Terrorist Group Aims

An excerpt from my PhD thesis notes:


Particular outcomes identified for terrorist groups include: (i) the achievement of a particular strategic vision (Y1); (ii) asset expropriation for decision elite or leadership control (Y2); (iii) promulgation of a particular political or religious ideology (Y3); (iv) continuation through a successor group or institution (Y4); (v) evolving into a political party or developing a political wing (Y5); (vi) devolution into an earlier developmental phase or form (Y6); and (vii) negotiation of a peace deal with a nation-state’s government (Y7).


Process tracing can be used to identify these group aims from terrorist communiques and propaganda.

On Further Research

I’m currently writing up the first draft of the final chapter of my PhD thesis. I’ve identified some possible areas of further research: causal models, red team thinking, machine learning, and more.


I’ve encountered several of these possible areas in the past. I wrote about red team thinking in 2002-04 whilst in the Strategic Foresight program at Swinburne University. At that time, I focused on competitive intelligence, game theory, and the sociology of risk. Causal models arose in an abandoned project in 2008-10 to discover pattern languages in counterterrorism studies. Machine learning interests also emerged in study of hedge fund and high frequency trading platforms.


I need to think further about how to develop these areas into a coherent and viable post-thesis research program. I’m consulting Peter J. Feibelman’s A PhD Is Not Enough! (2nd ed.) (New York: Basic Books, 2011) for relevant insights.


Cyberpunk literature emerged as last week’s weak signal. Sonya Mann posted The Cyberpunk Sensibility at Venkatesh Rao’s Ribbonfarm blog. William Gibson turned up in the new Adam Curtis documentary Hypernormalisation. Hachette Book Group reissued Amazon Kindle versions of Gibson’s influential novels NeuromancerCount Zero, and Mona Lisa Overdrive.


Whilst browsing this media I realised that Cyberpunk themes influence some of my post-PhD thesis research. Gibson’s transnational corporations reflect today’s networks, tax havens, and rising powers. Gibson’s databases and computer networks anticipate today’s hedge fund and wealth management platforms. Gibson’s characters foreshadow the sadder ethos of David Foster Wallace’s novels Infinite Jest and The Pale King.


This insight exemplifies how literature can inform research programs.

Australia’s Strategic Culture

In 2014, I co-wrote an article with Deakin University’s Dr Ben Eltham for Contemporary Security Policy Journal: ‘Australia’s Strategic Culture: Constraints and Opportunities in Security Policymaking.’


CSP and their publisher Taylor & Francis have now made the article available for free here.


My thanks to CSP, Taylor & Francis, and special issue editor Professor Jeffrey S. Lantis for their help in making the article available to a wider readership.

Thesis Summary

A summary of my in-progress thesis from my mid-candidature review documentation:


Terrorist organisations such as Al Qaeda and Islamic State pose a national security threat to Australia. Terrorist organisations that are able to grow in members and resources, and consolidate their power over a longer period of time require different policymaking responses from counterterrorism, defence, and national security experts. This thesis contributes to: (i) a new understanding of how such terrorist organisations formulate their strategies, allocate resources, and engage in decision-making to plan and conduct terrorist operations; and (b) the development of a new strategic cultures framework using case studies of Islamic State and Japan’ s Aum Shinrikyo.

Prisoners of Reason



In 2011 when I began my PhD studies at Australia’s Monash University, Dr Andy Butfoy and I had a conversation about John Nash Jr, Thomas Schelling, the RAND think tank, and game theory. I had also recently re-watched the Adam Curtis documentary The Trap (2007) on how Nash’s insights influenced corporate negotiators and labour unions.


My first task for Andy was to reconstruct the history and prehistory of strategic culture theory-building, I soon found the parallel work of Jack Snyder, Colin S. Gray, and Ken Booth for RAND, the Hudson Institute, and US war colleges. It became clear that Nash and Schelling’s game theory was a rival research program to strategic culture and also to rational choice theory which Snyder adopted in later research.


Now, MIT’s S.M. Amadae has given us Prisoners of Reason: Game Theory and the Neoliberal Economy (Cambridge: Cambridge University Press, 2016) – a well documented history of how game theory’s emphasis on strategic rationality influenced research and policymaking in nuclear strategy, economics, sociobiology, and the environment.


