Obvious Things That Are Easy To Ignore in Finance
Obvious Things That Are Easy To Ignore in Finance
Sep 16, 2020 by Morgan Housel
“The world is full of obvious things which nobody ever observes,” says Sherlock Holmes.
In a different scene he tells a friend while thinking about a crime: “It seems, from what I gather, to be one of those simple cases which are so extremely difficult.”
Lots of things work like that. Learning from something has two parts: whether it’s important and whether it captures your attention. The number of things that check the first box but not the second are higher than any of us want.
It’s not that the simple things are hidden. It’s that our attention is drawn to things we assume make the biggest difference, and the idea that obvious equals ineffective is more powerful than the reverse.
Two examples of obvious things that are easy to overlook in finance:
1. It is impossible to feel wealthy if your expectations grow faster than your income.
Former Goldman Sachs CEO Lloyd Blankfein is worth a billion dollars. But he told The Financial Times earlier this year that he considers himself well-to-do, not rich. “I can’t even say ‘rich’,” he said. “I don’t feel that way.”
Let’s assume there’s more than false modesty here. Consider a few points:
Blankfein is not even among the 10 richest people in his own apartment building.
The Bloomberg list of global billionaires stops counting anyone worth less than $4.6 billion. A mere $4.2 billion – four Lloyds – is now socially unmentionable.
To become a top-five earning financier consistently requires earning at least $1 billion in a single year, let alone a lifetime.
Spare Lloyd your tears, but pay attention to two things that affect all of us: People gauge their wellbeing relative to those around them. And rising income tends to raise the gaze of your aspirations as much as your bank account.
A thing that’s obvious but easily overlooked is that feeling wealthy has little to do with what you have. It’s more about the gap between what you have and what you expect. And what you expect is driven by what other people around you have.
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