Sharing from the 25IQ found interesteing
1. ”Optionality is the property of asymmetric upside (preferably unlimited) with correspondingly limited downside (preferably tiny).” Venture capital, when practiced properly by a top tier firm, is a classic example of a business that benefits from optionality. All you can lose financially in venture capital is what you invest and your upside can be more than 1000X of what you invested. Another example of optionality is cash held by a disciplined patient value investor with the temperament to not buy until Mr. Market is fearful. As just one example, Warren Buffett did exactly this during the recent financial panic and earned $10 Billion by putting his cash to work. Seth Klarman, Howard Marks and other value investors use dry powder in the form of cash to harvest optionality since Mr. Market is bi-polar.
2. ”‘Long volatility’ in trader parlance, has positive optionality.” As an example, the optionality of cash allows the holder to buy assets from people who were “short volatility” when a crisis hits. The wise value investor sits and waits patiently for Mr. Market to deliver a fearful market and when the intrinsic value of a company’s shares presents a “margin of safety” buys in quantity. Continue reading “A Dozen Things from Nassim Taleb about Optionality/Investing”