Show notes
Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we're going to be talking about why strategies never change, but tactics do. Now, this is something I think is really powerful and if you take the time to understand it, I think it has a lot of different similarities to things that we are used to in our lives or in our world. Well, I don't know if I heard this originally from… Maybe I read it in a book or saw it somewhere or maybe went to a presentation and somebody said this, but I think it was just so powerful, it's kind of stayed with me and I want to talk about it today. But the idea is that most of the time, we see people and they talk about this new hot thing that they're doing or a new investing thing that they're doing, but it's actually nothing new. It's just that they're using a different tactic to go about this same old strategy from before. A lot of times, most people call it a new strategy or a new way of doing things, but it's really not. It's just a different tactic with the same strategy, the same end result in mind.
So, to give you guys some illustration of this, so we can kind of walk through it, in sports and particularly, in games like football and basketball, in soccer, lacrosse, hockey, etcetera, the strategy of those sports games when you actually break it down is separation and that's really all the game is, is most of those games are game of separations. The strategy is – How do I separate myself from the opposing player as efficiently as possible and with the most separation? If you can separate yourself the most, you'll probably win the game, right? When you see sports, people call different strategies things like – Oh, we're using a passing strategy or a run strategy or a sprint or they're doing some sort of full-court press strategy, but those aren't strategies. Those are tactics. That's how they're going about it. That's the tactical maneuvers they're using to then get the end result which is just separation. In business, the strategy is always the same. Every business has the same ultimate strategy and that's to create margin and margin is the difference between what you can sell something for and what the total cost of that thing or producing that thing, that service is and creating a profit margin. There's many ways you can go about it. There's different business models that you can run, there's different marketing channels that you can start to explore, but ultimately, every business has the same exact strategy which is to create margin.
In investing, what is that strategy? What is the one strategy that is universal across all different forms of investing? And if you answer this question, hopefully you get like 10 bonus points from me, so congratulations if you answered it earlier before I actually said it. But the number one strategy for all investing is this and it's spread and you could say it's edge. It's the same thing, but it's spread, it's edge. It's a spread between what you invest your money at or the return you invest your money at, the opportunity cost of your money and how much you can generate. And so, that spread is the only thing that we're going after. Many people go after that spread by being a fundamental investor. They buy companies that they think are fundamentally or having lower intrinsic value than what should be the value of the company. That's a fundamental tactical way to go after the same strategy which is just capturing spread. Some people are short-sellers. Like short-selling was a huge thing. Not so much that much anymore, I guess, but people used to short-sell companies because they knew that the value of the stock right now was much higher than the actual company's intrinsic value, so they would short-sell, but again, they were just capturing spread. It was the tactical way that they were going about it that changed, but the actual underlying strategy was the same.
In option selling, the way that we go about capturing that edge is by selling option premium and playing the overpricing of implied volatility compared to historical volatility. It's the same strategy. We're still trying to capture an edge. It's just the tactic that we're going about doing it is a little bit different. The path that we're going to take to get there is maybe a little bit different than somebody else. Again, I encourage you to really think through this over the next couple of days as you're kind of looking at everything in life. When you realize that most of the stuff has the same underlying strategy no matter what it is, it's just the tactics are different. The tactics are where the personality of people and how they like to invest or what sports they like or what types of businesses they like to run. That's how it all kind of divides up among these different personality traits and topographies and geographies, like how people move and interact in marketplaces, but the actual strategies never change. It's just the tactics or the tactical nature of how you go after that strategy or in our case, the investing edge. Hopefully this helps out. I know this was a little bit of a different style of podcast, but I thought this was really important that I just kind of (I don't know) start to get back to basics here a little bit and help you guys out. If you did find it helpful, let us know. As always, if you have any questions, let me know and until next time, happy trading.
Our TOPPODCAST Picks 
Stay Connected
