Michael Mauboussin Master Class — Moats, Skill, Luck, Decision Making and a Whole Lot More
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The Future Is So Unknown for Early Stage Companies
Early stage companies face a highly uncertain future due to the complexity of their operating environment and the dynamic nature of the market. The concept of complex adaptive systems, where numerous agents interact and learn within a changing environment, prevents the system from settling down and creates a challenge in anticipating future developments. Viewing young companies as options rather than traditional investments, based on the principles of options theory, can provide a valuable perspective. Real options theory suggests that volatility in the market and a lower discount rate are favourable for the value of options, presenting an interesting paradox in the current market scenario where the discount rate is approaching zero or negative.
