Charlie Munger The Complete Investor by Tren Griffin

Summary

A short introduction to (1) value investing and (2) Charlie Munger’s way of thinking. The book is filled with Munger quotes. Great starting point for those interested in investing or Munger; a skip for everyone else.

Key Takeaways

• The four fundamental principles of value investing
  1. Treat a share of stock as a proportional ownership of the business.
  2. Buy at a significant discount to intrinsic value to create a margin of safety.
  3. Make a bipolar Mr. Market your servant rather than your master.
  4. Be rational, objective, and dispassionate.
• In the long run, it is always wise to focus on following the right process over any specific intermediate outcome.
• Real knowledge is knowing the extent of one’s ignorance.
• It’s very hard to get a man to believe non-X when his way of making a living requires him to believe X.
• The level of passion you will have for a topic will grow over time.
• Risk comes from not knowing what you’re doing.
• “The only way you win is by knowing you’re good at and what you’re not good at, and sticking to what you’re good at.” – Fred Wilson
• “Business is easy. If you’ve got a low downside and a big upside, you go do it. If you’ve got a big downside and a small upside, you run away. The only time you have any work to do is when you have a big downside and big upside.” – Sam Zell
• Intelligent people make decisions based on opportunity costs – it’s the alternatives that matter.
• Berkshire’s mathematical process:
  1. Calculate the past and current owner’s earnings of the business.
  2. Insert into the formula a reasonable and conservative growth rate of the owner’s earnings.
  3. Solve for the present value of the owner’s earnings by discounting using the 30-year U.S. Treasury rate.
  4. Focus on return on equity (ROE), not earnings per share (EPS).
• A very important test for Buffett and Munger in determining the strength of a brand-based moat is whether a competitor can replicate or weaken the moat with a massive checkbook.
• What determines whether a company has a moat is qualitative, but how you test to determine the strength of the moat is quantitative.

What I got out of it

Having read Poor Charlie’s Almanack and Seeking Wisdom, along with multiple value investing books, there wasn’t anything new under the sun for me.

Nonetheless, Charlie Munger The Complete Investor is a great primer on Munger-style thinking and a much shorter read than the above-mentioned titles. Would also rank it above The Acquirer’s Multiple and Value Investing as an introduction to Graham-style value investing because of its length.

For the more experienced reader, a good refresher on the above, but otherwise a book that can be skipped.

Summary Notes

Introduction

The four fundamental principles of value investing as created by Ben Graham are as follows:

1. Treat a share of stock as a proportional ownership of the business.
2. Buy at a significant discount to intrinsic value to create a margin of safety.
3. Make a bipolar Mr. Market your servant rather than your master.
4. Be rational, objective, and dispassionate.

The Basics Of The Graham Value Investing System

When Graham value investors make mistakes, it is usually because they have done things that are hard for humans to avoid, like forgetting the inherent simplicity of the Graham value investing system, deviating from the fundamentals of the system, or making psychological or emotional mistakes related to the implementation of the system.

In the long run, it is always wise to focus on following the right process over any specific intermediate outcome.

“Simplicity has a way of improving performance through enabling us to better understand what we are doing.” – Charlie Munger and Warren Buffett

Confucius said that real knowledge is knowing the extent of one’s ignorance. Aristotle and Socrates said the same thing. Is it a skill that can be taught or learned? It probably can, if you have enough of a stake riding on the outcome.

The successful Graham value investor works diligently to reduce the downside risk of any investment.

Investors will do better financially by being less stupid.

“Knowing what you don’t know is more useful than being brilliant.” – Charlie Munger

The market’s folly is the fundamental source of Graham’s value investor’s opportunity.

The Principles Of The Graham Value Investing System

For a true Graham value investor, there is no substitute for a bottom-up valuation process. In undertaking the process, Graham value investors are focused on the present value of the cash that will flow from the business during its lifetime and whether the business generates high, sustained and consistent returns on capital.

If valuing the business requires understanding how cash flows will change in the future based on factors like rapid technological change, Munger puts that business in the too hard pile and moves on to value other companies. Munger makes it quite clear that he does not have a way to value all companies, which is fine with him because he feels no need to do so. There are more than enough businesses that Munger can value using his valuation method to make him happy as an investor.

