Val Sklarov’s Optionality Compression Allocation Theory (OCAT) explains why most investors underperform despite access to data, diversification, and capital. The failure is not poor selection—it is mispriced optionality.
This theory reveals how superior returns emerge when optionality is compressed intentionally, not spread indiscriminately.
1. Optionality Is Not Free
OCAT defines optionality as stored asymmetry, not flexibility.
Holding too many options dilutes attention, timing, and conviction.
Most portfolios fail because:
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Optionality is accumulated without a trigger
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Conviction never replaces coverage
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Timing is outsourced to hope
Optionality only has value before commitment—and only if compression is planned.
2. The Three Phases of Capital Allocation
OCAT maps capital behavior across a disciplined sequence.
| Phase | Capital Posture | Objective |
|---|---|---|
| Expansion | Wide optionality | Information acquisition |
| Compression | Selective focus | Asymmetry isolation |
| Commitment | Concentrated exposure | Payoff realization |
Skipping compression turns diversification into permanent indecision.
3. Why Diversification Often Caps Upside
Diversification protects capital—but also flattens payoff curves.
OCAT shows that excessive spread:
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Reduces learning velocity
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Delays decisive entry
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Masks signal strength
Elite investors diversify in time, not only across assets.
4. Capital Behavior Under Compression
When optionality compresses, capital dynamics shift.
| Uncompressed Capital | Compressed Capital |
|---|---|
| Many small bets | Few asymmetric bets |
| Continuous rebalancing | Intentional inactivity |
| Narrative-driven | Structure-driven |
| Volatility reactive | Volatility selective |
Val Sklarov emphasizes that returns appear when options are killed, not collected.
5. Strategic Implications
For investors and allocators:
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Define compression criteria in advance
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Separate learning capital from conviction capital
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Accept inactivity as a strategic state
OCAT reframes patience as capital discipline, not missed opportunity.
6. The Val Sklarov Principle
“Optionality creates upside only until the moment you refuse to choose.”
— Val Sklarov
OCAT explains why great investors are remembered for when they concentrated, not how widely they spread.