Geopolitical Alpha

Chapter 9The Art of the Net Assessment

In the first section of this book, I presented the theory behind the constraint framework and why geopolitics matters for investors. Chapters 4–8 introduced the constraints that really matter, those that sometimes matter, and the weakness of the framework. In the next three chapters, I operationalize the framework. How do investors put it to work and generate alpha?

The first step is to learn the art of the net assessment. The term comes from the US Defense Department's work on long-term strategic analysis, produced by the Office of Net Assessment (ONA).

A net assessment nets out the conclusions of competing analytical approaches. Normally, it is US military forecasters who apply net assessments to adversaries or critical risks over a long-term period. For example, the ONA may produce a net assessment of risks posed by North Korea or climate change.

I left the operationalization of the constraint framework for Chapters 9–11 because investors cannot produce net assessments without understanding what assessments are being netted. Chapters 4–8 focus on the material constraints that influence policymaker behavior – the very factors that an investor or C-suite executive needs to net out in analysis.

The different time horizons, or lenses, for geopolitical forecasting each require a different kind of net assessment. So before diving into examples, I will define the purview of each lens.

Three Lenses of Geopolitical Forecasting

“Geopolitical ...