlying reality of both the ends (requirements) and the means (technology and solution design).

And it is because of this that we rightly increasingly prize the ability to respond to change and adapt to changing circumstances, which is fundamentally what agility is all about.

In such an uncertain environment it is certainly better to invest in “the gold standard” of the IT world – the only stuff with any real intrinsic value, i.e. working software – rather than putting any lasting faith in derivative products – pieces of paper – the documents that bear the promise of possible future returns (if the market doesn’t move in unfavourable ways). That way, if events take any kind of unexpected turn for the worst (perhaps funds and resources are diverted elsewhere), at least we have some value we have “banked” from our investments to date.

But this investment strategy only guards us against certain kinds of change. In the longer term we know that the relative value of features waxes and wanes, investment opportunity windows open and close, projects and even programmes come and go. So what are the real long-lived assets that we should look to invest in to ensure that our software business can and will thrive in the long term?

The answer, of course, is that the truly long-lasting asset of a software business is the people. These are actually the only real assets of any knowledge business. As Mary and Tom Poppendieck put it in their book Leading Lean Software Development: Results Are Not The Point: “In knowledge work, success comes entirely from people and the system within which they work. Results are not the point. Developing the people and the system so that together they are capable of achieving successful results is the point”. If we do not invest in people, we may be able to ride our luck and make short turn gains if the market happens to favour us, but like any betting the long term prospects of trying to “buck the market”. Which is why Tom and Mary Poppendieck conclude: “Trying to force results beyond what your development system is capable of might achieve results in the short term, but will invariably make things worse over the long term”.

The bottom line, as Bogle puts it, is: “Concern about the known risks that are already presumably reflected in the level of market prices? Concern about the unknown risks? (It is no mean concern to divine the unknowable.)”.

As with any such conclusion, the primary need to invest in people seems obvious with hindsight. And I’m sure you are all nodding sagely, but slightly dismissively thinking “well, obviously, yes, but …”.

But how many IT businesses have really internalised and truly learnt this lesson? How many have at the top of their investment portfolio an active strategy to nurture the people, teams and organizational culture that is needed to rapidly respond to any change and apply sound professional judgement to solve unique problems and consistently deliver value in ever changing circumstances?

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