A Graham value investor puts short-term predictions about mass psychology in the too hard pile and focuses on what he or she can do successfully with far greater ease. Graham value investors do not spend time with top-down factors like monetary policy, consumer confidence, durable goods orders, and market sentiment in doing a business valuation or investing.

“If you’re an investor, you’re looking on what the asset is going to do; if you’re a speculator, you’re commonly focusing on what the price of the object is going to do, and that’s not our game.” – Warren Buffett

By sticking to investing activities that are easy, avoiding questions that are hard, and making decisions based on data that actually exists now, the Graham value investor greatly increases his or her probability of success. Understanding the present is unsurprisingly easier if you know what you are doing and the underlying business is understandable.

Munger does not own gold as an investment because it is impossible to do a bottom-up fundamental valuation, because gold is not an income-producing asset. Gold has speculative value and commercial value, but in Munger’s view it has no calculable intrinsic value.

A private market intrinsic valuation for a value investor requires that the asset generate free cash flow.

The investor’s job is to patiently watch rather than predict price movements and be ready to quickly and aggressively buy at a significant discount to intrinsic value and sometimes sell at an attractive price in relation to intrinsic value.

The most important quality that makes anyone a successful investor is the ability to make rational thoughts and decisions.

Worldly Wisdom

To be wise, one must also have experience, common sense and good judgment. How one actually applies these things in life is what makes a person wise.

The Psychology Of Human Misjudgment

Munger and Buffett’s approach to risk: “Take the probability of loss times the amount of possible loss from the probability of gain times the amount of possible gain. That is what we’re trying to do. It’s imperfect, but that’s what it’s all about.”

Almost everyone thinks he fully recognizes how important incentives and disincentives are in changing cognition and behaviour. But this is not often so.

It’s very hard to get a man to believe non-X when his way of making a living requires him to believe X.

The iron rule of nature is that you get what you reward for.

Reward and punishment superresponse tendency relates to what psychologists call reinforcement and what economists call incentives.

The skill needed to sort out whether a person is genuine is acquired with experience – the cause of good judgment is usually experiences involving bad judgment.

“The brain of man conserves programming spaces by being reluctant to change.” – Charlie Munger

“Experience tends to confirm a long-held notion that being prepared, on a few occasions in a lifetime, to act promptly in scale, in doing some simple and logical thing, will often dramatically improve the financial results of that lifetime. A few major opportunities, clearly recognizable as such, will usually come to one who continuously searches and waits, with a curious mind that loves diagnosis involving multiple variables. And then all that is required is a willingness to bet heavily when the odds are extremely favourable, using resources available as a result of prudence and patience in the past.” – Charlie Munger

Striking the right balance on something like curiosity requires judgment.

Some people would rather lose money in an investment than see another person benefit from unfairness.

People sometimes reject systems that are not fair to an individual, even though the system in question is best for a group or society.

“It’s not greed that drives the world, but envy.” – Charlie Munger

“People will help if they owe you for something you did in the past to advance their goals.” – Robert Cialdini

Influence From Mere Association tendency is similar to the liking tendency, except only association is required. Liking tendency is more about being blind to the faults of people we like. With association theory, the compliance professional is trying to get you to do something like buying a financial service because it is endorsed or used by a famous actor.

A common example of psychological denial happens when people make projections about a potential investment. Weirdly, sometimes the fewer facts there are to support a well-told story, the more believable it may be for certain investors. Only when real facts start to appear do these people start to question the story.

Learning to ignore the crowd and think independently is a trained response. 

A Graham value investor is a marriage between a contrarian and a calculator.

It is not enough to be contrarian; you must also be sufficiently right in terms of the magnitude of the positive outcome that you outperform the markets.

Thinking about the world through an opportunity-cost lens is a simple but often-ignored idea.

Do not make decisions while under stress. It’s just that simple.

“The great algorithm to remember in dealing with Availability-Misweighing Tendency is simple: an idea or fact is not worth more merely because it’s easily available to you.” – Charlie Munger

“While susceptibility varies, addiction can happen to any of us, through a subtle process where the bonds of degradation are too light to be felt until they are too strong to be broken.” – Charlie Munger

Munger’s advice in every setting is to avoid situations with a massive downside and a small upside (negative optionality).

It is far better to wear out from work than rust out from inactivity.