Amadae contends – as Curtis also did in The Trap – that noncooperative game theory and coercive bargaining gave economic and political elites the leverage to dominate others. The result is a highly competitive society in which brinkmanship and rentier extraction outflanks more cooperative solutions: winner-takes-all.


I’ll likely cite Amadae in Chapter 1 of my thesis.

2016 Resolutions

Thesis: I spent much of 2015 writing working notes or on Mid-Candidature Review documentation. In 2016, I’m going to convert much of this unpublished work to redrafted chapters. I will be re-reading some core works of counterterrorism and strategic culture with a focus on their data, methodology, and research design.


Research Program: I will be reading relevant articles and editorial submission guidelines from Contemporary Security Policy; International Security; Review of International Studies; Studies in Conflict and TerrorismTerrorism and Political Violence; and other relevant academic journals. I will also browse the Proquest, Scopus, and SSRN databases, and Australian Research Council, for emerging research. I will follow more relevant researchers on Google Scholar and via the scholarly associations that I am a member of.


Black Box Project: I continue to keep a development diary. In 2016, I will write a series of relevant decision rules.

Portfolio Analysis of UniSuper Management Pty Ltd

UniSuper Management Pty Ltd

  • Superannuation fund for 370,000 current and former employees in the Australian higher education sector.
  • Total market portfolio worth $4,621.91 million as of 27th November 2015.
  • Equities portfolio currently invested in 42 shares. A further 31 shares have recently been divested from according to regulatory filings.


UniSuper Equities Portfolio: Overview

  • UniSuper’s equities portfolio is concentrated in Financials (37.67%), Industrials (32.37%), and Energy (25.32%) sectors.
  • Australian shares dominate the equities portfolio (94.76%).
  • International shares in the equities portfolio are located in the United Kingdom (4.79%), New Zealand (0.028%), and the tax domiciles of Ireland (0.09%) and Luxembourg (0.08%).
  • 93.28% of UniSuper’s equities portfolio is concentrated in six shares.


UniSuper Equities Portfolio: Concentrated Holdings

  • Sydney Airport Holdings Ltd (ASX: SYD): 32.23% of UniSuper’s equities portfolio. 1 year benchmark: 46.96%. P/E: 246.44%. Est. P/E: 60.26%. ROE: 3.45%. Held by 663 mutual funds; 3 pension funds; and 1 hedge fund. UniSuper is the largest institutional shareholder with 15.76% (351.44 million shares).
  • Australian Pipeline Ltd (ASX: APA): 17.64% of UniSuper’s equities portfolio. 1 year benchmark: 18.65%. P/E: 38.53%. ROE: 16.28%. Held by 446 mutual funds and 2 pension funds.
  • Vicinity Centres Re Ltd (ASX: VCX): 13.11% of UniSuper’s equities portfolio. 1 year benchmark: 0.00%. P/E: 14.31%. ROE: 7.96%. Held by 613 mutual funds and two pension funds.
  • GPT Group (ASX: GPT): 15.61% of UniSuper’s equities portfolio. 1 year benchmark: 12.29%. P/E: 15.97%. ROE: 11.59%. Held by 643 mutual funds, 3 pension funds, and 1 hedge fund.
  • DUET Group (ASX: DUE): 7.65% of UniSuper’s equities portfolio. 1 year benchmark: 1.28%. P/E: 26.4%. ROE: 2.78%. Held by 144 mutual funds.
  • ASX Ltd (ASX: ASX): 7.04% of UniSuper’s equities portfolio. P/E: 19.05%. ROE: 10.71%. Held by 510 mutual funds and 4 pension funds.


