MANAGING TRANSFORMATIONAL POTENTIAL–ACAVEAT

To Nagaji and Tuff’s analysis, we would add one major caveat. Yes, the biggest returns lie in the transformational space. But only if these are managed using the logic of real options. A real option is a small investment that you make that buys you the right to make a future choice, when more information is available.

Managing option is the smallest and fastest investments you can make to learn whether there is a huge upside that you might capture. If things don’t look good, you simply stop making such further investments. Sure, you might lose money on a few of them, but the huge returns possible to high quality options allows you to write the poor quality ones off without even looking back. It’s a numbers game, as Alberto Savoia so often points out.