Thales of Miletus, an ancient Greek philosopher was poor. To prove himself, he observed the sky at night and predicted that there would be a harvest of olives in the next year. So he sold his property and rented all the local olive oil extraction machines for a very low price in the summer of the following year.
In the autumn, when there was a big harvest of olives, everyone needed to press olive oil, and Thales of Miletus had monopolized the machine for pressing olive oil. He rented it to these people at a price several times higher than the price he had rented the oil press, and made a lot of money.
So all the people said Thales made a fortune by “accurately predicting the weather”, but it is wrong.
If so, Thales of Miletus is not a wise man, but a gambler. This is not the case. Thales of Miletus makes money, which has nothing to do with forecasting the weather. He paid a down payment and rented the seasonal use right of all olive oil presses near Miletus and paid a very low rent. Thales of Miletus bought an “option”, that is, the right to rent machines first.
The result was that there was a great harvest of olives that year, and the demand for olive oil press machines increased significantly. He asked the press machine owner to sublet the machines according to the conditions he offered, making a big profit from it. What if the olive harvest is not good? The losses are also limited.
The key points of this story are: 1. Even today, climate is difficult to predict; 2. Unable to predict, but also able to place bets, which is the meaning of ‘convexity’-lossses are limited but gains are big.
