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jerryking : optionality   12

The Psychology of Money · Collaborative Fund
“Investing is not the study of finance. It’s the study of how people behave with money… It helps, I’ve found, when making money decisions to constantly remind yourself that the purpose of investing is to maximize returns, not minimize boredom. Boring is perfectly fine. Boring is good. If you want to frame this as a strategy, remind yourself: opportunity lives where others aren’t, and others tend to stay away from what’s boring.......few things in money are as valuable as options. The ability to do what you want, when you want, with who you want, and why you want, has infinite ROI.”

The finance industry talks too much about what to do, and not enough about what happens in your head when you try to do it.

This report describes 20 flaws, biases, and causes of bad behavior I’ve seen pop up often when people deal with money.
biases  personal_finance  psychology  boring  optionality  investing 
june 2018 by jerryking
The Trouble with Optionality | Opinion | Commencement 2017 | The Harvard Crimson
By MIHIR A. DESAI May 25, 2017

This emphasis on creating optionality can backfire in surprising ways. Instead of enabling young people to take on risks and make choices, acquiring options becomes habitual. You can never create enough option value—and the longer you spend acquiring options, the harder it is to stop. The Yale undergraduate goes to work at McK for two years, then comes to HBS, then graduates and goes to work Goldman Sachs and leaves after several years to work at Blackstone. Optionality abounds!

This individual has merely acquired stamps of approval and has acquired safety net upon safety net. These safety nets don’t end up enabling big risk-taking—individuals just become habitual acquirers of safety nets. The comfort of a high-paying job at a prestigious firm surrounded by smart people is simply too much to give up. When that happens, the dreams that those options were meant to enable slowly recede into the background. For a few, those destinations are in fact their dreams come true—but for every one of those, there are ten entrepreneurs, artists, and restaurateurs that get trapped in those institutions......optionality is a means to an end.
....The shortest distance between two points is reliably a straight line. If your dreams are apparent to you, pursue them. Creating optionality and buying lottery tickets are not way stations on the road to pursuing your dreamy outcomes. They are dangerous diversions that will change you....By emphasizing optionality...students ignore the most important life lesson from finance: the pursuit of alpha. Alpha is the macho finance shorthand for an exemplary life. It is the excess return earned beyond the return required given risks assumed. It is finance nirvana.

But what do we know about alpha? In short, it is very hard to attain in a sustainable way and the only path to alpha is hard work and a disciplined dedication to a core set of beliefs. ....one never even knows if one has attained alpha......Ultimately, finding a pursuit that can sustain that illusion of alpha is all we can ask for in a life’s work.....So, give up on optionality and lottery tickets and go for alpha. Our elite graduates need to understand that they’ve already been winners in the lottery of life—and they certainly don’t need any more safety nets.
optionality  Mihir_Desai  drawbacks  safety_nets  alpha  straight-lines  hard_work  self-discipline 
december 2017 by jerryking
Emerging markets offer clue for investors in 2017
December 31/January 1 2017 | Financial Times | by Gillian Tett.

Now (people = politicians = capriciousness/alternatively, unpredictable waves of populism) are shaping events, not established party platforms or policy programmes....the pricing of political uncertainty has moved from being an emerging market phenomenon to an emerged market issue....Is there any way for investors to adapt to this new world? ....(1) Start by abandoning the idea that asset values can be predicted by using neat economic models alone. ...investors urgently need to think about the difference between "risk" (i.e. events that can be predicted with a certain probability) and "uncertainty" (i.e. unknown future shocks). Until now, investors in developed markets have tended to focus primarily on risks and assume that these can be priced (and hedged against). But 2017 is likely to produce uncertainty. That cannot be easily priced or hedge--and investors should recognize this. (2) Investor should also embrace "optionality": the only way to prepare for a world of uncertainty is to stay as flexible and diversified as possible. Now is not the time for investors to put all their eggs in one basket, or bet on just one asset class. Nor is it time for businesses to be locked into rigid business plans: political and geopolitical upheaval could strike almost anywhere. (3) If 2017 does deliver more risk and uncertainty, expect financial markets to be "skittish" about "news" of all types, and not just economic....Bad news for those who despise market volatility (expectation: we're in for volatility like we've never seen before)....Uncertainty can deliver huge opportunity alongside risks..."good" surprises....Surviving 2017 in the developed economies requires that investors use tools beyond those found in the realm of economics: psychology, sociology and political science. Also, talk to successful emerging market investors to find out how they practice their craft.
concentration_risk  Gillian_Tett  emerging_markets  political_risk  unpredictability  Brexit  investors  Donald_Trump  uncertainty  risks  optionality  geopolitics  financial_markets  politicians  volatility  tools  economics  psychology  sociology  political_science  FT  institutions  rule_of_law  Gary_Cohn  populism  indicators  human_factor  assets  asset_values  asset_classes  diversification  dislocations  bad_news 
january 2017 by jerryking
Goldman breaks tradition with unconventional choice
December 17/ December 18, 2016 | Financial Times | Ben McLannahan.

