The Cause of and Solution to Life’s Problems
After I wrote about Growth, and Other People’s Money, I received a thoughtful note from @michaelnewt. He wrote:
OPM can be addictive. It changes behaviors and incentives…Mathematically it makes sense to go with the cheapest capital, but your write ups on OPM and Debt vs Equity are the reminders I needed to think deeper on the issue. There is more to choosing the best partner than simply what Excel tells us to do.
I joke that Excel is the cause of and solution to all of life’s problems. That joke is a riff on an old Simpsons episode that said the same thing about alcohol. And I’d argue that they are not dissimilar. In moderation, both are great, but if you let your life be run by spreadsheets or booze, well, you have a problem.
Keep in mind that I say this as someone who has a spreadsheet for everything.
Household budget? Spreadsheet. Son’s swim times? Spreadsheet. Distribution of wildflowers in a native Missouri wildflower meadow? Spreadsheet. But I have to remember that as much as I love a numerical safety net, data is a way to help you make decisions, not to make decisions for you.
In fact, I’d argue that one of the most dangerous situations you can find yourself in is one where “the numbers make sense.” If you’re falling back on the fact that the numbers make sense, then it may be the case that the sense doesn’t make sense. This, I think, is how people got lured by low interest rates to buy too much house in the mid-aughts or how a financial institution like Silicon Valley Bank got lured to buy long-dated slightly-higher interest rates treasuries more recently.
In both cases the numbers made sense, but the decisions turned out to be bad ones.
There’s a saying that numbers don’t lie, and that’s true. The learning, though, is that people can and do lie, both to themselves and to others, and often use numbers to do it.
P.S. Permanent Equity’s investing team is hiring. Click here for the details.
– By Tim Hanson