Nononoooo – not related to THAT AK. Indulge me if you are bored and have a few minutes to spare because I’m inspired by my current erm, annual obligations. I think I figured out why I disliked so many aspects of being a man in green.

We Are The Lowest Denominator

By nature, such an organization is enormous, and consists of men and women of varying calibre. Whether they are there by choice or not is another story.

Naturally, many of the systems in place has to be dumbed down such that even the least capable soldier is able to understand and perform his role. Inefficiencies are hence introduced.

The key thing is that the reverse is not possible. You cannot expect the average grunt to improve and be able to function in complex systems.

Adapting The System To The People

The Russian AK-47 assault rifle is an interesting example of designing a product to fit the demographics.

The AK-47 is designed with reliability as one of the top criteria. Pull the trigger and in all likelihood it will fire. In war time, there could be little or no maintenance for weapons. Being able to fire your weapon is a matter of life and death and therefore, utmost priority.

Unfortunately, any other combat advantages of the rifle is sorely missing. It definitely isn’t designed for accuracy at significant distances, because statistically speaking the average human holding it would not be an excellent shooter anyway.

This is especially so, when under a stressful situations like being fired upon!

Fighting The Human Instinct

Looking closer, there is another interesting detail that indicates that the weapon is designed to safeguard against basic human reactions. An average weapon for the average person. You see, not all of us are built for the battlefield.

Taking the previous example of being in a firefight. If you were in that situation, what would you do? If it were up to me, I’d flick the switch of my M-16 to disengage the “safe” mode and fire back! (These days we actually use the new SAR21)

More importantly, for the AK-47, the selector is designed in a linear manner: safe, full-auto, semi-auto.

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Doesn’t seem intuitive at first glance, but the design to place full-auto before semi-auto is deliberate. Under stress, more often than not a soldier would panic and turn the selector all the way to the end and fire away without thinking. Pure instinct from years of evolution. Full-auto mode and trigger squeezing would result in an empty magazine in seconds. Bad for staying alive.

This situation is prevented by design because now, full-auto mode is selected as a result of active decision making by NOT turning the selector all the way to the end.

How awesome is that?!

For the some of us with M16 experience, do you remember how it was designed? If I recall correctly, the safe mode is actually in the middle. You flick it to either left or right side to choose the corresponding mode. Not the worst design I suppose. When gan-jiong might still flick it to the wrong direction.

AK-47 Reminds Me Of Index Investing

What happens if the average grunt is assigned to man intercontinental missile systems or nuclear submarines, for example? Not going to happen, right?

In the world of finance and investment, there is an endless list of instruments available to us. Some more complex (or devious) than others. Many are instruments with no restrictions as to who can have access.

Does the average investor know he or she is an average investor? Make a guess on the likely outcome?

Cheap and Reliable

In some ways, traditional index investing is like the AK-47. Cheap, designed for reliability (since it simply tracks the index via physical replication) instead of performance, and nothing much else.

Not exciting. No mind-blowing technology. Pretty much designed for the average investor in mind to do exactly one thing. Get market returns.

Prevent Self-Destruction

And an added bonus, it can easily prevent average investors from self-destructing (remember the finger on trigger, full-auto mode problem) when faced with volatile markets. Don’t just meltdown, sell everything and hide your head in the sand like an ostrich.

What we can do is to use a simple battle plan of asset allocation and rebalancing periodically regardless of market conditions. Try weathering the storm in the turtle shell instead.

Be Vigilant

Is index investing the best strategy for investing? Not necessarily. Is it the worst? Definitely not. Will it suit the average investor? Probably. Is it a good place to start? Maybe.

It is what it is. Just like you can get yourself or your buddy killed when misfiring your weapon, the same goes for index investing. There are pitfalls and there are risks. Learn everything you can about it. Be open to alternative views. Misuse it and you will have to face the consequences.

With time there are going to be new instruments that tout itself as the best (or safest) thing ever created. Just like how the SAR21 has rendered the M16 obsolete for old grunts like us. Regardless of how perfectly designed and well-built (which the SAR21 is), at the end of the day it is still a weapon that can kill. Yes, friendly-fire included. Who is the lowest denominator?

By the way, the SAR21 is a truly amazing piece of equipment, at least to me. It is truly fascinating how easy it is to operate the SAR21. As a first time firer of the weapon (in fact, of any weapons in the past 13 years) without going through weapon zeroing, we got marksman on our first attempt at combat shoot. Scary stuff.

The AK-47 isn’t the greatest of weapons when compared to others, but it does its job extremely well. Perhaps the same could be said of index investing. Maybe I am just an average investor. But I’ll be OK. I think.

Read More About Index Investing

Beginner’s Guide To Index Investing
Establishing Bogleheads 3-Fund Portfolio In Singapore
Asset Allocation