Don’t Fix Obvious Problems
One idea that resonated more than I expected was FOMOBOMO. Mark, not that Mark, for example, emailed me back to say that thanks to FOMOBOMO, he finally could explain why he was paying down his mortgage despite having a great interest rate.
The reason that’s so is because all of us do things that don’t objectively make sense, but that make sense to us, and also that there are times when it may be optimal to do something that is clearly not optimal. This, I think, is not exactly FOMOBOMO but a corollary to it, which is the thoughtful and deliberate making of obvious mistakes (TADMOOM?).
The reason Mark paying off his mortgage is a mistake is because he’s paying 3% or so to carry it, but could earn more than 4% today on a 20-year treasury. In other words, there’s an obvious and accessible risk-free opportunity that would generate a better return.
Except!
Mark perceives non-economic benefits of being debt free, and who is anyone to tell Mark about the relative value of the perceived benefits of his household balance sheet?
You could argue, of course, that Mark is not making a mistake in this example because he believes he is deriving value in excess of cost and that’s how one makes a market anyway. But I think it’s clear here that there is no world where Mark ends up objectively better off by doing this. He just thoughtfully and deliberately wants to do it.
Somewhat related, Jason, who runs our airplane parts paperwork business out in California and has a substack where he records his own thoughts on business and operations, wrote recently about the immense relief of not fixing obvious problems.
While that sounds like gross mismanagement (we’re watching you, Jason), what it’s in recognition of is that time is finite, perfect is often the enemy of good enough, and if you’re always trying to optimize everything, you might not get around to optimizing what matters most. There is, however, a fine line here. If we’re not aiming for perfection, what are we doing? And how much imperfection can an endeavor tolerate?
Unfortunately, there’s no clear, right answer. The best you can do is hire good people and trust their judgment, but also always be positioned to be able to tolerate – deliberate or otherwise – inevitable obvious mistakes.
-Tim