His promotion to chief information officer in 2013 ― after a stint at Credit Suisse and Kiodex, an energy trading software company ― meant that he sat atop Goldman’s biggest division, accounting for about one-third of global headcount.

A big part of that job has been bringing down the amount the bank spends on maintaining old systems, which consume about one-third of Goldman’s annual $3bn tech budgets, according to estimates by Credit Suisse analysts.

He has also taken a page out of Google and Facebook’s playbook and started giving away some of the bank’s trading technology to clients via open-source software, inviting them to use it and improve it.

What sets Mr Chavez apart is “his ability to take decisive action based on what the world will look like in five to 10 years”, says Tom Farley, president of the New York Stock Exchange, who worked with him at Kiodex. “Other people may have a view of the future but they’re afraid to act on it.”

In an address to Goldman interns this summer, Mr Chavez told them that as a new graduate, he wanted to “get busy and do a bunch of things”. When he landed on Wall Street, he learnt that people called that attitude “optionality”.

“You don’t know that these options are going to be worth something, but if you do the work, pay the premium, own a whole bunch of these options on a lot of different outcomes and you’re diversified enough, probably something will work out,” he said.
Goldman_Sachs  Martin_Chavez  CFOs  appointments  Wall_Street  unconventional  SecDB  databases  generating_strategic_options  forward_looking  CIOs  Hispanics  optionality  new_graduates  legacy_tech  playbooks 
december 2016 by jerryking
The Choice Explosion - The New York Times
David Brooks MAY 3, 2016

Americans have always put great emphasis on individual choice. But even by our own standards we’ve had a choice explosion over the past 30 years.....making decisions well is incredibly difficult....It’s becoming incredibly important to learn to decide well, to develop the techniques of self-distancing to counteract the flaws in our own mental machinery....assume positive intent (i.e. when in the midst of some conflict, start with the belief that others are well intentioned).....People are overly biased by the immediate pain of some choice, but they can put the short-term pain in long-term perspective by asking these questions [Suzy Welch’s 10-10-10 rule. When you’re about to make a decision, ask yourself how you will feel about it 10 minutes from now? 10 months from now? and 10 years from now?]....make deliberate mistakes....our tendency to narrow-frame, to see every decision as a binary “whether or not” alternative. Whenever you find yourself asking “whether or not,” it’s best to step back and ask, “How can I widen my options?” In other words, before you ask, “Should I fire this person?” Ask, “Is there any way I can shift this employee’s role to take advantage of his strengths and avoid his weaknesses?”....It’s important to offer opportunity and incentives. But we also need lessons in self-awareness — on exactly how our decision-making tool is fundamentally flawed, and on mental frameworks we can adopt to avoid messing up even more than we do.
David_Brooks  choices  decision_making  biases  thinking_deliberatively  scarcity  self-awareness  metacognition  binary_decisionmaking  abundance  optionality  narrow-framing  Suzy_Welch  wide-framing  self-distancing 
may 2016 by jerryking
Want success? Limit your options - The Globe and Mail
HARVEY SCHACHTER
Special to The Globe and Mail
Published Sunday, Jul. 20 2014

Like Cortez who burnt his ships, limit your options to be successful. Careers blogger Penelope Trunk says having a lot of alternatives makes you lazy, increases anxiety, and leads to decision avoidance. Ignore the fear of some formidable project or career leap; just go for it, without fallback possibilities.
Harvey_Schachter  GTD  constraints  optionality  alternatives 
july 2014 by jerryking
Gas deal with Russia a ‘drop in the bucket’ for China
May. 24 2014 | The Globe and Mail | Campbell Clark.

Why? Nearly all growth in demand for energy will come from emerging economies, but especially China. Its needs will shape global prices. If it suffers shortages, or supplies are at risk, it will send price shocks through world markets.

That would hit the U.S. economy – because “we pay global prices,” Mr. Pascual said. And a U.S. slowdown would hurt Canada, even if energy exporters benefit from price spikes.

There are also critical questions of how energy affects geopolitics, made sharper in the Ukraine-Russia crisis. Moscow has used energy as a political lever, shutting pipelines to Ukraine, while Europe’s dependence on Russian gas has cooled drives to tougher economic sanctions.

Mr. Pascual, however, believes Europe’s example offers hope in preventing a nation from using energy as a political lever in Asia.

Europeans invested in infrastructure so natural gas can flow in different directions, rather than just westward from Russia. They banned “destination clauses” so Russia’s Gazprom can no longer bar customers from re-exporting gas. That promotes competition, and allows Ukraine to get gas through Poland, Hungary and Slovakia, Mr. Pascual said. Europe is also building infrastructure for liquid natural gas, shipped from places like Qatar.
natural_gas  Russia  China  geopolitics  energy  energy_security  LNG  Asian  price_spikes  Gazprom  optionality  petro-politics 
may 2014 by jerryking
Minorities possible unfairly disqualified from opening bank accounts | mathbabe
August 7, 2013 Cathy O'Neil,

New York State attorney general Eric T. Schneiderman’s investigation into possibly unfair practices by big banks using opaque and sometimes erroneous databases to disqualify people from opening accounts.