“When people are uncertain…they don’t look inside themselves for answers – all they see is ambiguity and their own lack of confidence. Instead, they look outside for sources of information that can reduce their uncertainty. The first thing they look to is authority.” – Robert Cialdini

People tend to spend a lot of time on meaningless activities.

“I try to get rid of people who always confidently answer questions about which they don’t have any real knowledge.” – Charlie Munger

All of the tendencies, forces and phenomena can interact with each other in self-reinforcing ways, which make the output of the whole of what is interacting greater than the sum of the parts: the lollapalooza effect. Because this involves feedback, its impact can be nonlinear in nature and is inherently unpredictable.

One reason why prediction with certainty with respect to a lollapalooza is impossible is that a certain critical mass is required. In other words, the process that creates a lollapalooza will either reach critical mass, as in a nuclear reaction, or will never reveal itself.

A lollapalooza is not inherently good or bad. Sometimes a lollapalooza effect can be used for benevolent purposes.

The Right Stuff

Attributes that make up the “right stuff” of a successful investor as identified by Munger:

1. Patient
2. Disciplined
3. Calm but courageous and decisive
4. Reasonably intelligent but not misled by their high IQs
5. Honest
6. Confident and nonideological
7. Long-term oriented
8. Passionate
9. Studious
10. Collegial
11. Sound temperament
12. Frugal
13. Risk averse

Buffett’s genius was largely a genius of character – of patience, discipline and rationality. His talent sprang from his unrivalled independence, of mind and ability to focus on his work and shut out the world.

“If you want to get rich, you’ll need a few decent ideas where you really know what you are doing. Then you’ve got to have the courage to stick with them and take the ups and downs. Not very complicated, and it’s very old-fashioned.” – Charlie Munger

On the subject of teaching honesty, Munger believes that real-world examples are often the best approach.

“There’s a strong correlation between knowledge and humility.” – Morgan Housel

The principal problem with ideology is that you stop thinking when it comes to hard issues. Munger believes in regularly taking your best ideas, tearing them down, and looking for flaws as a means of improving yourself.

People who are passionate tend to work harder and invest more in achieving their goals. Passionate people also read and think more. Passionate people tend to have an informational edge over others who are not as passionate. For these reasons and others, if you are playing a zero-sum game with people who are passionate and you are not, the odds that you will be a success drop substantially. One trick related to passion is that you are not likely to be passionate about something you do not understand. Often, the level of passion you will have for a topic will grow over time. The more you know about some topics, the more passionate you will get. Only becoming passionate about things that create that feeling immediately is a big mistake. Some of the best passions in life grow on you in a nonlinear way after a slow start.

The successful investor is usually inherently interested in business problems.

Life is a lot more pleasant when you let other people make most of the big mistakes. After all, you will make enough mistakes all by yourself. Carefully learning from the mistakes of others is a way to accelerate the learning process. Nothing vicariously exposes you to more mistakes committed by others than reading.

“I hardly know anybody who’s done well in life in terms of cognition that doesn’t have somebody trusted to talk to. Einstein would not have been able to do what he did without people to talk to. Didn’t need many but he needed some. You organize your own thoughts as you try and convince other people. It’s a very necessary part of operations. If you had some hermit sitting on a mountain, he wouldn’t do very well.” – Charlie Munger

“Independent thinking, emotional stability, and a keen understanding of both human and institutional behaviour are vital to long-term success.” – Warren Buffett

Arguably the best way to sort out whether you have the right temperament for the Graham value investing system is to keep a careful written record of your investment decisions.

“The way to wealth is as plain as the way to market. It depends chiefly on two words, industry and frugality: that is, waste neither time nor money, but make the best use of both. Without industry and frugality nothing will do, and with them, everything.” – Benjamin Franklin

“Using a [stock’s] volatility as a measure of risk is nuts. Risk to us is 1) the risk of permanent loss of capital, or 2) the risk of inadequate returns.” – Charlie Munger

“You can easily see how risk-averse Berkshire is. In the first place, we try and behave in such a way that no rational person is going to worry about our credit. And after we have done that, we also behave in such a way that if the world suddenly didn’t like our credit, we wouldn’t even notice it for months, because we have so much liquidity.” – Charlie Munger

Flawed risk management has resulted in crisis after crisis.

Risk comes from not knowing what you’re doing.

