I turn 51 next month. I’m grateful that my life is so simple.
How did it get that way?
A lot of my best choices were simply acts of omission.
Charlie Munger said:
“I sought good judgment mostly by collecting instances of bad judgment, then pondering ways to avoid such outcomes.”
His partner, Warren Buffett, put it like this:
“An investor needs to do very few things right as long as he or she avoids big mistakes.”
Many of those big mistakes are traps. The piece of cheese lures us in… and we know what happens next.
Yes, the rewards in a trap can be real. But the negative consequences are overlooked, delayed, or invisible.
Ask the mouse if the cheese was worth it.
Action Bias is our preference for action over inaction, even when inaction can get us a better result.
It tricks us into thinking that to solve a problem, we must do something.
This is not to say inaction is always the best choice. But it is an option!
The first draft of this post was a giant list of things I didn’t (or don’t) do — inactions that I believe make my life better.
Instead, here’s just one personal example:
Last year, I decided I should buy a house.
I spent a month looking at Zillow and talking to my agent. I went into it with these beliefs:
1 – A house is a great long-term investment! Its value goes up!
2 – I’m throwing away money on rent!
3 – It’s always a better deal to buy in the long-term!
Everyone’s heard these, right?
I did the math. I discovered that due to something called Price-To-Rent Ratio, it is actually (generally) cheaper to rent in a place like Los Angeles. (And yes, that is with all long-term factors including opportunity cost of the downpayment, transaction costs, annual maintenance, interest, inflation, property appreciation rate, taxes, etc.)
There was a house I wanted. And I could easily afford it. I really, really wanted the math to work. But it didn’t. I projected out decades and it didn’t make any financial sense for my personal goals. According to my best calculations, I would come out way ahead if I did not buy a house.*
There’s also my own psychological overhead to consider: I previously owned a nice house in Los Angeles for something like 8 years, and I didn’t enjoy it. It stressed me out: I do not like having a large amount of my net worth frozen in a building that could be wiped out in an earthquake or fire (which is becoming an increasing threat in the area — just ask the insurance companies). For my own temperament and lifestyle, I prefer the flexibility. I remember being so relieved to sell that house.
So what did I do?
Nothing.
Renting wasn’t a problem after all!
I stayed in the apartment.
Every day, I wake up and look out my balcony at the pond full of ducks, the trees, the mountains in the distance… satisfied with my choice.
Sometimes the best decision is to do nothing.
*This is not an attack on people who buy houses. You can buy a house and do just fine. This is simply my own personal example, due to my own specific goals and priorities.