Get Big Results with “Optionality”

Today's Guest Post comes from Chris Mayer of Penny Sleuth. Get Big Results with "Optionality" originally appeared in the Penny Sleuth. In this piece, Mayer explains the concept of "Optionality" as a way to battle the uncertain and fickle market conditions. If you enjoy this post, please click here to learn more about Penny Sleuth and a complimentary report which will share 3 stocks poised to breakout.

“The world has changed. It is a more fragile and less stable place.”

The speaker was Joshua Friedman, the co-chief at Canyon Partners, which manages $20 billion. He was speaking at Grant’s Spring Investment Conference, which I attended in early April.

Friedman used the imagery of the old bell curves. There is the normal bell curve and the “new normal” curve with fatter tails. In plain terms, it means more crazy things will happen. It means outliers will become more common. It means the unexpected will happen more frequently. Wildness lies in wait, as Chesterton had it.

In many ways, markets have always been this way, as the late Benoit Mandelbrot observed. For instance, financial theory – based on the old bell curve – predicts that a market move of 7% or more in a single day will happen once every 300,000 years. Yet the 20th century alone had 48 such days. “Truly, a calamitous era,” Mandelbrot writes, “that insists on flaunting all predictions.” Continue reading "Get Big Results with “Optionality”"