🔺Why of Course! However, there is a Catch……..22

Anybody who has ever had to make a decision (basically everyone on the planet) will eventually encounter the insidious Catch-22. What is this Catch-22 you speak of? Glad you asked. Well, let’s refer to our trusted friend Webster:

Catch-22 (noun) – A dilemma or difficult circumstance from which there is no escape because of mutually conflicting or dependent conditions.

Said less Websterish, a Catch-22 is a paradoxical situation whereby the decision maker is damned if they do and damned if they don’t. In chess parlance, this is typically when the victor declares checkmate. Or, should you fancy UFC moreso, this is when a Tap Out occurs. In other words, regardless of the action taken it seems that 1. A loss or 2. The least favorable outcome relative to expectations is going to occur either way.

Now, depending upon 1. How early it is detected, 2. The magnitude of the all-in cost (explicit and intangible/opportunity), 3. The decision makers’ flexibilty, 4. Severity and 5. The mental fortitude to take losses and still stay focused, a Catch-22 does not have to result in a checkmate situation, although losses may still occur. The more important factor is limiting cascading losses and being positioned in such a way that offers greater optionality and the ability to anticipate.

Then again, you might even propose that early detection of a Catch-22 is a Catch-22 in itself? Right? For if you knew of the Catch-22 in advance, you could avoid being in such a circumstance to begin with. Therefore, you do not realize you’re in a Catch-22 until it arrives, at which point its too late. Touche my good friend. Touche.

Well, you can either wait for the Catch-22 to arrive and, for lack of better words, shitt your pants, or you could 1. Discover your intangible/opportunity costs now and get in contact with International Capital Markets, 2. Where the greatest pressure points exist, 3. What the second and third order derivatives of the pressure points are and then 4. Model a range of scenarios based on past precedents and other appropriate models while mapping out how intangible/opportunity costs are likely to evolve and if there is any co-dependency. As Mark Twain said, “History doesn’t repeat but it often rhymes.”

At this juncture, there might be 5-20 scenarios that have to be evaluated when taking into consideration the first, second, and third order derivative pressure points, as well as intermediate weak-links. Each evaluation requires looking at both the explicit/intangible/opportunity costs and how these look under both maximum positive/negative rates of growth to identify where any exponential growth exists within the pressure points, etc.

Ultimately, you want to choose the outcome that offers the net lowest combined explicit/intangible/opportunity cost. The worst mistake you can make is ignoring the opportunity costs and simply choosing the outcome that offers the highest net benefit as that is often a pyrrhic victory.

For example, let’s say you have 2 proposals. Proposal 1 has a benefit of 10, cost of 5, and intangible/opportunity cost of 2. Proposal 2 has a benefit of 20, cost of 10, and intangible/opportunity cost of 8. Most people will choose Proposal 2, but Proposal 1 is better because the true net benefit is 3, while Proposal 2 has a true net benefit of 2. Lastly, if Catch-22s are not managed properly, the situation can cascade whereby Catch-22s begin to coalesce.

Please refer to the following report on cutting losses: A 50% Gain Doesn’t Equate to Breaking-Even on a 50% Loss https://internationalcapitalmarkets.org/2019/09/14/a-50-gain-doesnt-equate-to-breaking-even-on-a-50-loss/

Lastly, this is absolutely NOT about creating What If scenarios into oblivion. “Remember, the hero is never the person that puts out the forest fire before it ever started.”


Published by Diamond1

I have an extensive background throughout the financial spectrum with high-level experience on the sell-side, high-net worth private banking, portfolio management, international finance, public pensions, VC, PE, and economics. I enjoy working and collaborating with people that I admire and trust.

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"Fit Models to Problems, Not Problems to Models"

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