The Seven Eight Variables In The Graham Value Investing System

1. Determining the appropriate intrinsic value of a business
2. Determining the appropriate margin of safety
3. Determining the scope of an investor’s circle of competence
4. Determining how much of each security to buy
5. Determining when to sell a security
6. Determining how much to bet when you find a mispriced asset
7. Determining whether the quality of a business should be considered
8. Determining what businesses to own (in whole or in part)

“Intrinsic value can be defined simply: it’s the discounted value of the cash that can be taken out of a business during its remaining life. The calculation of intrinsic value, though, is not so simple. As our definition suggests, intrinsic value is an estimate rather than a precise figure, and it’s additionally an estimate that must be changed if interest rates move or forecasts of future cash flows are revised.” – Warren Buffett

Determining the value of a business is an art and not a science.

In an ideal situation, the process of determining the intrinsic value of a business is easy enough that Munger can do that valuation in his head. If Munger determines that the valuation of the business is too hard, he simply says, “I pass.”

When Munger and Buffett value a business, they use what they call owner’s earnings as the starting point. Owner’s earnings can be defined as: Net income + Depreciation + Amortization – Capital expenditure – Additional working capital.

Making things easier is the fact that Munger and Buffett like the amount of a margin of safety to be so big that they need not do any math other than in their heads.

Munger wants the math involved in evaluating an investment to be simple, overpoweringly clear, and positive.

“I’m really better at determining my level of incompetency and then just avoiding that. And I prefer to think that question through in reverse.” – Charlie Munger

Venture capitalist Fred Wilson put it simply: “The only way you win is by knowing you’re good at and what you’re not good at, and sticking to what you’re good at.”

When you do not know what you’re doing, it is riskier than when you do know what you’re doing.

The circle of competence approach is a form of opportunity cost analysis, says Munger: “Warren and I only look at industries and companies in which we have a core competency. Every person has to do the same thing. You have a limited amount of time and talent and you have to allocate it smartly.”

Munger has a range of approaches he uses to avoid mistakes. “When Charlie thinks about things, he starts by inverting. To understand how to be happy in life Charlie will study how to make life miserable; to examine how a business becomes big and strong, Charlie first studies how businesses decline and die; most people care more about how to succeed in the stock market, Charlie is most concerned about why most have failed in the stock market.” – Li Lu

A “competence” that has no defined borders cannot be called a true competence.

Too many investors confuse familiarity with competence.

“If you have competence, you pretty much know its boundaries already. To ask the question [of whether you’re past the boundary] is to answer it.” – Charlie Munger

In using a circle of competence filter, Munger is trying to invest only when he has an unfair advantage. Otherwise, he wants to do nothing (which most people find hard to do).

“Predicting the long-term economics of companies that operate in fast-changing industries is simply far beyond our perimeter.” – Warren Buffett

Buffett believes that diversification is protection against not knowing what you’re doing – and when it comes to investing, nearly no one knows what they are doing.

Munger prefers to buy a business or portion of a business and own it essentially forever. His preference is in no small part driven by the ability of a long-term holder of an asset to gain certain tax and other advantages. By not incurring these tax costs, transaction costs, and other fees, the compounding benefits for the investor are substantially higher.

“Playing poker in the Army and as a young lawyer honed my business skills…What you have to learn is to fold early when the odds are against you, or if you have a big edge, back it heavily because you don’t get a big edge often.” – Charlie Munger

“Business is easy. If you’ve got a low downside and a big upside, you go do it. If you’ve got a big downside and a small upside, you run away. The only time you have any work to do is when you have a big downside and big upside.” – Sam Zell

“Leaving the question of price aside, the best business to own is one that, over an extended period of time, can employ larger amounts of incremental capital at very high rates of return. The worst business to own is one that must, or will, do the opposite – that is, consistently employ ever-greater amounts of capital at very low rates of return.” – Warren Buffett

Munger and Buffett are very focused on both the magnitude and persistence of the ability of a business to earn a return on capital. Return on invested capital (ROIC) is the ratio of after-tax operating profit divided by the amount of capital invested in the business.

“You really have to know a lot about business. You have to know a lot about competitive advantage. You have to know a lot about maintainability of competitive advantage. You have to have a mind that quantifies things in terms of value. And you have to compare those values with other values available in the stock market.” – Charlie Munger

If you’re buying something at a huge discount to its replacement value and it’s hard to replace, you have a big advantage.

