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Investment News and Views, Direct from Our Team.

Emergency Procedures Training

All pilots routinely perform emergency procedures training. When we have an emergency that was unexpected, but well trained for, we perform that task as if it were a normal task. It becomes like a habit.

If a pilot experiences a near mid-air collision, you have a 2.5 second reaction time under a reversal procedure for a TCAS event (traffic collision and avoidance system). There is no thinking time. There is no room for error.

Not all emergencies are that simple and many require multiple tasks and time. Not all emergencies follow a script. A large component of emergency procedures is training methods to handle various types of emergencies without prescribed actions. We use first principles such as Aviate, Navigate then Communicate. We follow acronyms such as GRADE (Gather, Review, Analyse, Decide and Evaluate) and NITS (Nature, Intention, Time, Special instructions)

If untrained for an emergency, humans tend to get startle effect, panic, or mental overload. Many are unable to make rational decisions in a crisis. The human mind can only concentrate on about 7 items in the conscious part of the brain. During a crisis, there are often dozens of permutations and combinations. Without training to manage these situations, most cannot act or think rationally.

In the corporate world, there is little to no emergency procedures training. Yet corporate crashes are common.

In the last 20 years, there has been the Tech Wreck, the GFC and Covid-19. Within companies there are improper acts from managers that require action. Continual allocation of capital into loss making ventures. Emergencies happen regularly. Over the last 100 years, the stock market has fallen approximately 37% every 3.5 years.

So why do we not train managers in emergency procedures?

I believe we should.

CEO’s, board members, professional investors and others making key decisions during a crisis should have emergency procedures training. They should have an emergency procedures manual. They should do regular simulations on various scenarios to ensure they are up to date with the latest procedures.

The delay in raising capital by Rolls-Royce and Unibail have caused far lower share prices than otherwise needed to be if the leaders of these businesses acted decisively. The CEO’s of Rolls and Unibail got startle effect and their inaction has caused billions in losses for shareholders. Would emergency procedures training have reduced the losses? Possibly.

Valor continues to build our emergency procedures for investing through crises. Our emergency procedures manual includes when to realise a loss, how to handle various economic conditions (deflation, inflation, stagflation), poor management decisions. We are constantly learning how to evaluate company management in a crisis. Having these procedures allows us to make more informed rational decisions with less emotion during a crisis. The greatest organisations that have ever existed are continual learning machines. Valor strives to continually improve and learn from not only our mistakes, however from mistakes of others.