Optionality often presents as a boon, but it can also be a bane. The trouble with optionality lies in its paradoxical nature, where the freedom of choice can sometimes lead to indecision, paralysis, and missed opportunities. Let's delve into this intriguing conundrum.
The language of finance can be insidious
For students that go into finance or business, the idea of “optionality” is particularly pliable-and taken too far, it can be downright dangerous.
- Optionality is the state of enjoying possibilities without being on the hook to do anything.
- For new graduates, working at a consulting firm creates optionality because of the broad exposures (to industries and companies) and skills these firms purportedly develop.
- Working at prestigious firms and developing social networks are similarly viewed as enabling more choices and more optionality.
- This emphasis on creating optionality can backfire in surprising ways.
Mihir A. Desai
The Mizuho Financial Group Professor of Finance at Harvard Business School and a Professor of Law at Harvard Law School
Serial option buyers are people who postpone their dreams and undertake choices that they think will enable their dreams, but fail to understand that all of these intervening choices will change them fundamentally.
If your dreams are apparent to you, pursue them. Creating optionality and buying lottery tickets are not the road to your dreamy outcomes. They are dangerous diversions that will change you.
The pursuit of alpha
Alpha is the excess return earned beyond the return required given risks assumed.
- 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.
- Ultimately, finding a pursuit that can sustain that illusion of alpha is all we can ask for in a life’s work.