The Right Stuff In A Business

1. Capital allocation skills
2. Compensation systems that create alignment with shareholders
3. Moat-widening skills
4. Management already in place with integrity
5. The rare exceptional manager

“Proper allocation of capital is an investor’s number one job.” – Charlie Munger

“The only duty of a corporate executive is to widen the moat. We must make it wider. Every day is to widen the moat.” – Charlie Munger

Munger and Buffett also want managers to have what Nassim Taleb calls “skin in the game”. They hate situations in which the result is: heads, managers win and tails, managers do not lose. They want risk and benefits to be symmetrically allocated. For Munger, the presence of the right incentives for a manager is critical. Buffett added that he wants to see managers have “a major portion of their net worth invested in the company. We eat our own cooking.”

Munger and Buffett are not interested in investing in company “turnarounds,” because they seldom actually do turn around. Munger wants the moat of the company he is investing in to be strong enough to survive bad management.

“His [Buffett] basic proposition to managers is that to the degree that a company spins off cash, which good businesses do, the manager can trust Warren to invest it wisely. He doesn’t encourage managers to diversify. Managers are expected to concentrate on the businesses they know well so that Warren is free to concentrate on what he does well: invest.” – Bill Gates

Berkshire Math

Berkshire uses the long-term (30-year) U.S. Treasury rate as the discount rate.

Intelligent people make decisions based on opportunity costs – in other words, it’s your alternatives that matter.

“How does Munger account for risk when he buys an asset?” He will only invest if he strongly believes the current earnings are nearly certain to continue. While most other investors will adjust the discount rate for what they may believe to be a greater risk, Berkshire wants essentially no risk as a starting point. In other words, rather than adjust the discount rate to account for risk, Munger and Buffett use a risk-free rate to compare alternative investments.

To provide a cushion against mistakes, they will not actually buy an asset without at least a 25 percent discount in intrinsic value (this discount is their margin of safety).

Risk is the possibility of suffering a loss (not price volatility). The way Berkshire deals with risk is by buying what they feel is a conservatively valued asset with no risk at a discount price. Their focus is on having protection against mistakes that they may make during that process. What they do not do is increase the interest rate used in the computation to deal with risks inherent in the business. If there are significant risks inherent in the business itself, they put the decision in the too hard pile and move on to other potential opportunities.

Berkshire’s mathematical process:

1. Calculate the past and current owner’s earnings of the business.
2. Insert into the formula a reasonable and conservative growth rate of the owner’s earnings.
3. Solve for the present value of the owner’s earnings by discounting using the 30-year U.S. Treasury rate.
4. Focus on return on equity (ROE), not earnings per share (EPS).

Munger believes that every manager of a business should be thinking about intrinsic value when making all capital allocation decisions.

Munger likes genuine free cash flow. He considers “drowning in cash” to be a very good thing.

Moats

Five elements that can help create a moat:

1. Supply-side economics of scale and scope
2. Demand-side economics of scale (network effects)
3. Brand
4. Regulation
5. Patents and intellectual property

“The concept of a chain store was a fascinating invention. You get this huge purchasing power – which means that you have lower merchandise costs. You get a whole bunch of little laboratories out there in which you can conduct experiments. And you get specialization.” – Charlie Munger

“Some [supply-side advantages] come from simple geometry. If you’re building a great circular tank, obviously as you build it bigger, the amount of steel you can use in the surface goes up with the square and the cubic volume goes up with the cube. So as you increase the dimensions, you can hold a lot more volume per unit area of steel.” – Charlie Munger

“You could afford the very expensive cost of network television because you were selling so damn many cans and bottles. Some little guy couldn’t. And there was no way of buying it in part. Therefore, he couldn’t use it. In effect, if you didn’t have a big volume, you couldn’t use network TV advertising – which was the most effective technique.” – Charlie Munger

Demand-side economies of scale (network effects) result when a product or service becomes more valuable as more people use it.

A company having beneficial network effects is only one dimension that impacts profit. Sometimes, network effects exist but the market is small because it is a niche.

While some of the power of a brand can come from taste, modern flavour firms can replicate almost any taste. Trade dress and presentation of a good or service matters more than ever.

