Summary: The concept of “optionality” in finance can be dangerous when taken too far. Many students express a desire to “maximize optionality” in their career goals, referring to the benefits of having choices without obligations. However, this focus on creating optionality can lead to a habit of acquiring safety nets and avoiding risk. Instead of pursuing their true ambitions, individuals become trapped in prestigious jobs. The pursuit of “alpha,” or an exemplary life, requires hard work and dedication to core beliefs, rather than constantly seeking optionality. Ultimately, finding a pursuit that can sustain a sense of fulfillment is the goal.
Optionality is the state of enjoying possibilities without being on the hook to do anything. (View Highlight)
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. Going to graduate school creates optionality by enabling more opportunities than a narrow professional trajectory can provide. Working at prestigious firms and developing social networks are similarly viewed as enabling more choices and more optionality. And of course, the more optionality, the better. (View Highlight)
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. (View Highlight)
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. (View Highlight)
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. Given the ambiguity over the correct risk-adjusted benchmark, one never even knows if one has attained alpha. It is the golden ring just beyond your reach—and, one must enjoy the pursuit of alpha, given its fleeting and distant nature. Ultimately, finding a pursuit that can sustain that illusion of alpha is all we can ask for in a life’s work. (View Highlight)
