Everyone’s mother or father has told them, “Just because you can does not mean you should.” That advice usually related to jumping your bike off the diving board or climbing a tree to the top.
There is a similar idea. “Just because you can measure something, does not mean you should.” That is a little more obscure, even hard to accept. Measurement is good. You cannot manage what you cannot measure and many more ideas similar.
The problem is that people often measure things that are not relevant to the decision they are facing. If I am the general manager of a basketball team, height matters. If I am the general manager of a financial services business, it does not. Easy to measure is not always important.
- which measurements matter.
- what the measurement is,
- what it means in its context
Knowing what matters is the hard part. Measuring what is easy leads to the mistake of attributing value that the data does not include. Easy to know does not make data useful. The correlation between US consumption of margarine and the number of divorces in Maine is nearly perfect. Yet useless.
Which is more important, knowing what you spend exactly or knowing what you should spend? Does you net worth go up or down with this spending? Are you approaching or avoiding financial independence? Do you know what financial independence means for you?
Some obvious things like investment management cost and tax cost are, by themselves, meaningless.
They are parts of the price of achieving some bigger goal, they are not the goal itself. It is a mistake to think that you do better by reducing the price of the parts. Notice that that you care about outcome, not price.
Paying no tax is a foolish goal. Maximizing after tax income is better. Optimizing financial net worth better yet.
Paying no investment fees is only smart if there is no other cost. For most of us, ignorance of the complex marketplace, experience insufficient to notice obvious warnings and opportunities, impatience, and weak discipline arising from emotional involvement are costs. Reducing the price of advice assumes that the same result can be achieved without the advice.
Many, like Warren Buffett, see disintermediation as a good thing and for them it is. They can do well without the advice or implementation help. Unless someone has Buffett’s training and experience, no individual is well served.
Measure what you care about. Understand costs and alternatives. Pay less attention to details. Use the Buddhist idea. Focus on the moon, not on the finger pointing to it.
Not everything that counts can be counted, and not everything that can be counted counts.
Knowing what things mean matters more than their accuracy.
Don Shaughnessy is a retired partner in an international public accounting firm and is now with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.
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