Stop Predicting. Start Preparing.
Why Active Investors Focus On Optionality Instead Of Predictions
The following is quoted verbatim:
What is your plan if the war in the Middle East doubles energy prices?
What’s your plan if the war ends today and energy normalizes?
Once a war affects the global economy and every person on this earth;
It becomes irresponsible not to have a plan to BENEFIT from any and all outcomes.
How will you earn money from these events?
You don’t need to be an oil sheik. Or solve world peace.
You can make money by just clicking a few buttons.
Do you want to be rich or not?
— Tate
No joke. This arrived in my inbox today.
After looking into it, I found it came from Andrew Tate, a self-proclaimed world champion kickboxer and billionaire, and a highly controversial influencer.
I don’t know how I ended up on his email list, and this is not an endorsement in any capacity.
The core point is timely and worth paying attention to.
It reinforces something I have been emphasizing recently.
Strip away the tone, and the message is simple:
Most investors are trying to predict what happens next.
The reality is: prediction has little to do with it.
It is about asking the right questions.
And knowing what to watch.
To do this, I am constantly asking:
• Where is my downside limited?
• Where is my upside open-ended?
• What outcomes is the market not pricing in yet?
I am not trying to be right about one scenario.
I build positions where multiple scenarios can work in my favor or at least not hurt me.
This is optionality.
Let’s take a moment to review this concept.
It is important not only as an investor, but in everything you do.
This is the mindset I follow:
“You want to be long optionality. You want to be in a position where you have more upside than downside.” — Stanley Druckenmiller
This is what I strive to do. At times I still fall short, but this is the discipline I follow.
1. Work With Scenarios, Not Predictions
I think in ranges, not single outcomes.
• Bull case
• Base case
• Bear case
Each with rough probabilities.
The goal is not precision. The goal is preparation.
What does this look like? Here is an example from yesterday’s setup:
2. Demand Asymmetric Opportunities
I look for trades and investments where:
• Downside is defined and acceptable
• Upside is open and meaningful
If you risk 1 to make 1, you need to be right a lot.
If you risk 1 to make 3 or more, you can be wrong often and still win.
That is the game.
3. Understand Flexibility Is a Position
I rarely go all-in on conviction.
There are always exceptions, but I generally:
• Start small
• Add on confirmation
• Stay liquid
Capital is not just money.
It is optionality itself.
4. Understand Mispriced Outcomes Are the Opportunity
Markets tend to:
• Overprice obvious risks
• Underprice second-order effects
Example:
If everyone is hedged for higher oil, what happens if oil collapses?
If everyone is long the same tech stocks, where is the opportunity?
The opportunity is often in what no one is positioned for.
5. Require Price Action Confirmation, Not Narratives
Optionality without price confirmation is just a story.
The best setups occur when:
• The narrative starts to shift
• Price begins to confirm it
That is when you press.
But understand this: price action must begin to confirm it.
These are simple concepts. In practice, they are much harder.
No matter how much experience we have,
our egos want to be proven right.
Mine included.
Where This Approach Breaks Down
Optionality is powerful, but it can be misused.
Mistakes I am prone to make include:
• Too many scenarios lead to no action
• Tight stops on volatile positions create churn and tax burden
• Being early leads to unnecessary drawdowns
Optionality is not about avoiding decisions.
It is about structuring better decisions.
It is about putting yourself in the best position despite the risks.
A Simple Framework
For every trade and investment, define:
• What has to go right
• What could go wrong
• What is already priced in
Then map it out:
Bull Case
What happens if you are right?
How do you press?
Base Case
What happens if nothing changes?
Do you hold or reduce?
Bear Case
Where are you wrong?
Where do you cut?
One Question That Changes Everything
If you are wrong, how much does it cost you?
If that answer is unclear, you do not have optionality.
You have risk.
Why This Matters Right Now
Periods like this require us to be at our best.
They include:
• Enormous change
• Challenges from higher inflation
• Geopolitical tensions
• Shifting Fed expectations
• High economic uncertainty
• New winners and new leaders
These create a wide range of outcomes.
Most investors freeze in uncertainty.
Active investors lean into it.
Because uncertainty is not the problem.
It is the opportunity.
The Bottom Line
The goal is not to predict the future.
The goal is to build positions where:
You can be wrong and survive.
You can be right and outperform.
That is how you turn uncertainty into an edge.
That is the difference.
Until the next time,
C.E. Kirk
“Heads I win, tails I don’t lose much.”
— Mohnish Pabrai