- The more often I change, the greater my opportunity for error and increased costs
- The more changes I make, the worse I’ll do
Q2-2015 marked the completion of the five-year plan that I put together at the end of 2008.
When to consider change?
A major life event is a good time to consider change.
- In 2008, I was faced with unemployment.
- In 2000, it was a divorce.
- I’ve seen friends face criminal charges, bankruptcies, health emergencies and deaths.
A crisis can be a sign that, absent change, things are likely to deteriorate. It can also provide a nudge to endure the discomfort of change.
In my case, a high-spending rate combined with unemployment to tip me off that I was heading towards a major problem.
The plan required us to move (twice), establish new careers, achieve a dramatic reduction in spending and change the allocation of 95% of our balance sheet.
I expected the changes to be costly and forecast our balance sheet to decline by 20%. I was wrong. In reality, the balance sheet increased by 2% per annum.
- I’m good at cost control – we made changes early, and severely.
- We maintained exposure to favorable events – things like promotions, bonuses, babies, cheap mortgages, new friends, equity options.
- Despite my fears, the world tends to improve.
I was also wrong about the price that we would achieve for the assets we sold. On average, we sold 10% under my estimate of “fair value.”
The Endowment Effect shows that we overvalue what we own. It’s valuable knowledge to be reminded that I’m prone to the standard forms of human misjudgment.
These two lessons are important to remember:
- Things are likely to turn out better than I expect
- I overvalue what I possess (jobs, assets, habits, the status quo)
I paid close attention to my “good days” since 2008. They were nothing like I expected and have influenced my thinking in how best to spend the next 1,000 days.