Not much hard information is given in the article but we know that negative reports stemming from the databases have effectively banished more than a million lower-income Americans from the financial system, and we know that the number of “underbanked” people in this country has grown by 10% since 2009. Underbanked people are people who are shut out of the normal banking system and have to rely on the underbelly system including check cashing stores and payday lenders....The second, more interesting point – at least to me – is this. We care about and defend ourselves from our constitutional rights being taken away but we have much less energy to defend ourselves against good things not happening to us.

In other words, it’s not written into the constitution that we all deserve a good checking account, nor a good college education, nor good terms on a mortgage, and so on. Even so, in a large society such as ours, such things are basic ingredients for a comfortable existence. Yet these services are rare if not nonexistent for a huge and swelling part of our society, resulting in a degradation of opportunity for the poor.

The overall effect is heinous, and at some point does seem to rise to the level of a constitutional right to opportunity, but I’m no lawyer.

In other words, instead of only worrying about the truly bad things that might happen to our vulnerable citizens, I personally spend just as much time worrying about the good things that might not happen to our vulnerable citizens, because from my perspective lots of good things not happening add up to bad things happening: they all narrow future options.
visible_minorities  discrimination  data  data_scientists  banks  banking  unbanked  equality  equality_of_opportunity  financial_system  constitutional_rights  payday_lenders  Cathy_O’Neil  optionality  opportunity_gaps  low-income 
december 2013 by jerryking
Taking Risk To the Marketplace
March 6, 2000 | Fortune Magazine | By Thomas A. Stewart.

* "You should always value the ability to move and change, because that creates options, and options are valuable,"
* Traditional risk management, with its emphasis on real property and financial events, isn't enough for knowledge companies, whose big risks are intellectual assets, such as brand equity, human capital, innovation, and their network of relationships.
* you have to know what's at risk-- which isn't always easy for intangible assets.
* Each intangible asset has a different risk profile.
*Thinking like a portfolio manager works for risk management as well as for strategy, says Bruce Pasternak, head of the strategic leadership practice at Booz Allen & Hamilton. In either case, adaptability is a cardinal virtue; the top goal is organizational flexibility. All-or-nothing bets like insurance have limited use in protecting cash flows from intangibles because their value is so uncertain, says Anjana Bhattacharee, director of Aporia, a British startup developing tools to manage those risks. Hedging also has problems. Says Bjarni Armannsson, head of the Icelandic Investment Bank in Reykjavik: "It's difficult to find a counterparty for intellectual risks." To hedge against falling gas prices, Enron can sell the risk to someone who fears rising prices, like a utility, but how do you hedge against a loss of expertise or brand equity

* Markets are full of risk, but it turns out that they're a lot safer than rigid structures. Intellectual assets and operations obey no one's command and are subject to discontinuous--i.e., quantum--change. There are four ways to respond to risk: Avoid it, reduce it, transfer it, or accept it. The one thing you can't do, if it's intellectual risk, is tie it up and subdue it.
Thomas_Stewart  risks  risk-management  organizational_flexibility  adaptability  binary_decisionmaking  intellectual_risks  human_capital  insurance  intellectual_assets  brand_equity  intangibles  networks  interconnections  discontinuities  expertise  portfolios  options  portfolio_management  cash_flows  generating_strategic_options  optionality  brittle  antifragility  step_change  counterparties  network_risk 
december 2012 by jerryking
Corner Office - The Onion’s C.E.O. - If Plan B Fails, Try C, D or E - Interview - NYTimes.com
May 14, 2010 New York Times | ..This interview with Steve
Hannah, chief executive of The Onion, was conducted and condensed by
Adam Bryant. "Never, ever do anything to deprive a human being of their
dignity in work, in life. Always praise in public and criticize in
private. You might be tempted, for example, when you’re letting someone
go, to say something that would diminish the value of their work. Don’t
ever do that.

And he taught me that when you’re faced with something that’s really
difficult and you think you’re at the end of your tether, there’s always
one more thing you can do to influence the outcome of this situation.
And then after that there’s one more thing. The number or possible
options is only limited by your imagination. “Imagination is enormously
important, enormously important.”
CEOs  interviews  imagination  dignity  next_play  optionality  Plan_B  praise  biographies  deprivations  resourcefulness  arduous 
may 2010 by jerryking
Gary Hamel Sees “More Options… Fewer Grand Visions”
October 6, 2009 | World Business Forum — Presented by Shell.
"...A second critical principle is variety. As the world becomes more
uncertain, it’s harder to see farther ahead. You can’t make 10- or
20-year strategies. What becomes more important is trying lots of new
things — experimenting in low-cost ways continuously — and seeing what
works and what doesn’t. So more options, more experimentation, fewer
grand visions, fewer strategies would be the second principle."
Gary_Hamel  uncertainty  experimentation  options  variations  optionality 
may 2010 by jerryking

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