For a company like Disney, when the brand is mentioned in conversation “you have something in your mind…How would you try to create a brand that competes with Disney? Coke is a brand associated with people being happy around the world. That is what you want to have in a business. That is the moat.” – Charlie Munger

Brands, of course, can fail over time. Put a luxury brand on a shelf at Costco, as some have done, and that luxury brand can be damaged for certain customers. License it too broadly and the brand can also be damaged.

“You have to look at the brand as a promise to the customer that we are going to offer the quality and service that is expected.” – Warren Buffett

Simply being so well known has advantages of scale – what you might call an informational advantage. Everyone is influenced by what others do and approve. Another advantage of scale comes from psychology: social proof. We are all influenced – subconsciously and to some extent consciously – by what we see others do and approve. Therefore, if everybody’s buying something, we think it’s better.

A very important test for Buffett and Munger in determining the strength of a brand-based moat is whether a competitor can replicate or weaken the moat with a massive checkbook.

Cumulative Impact Of Many Factors

Berkshire’s moat:

1. Tax efficient
2. Low overhead
3. Private buyer of first resort
4. Has permanent capital
5. Outperforms in down markets
6. Benefits from float
7. High-quality shareholders, including Buffett and Munger

If you sit back for long, long stretches in great companies, you can get a huge edge from nothing but the way that income taxes work.

Berkshire gives the selling owner the chance to make sure that the business they care about and the people that work there continue to thrive.

“I think that’s the reason Buffett gave up his partnership. You need it [permanent capital] because when push comes to shove, people run.” – Bruce Berkowitz

“We will underperform in strong years, we will match in medium years, and we will do better in down years. We will outperform over a cycle, but there’s no guarantee to that.” – Warren Buffett

Berkshire’s results must be compared with alternatives on a risk-adjusted basis.

“Creative destruction” is as powerful as anything in business. Having a moat is the only way to fight against the tide of competitive destruction.

“Companies generating high economic returns will attract competitors willing to take a lesser, albeit still attractive, return which will drive down aggregate industry returns to the opportunity cost of capital.” – Michael Mauboussin

“How do you compete against a true fanatic? You can only try to build the best possible moat and continuously attempt to widen it.” – Charlie Munger

One reason that capitalism works is that moats are hard to create and usually deteriorate over time. What happens over time is that the so-called producer surplus is transferred into consumer surplus.

The speed with which a moat disappears should not be confused with cases where a company never had a moat. How long your moat lasts is called your competitive advantage period (CAP). The speed of moat dissipation will be different in each case and need not be constant.

“Frequently, you’ll look at a business having fabulous results. And the question is, “How long can this continue?” Well, there’s only one way I know to answer that. And that’s to think about why the results are occurring now – and then to figure out what could cause those results to stop occurring.” – Charlie Munger

Once a feedback loop turns negative, it is hard for any company to regain what it once had. Precisely the factors that created the moat in the first place can tear the company down just as fast or faster. If the ride up was nonlinear, it is very possible that the ride down will be nonlinear as well.

What determines whether a company has a moat is qualitative, but how you test to determine the strength of the moat is quantitative.

To test whether you have a moat with a given company, determine if you are earning profits that are greater than your opportunity cost of capital (OCC). If that level of profitability has been maintained for some reasonable period (measured in years), then you have a strong moat. If the size of the positive difference between return on invested capital (ROIC) and OCC is large and if that spread is persistent over time, your moat is relatively strong. Exactly how long the moat must persist to meet this test is an interesting question. If it is not a period of at least two years, you are taking a significant risk. Five years of supporting data give you more certainty that your moat is sustainable.

“There are actually businesses that you will find a few times in a lifetime, where any manager could raise the return enormously just by raising prices – and yet they haven’t done it. So they have huge untapped pricing power that they’re not using. That is the ultimate no-brainer.” – Charlie Munger

There are some rules of thumb one can use to test the strength of a moat:

• Does a business have pricing power?
• Does the company have a return on capital significantly greater than its opportunity cost over time?

Three different skills related to moats:

• Creating a moat
• Identifying a moat that others have created
• Identifying a startup that may acquire a moat before it is evident

Moat creation requires superior management skills, always combined with some degree of luck.

Identifying a startup that may acquire a moat before it becomes evident is something that some venture capitalists can do when there is a sufficiently high level of probability that they can generate an attractive return on capital overall. Venture capitalists harvest something called optionality.