UniSuper Equities Portfolio: Analysis

  • The concentration on Australian stocks means that the UniSuper equities portfolio may be susceptible to home country bias.
  • The Financials sector concentration is actually in Real Estate Investment Trusts (regional shopping centres and office / retail space).
  • The international holdings emphasise established Anglo companies rather than emerging / frontier markets.
  • The equities portfolio’s construction reflects UniSuper’s emphasis on a Defined Benefit plan component for older employees: SYD, APA, VCX, and GPT as safe, income-generating stocks that are mid- to upper-middle in their sector peer group. The Accumulation plan component is focused on Australian growth stocks (e.g. ASX:JBH) and income generating stocks (e.g. ASX:VLW), and on international stocks that are predominantly on the London Stock Exchange Group (LSE:L).
  • The equities portfolio uses order book / market microstructure techniques to manage its Industrials sector / dominant holding in SYD – similar to how mutual funds and hedge funds accumulate large positions over an extended period of time.
  • The equities portfolio is also constructed around two pairs trades that hedge company/market risk using a market-neutral strategy: (1) APA and DUE in the Energy sector; and (2) VCX and GPT in the Financials / REIT sector. APA and VCX are the respective dominant stocks whilst DUE and GPT diversify the market beta exposure in each sector. The pair trades are 25.29% and 28.72% of UniSuper’s equities portfolio.
  • The SYD concentrated holding (Industrials sector) and the two pairs trades (Energy and Financials / REIT sectors) account for 84.26% of UniSuper’s equities portfolio. There may be anchoring, confirmation, and disposition biases in investment manager decision-making because of this concentration of portfolio holdings.
  • It is not clear that the UniSuper fund uses sector rotation to update its holdings in response to macroeconomic conditions.
  • UniSuper offers a range of investment options — including Socially Responsible Investing — which deflects attention from the fact that its portfolio is very concentrated.
  • Peer / Sector group analysis using relative strength momentum may identify different investment opportunities.
  • UniSuper’s order flow in dominant stocks such as SYD, APA, VCX, GPT, and DUE may be predicted in advance due to the timing of superannuation fund in-flows from universities. This means that UniSuper’s electronic execution services could potentially be ‘gamed’ by high-frequency trading firms that use VWAP (volume weighted average price), TWAP (time weighted average price), accumulation, and momentum ignition algorithms.


Data Source: ThomsonReuters Eikon.

Islamic State as Hypermodern, Momentum Traders

Professor Tyler Cowen (Average Is Over; The Great Stagnation) has posted at his Marginal Revolution blog an email I wrote him about the parallels between Islamic State and the momentum investment strategy in response to an earlier post.


The comments got trolled with posters misunderstanding how momentum strategies actually work; describing strategic culture as a folk theory; and critiquing my graduate school experience via Leo Strauss and the Sokal affair.


There are several parallels between Islamic State and momentum investing:


1. Islamic State has grown rapidly in terms of its mujahideen membership; control of parts of northern Iraq and Syria; and its power projection.

2. Islamic State has outperformed its peer jihadist groups in terms of the impact of its terrorist campaign.

3. Islamic State has persisted over time despite efforts by Iraq, Turkey, the United States, Russia, the United Kingdom, Australia, and France to end it.

4. Islamic State has exploited weaknesses in its enemies through a sophisticated psychological warfare strategy.

5. The Obama Administration may have initially underreacted to Islamic State as a national security threat.


Rapid growth; persistence over time; outperformance of peers; and arbitrage of behavioural biases is observable in momentum strategies for equity stocks.


I thank Tyler for posting my comment and also Gary Antonacci (Dual Momentum Investing) for his insight that momentum strategies rely in part on behavioural biases that are ubiquitous.

Reading Pile

What I’m currently reading:


Abu Bakr Naji’s Management of Savagery: The Most Critical Stage Through Which The Umma Will Pass (2004) translated by William McCants (translation funding provided by Harvard University’s John M. Olin Institute for Strategic Studies): an eye-opening manifesto on the Islamist jihadist plan to re-establish a Caliphate.


William McCants’ The ISIS Apocalypse: The History, Strategy, and Doomsday Vision of the Islamic State (New York: St Martin’s Press, 2015). There are a bunch of quick primers around on Islamic State. McCants is familiar with the source material. He has the language / political science background to understand Islamic State’s ideological vision.


Oliver Morin’s How Traditions Live and Die (New York: Oxford University Press, 2015). Morin posits a new framework for understanding cultural transmission as due to cognitive preferences rather than imitation. Provides theory-building to understand Abu Bakr Naji’s strategic vision and William McCants’ analysis of Islamic State.