Optionality

As an investor, the way we should identify potential investment opportunities are the ones that offers the value of optionality. Where the investment yields a large upside potential and minimal downside risk. While this may seem like common sense, in reality, not many applies such logic in making an investment decision. Very often, people are swayed with what I call stories otherwise also known as growth prospects. I would like to share with you a joke, an excerpt from Charlie Munger: The Complete Investor.

An investment banker and carpenter are sitting next to each other on a long flight. The investment banker asks the carpenter if she would like to play a fun game. The carpenter is tired and just wants to have a nap, so she politely declines and tries to sleep. The investment banker loudly insists that the game is a lot of fun and says, “I will ...