fools


Creative Commons License photo credit: hans s

“Fools and their money are soon parted.”

This phrase makes me nervous every time I look at it. Somewhere buried deep in my psyche a little gremlin cackles these words out over and over again. While I may not be the smartest person in the world, I like to think of myself as being moderately smart. I have my fair share of sheepskin. I have a long string of academic honors trailing along behind me like tin cans behind a newlyweds’ car. Maybe because of my brains I’ve always been afraid of being called a fool.

Here’s my definition of a fool: someone who does something stupid. Er, yes, Steve. Very original. The subtle distinction is that it’s someone who DOES something stupid rather than just IS or THINKS stupid. That probably sounds pretty harsh, but basically what I’m saying is that even smart people can be fools, and less-than-smart people can avoid being fools.

Let me be harsh. I am fairly sure you are a fool in some sense. I am, too. I have done stupid things. I may have known they were stupid, but I did them anyway. Let me give you a few examples.

  1. Flush with cash after leaving Russia in the mid-90s, I kept $30,000 in cash in my checking account for about 5 years because it made my Manhattan single days footloose and fancy-free. Remember the late 90s? Think dropping some of that money into a decent index fund might have been worth it?
  2. I bought a car and financed it when I had enough cash to pay for it outright. I paid interest just for the kicks, apparently.  That, incidentally, was the first and only time I ever paid interest for anything other than my mortgage interest.
  3. I didn’t carefully review my car insurance and found out – after two years – that I had been paying for “rental car lending insurance” – if I had to take my car in for repairs and needed a rental car, up to $50 a day was covered.  With two cars and an abundance of public transportation available, this may not have been insurance I needed, eh?
  4. I sneered at people paying $600,000 for a two bedroom in Manhattan when I moved there and probably could have scraped together the money to buy one. Now the same places probably are worth $2 million.

That’s just a sampler. The common characteristic of most foolish actions is that the fool fails to take into consideration the long-term consequences of their action… or inaction. You might be foolish today for one of these reasons:

  1. You are still adding to your debt.  C’mon, all the cool kids are doing it…
  2. You are saving but not investing because you “don’t have enough knowledge to invest”.  Last time I looked there are about 20,000,000 books that could help you correct this problem.
  3. You are waiting for the real estate market to ‘cool’ or ‘get hot’ but you don’t know enough about real estate to know when that is.
  4. You are counting on your job to exist forever.  My acquaintances at various big banks’ corporate headquarters here in the New York area thought their jobs were safe.
  5. You aren’t accumulating new skills.  I’m not just talking about book knowledge, either.
  6. You are buying stuff you don’t need.  For 10,000 years of human history people got by without owning more than two pairs of shoes at a time, for example.
  7. You have allowed yourself to get complacent about where you are in life.

I could add another dozen items to the list not related to finance: you don’t exercise, you are rushing into bad relationships, you are keeping bad influences in your life, and so on.

I try not to do foolish things, but I think about foolish things all the time. Sometimes it is actually a good thing to have foolish thoughts, but it’s more important to learn how to identify them as foolish before I’m parted from my money. The only way I know to avoid being foolish – learning. If you are worried about being parted from your money, the only way to avoid it is to keep educating yourself about money – keep reading, keep discussing, keep watching what successful people do.

It’s a tall order, because we’re all busy with life and jobs and family and the whole business of being a person on this planet, but you have to do it. Otherwise you’re just going to stay where you are or fall further behind. Nobody gets ahead without continuously learning throughout life.

16 comments

  • Not buying that $600,000 Manhattan apartment must have hurt in retrospect when you saw them climb to $2 million, but how could you have known? And what about people who bought at the peak because they expected continued appreciation? What about people who held off on buying because they kept expecting a bust that never came until prices had tripled? How could any of them have known (not just guessed)?

    When it comes to real estate, it seems awfully hard not to be a fool!

    • @Hunter: Oh, of course I couldn’t have known, but I guess that’s the trick to smart investing/wealthbuilding/getting rich, etc. – seeing something others don’t. It probably doesn’t make me a fool so much as just “average,” but somebody knew – somebody bought. But you’re right that it’s all a question of timing as to whether you look like a fool or a genius – but part of being a genius is mastering timing!

  • Excellent post! As the “smart” daughter in my family, I’m constantly picked on for not having any common sense (the microwave baffled me until I was 18) but can answer almost any Jeopardy question (good memory). I would prefer not to list the foolish things that I’ve done because my list is much longer. However, I think the main point to be made about foolish choices is that you learn from them. Yes, I own quite a few Juicy Couture items. Now, I don’t spend money on brands, but on quality clothing. Plus, I still wear my Juicy sweatpants around my apartment!

  • Danny Tsang

    We all do foolish things at some point. For some reason they don’t seem foolish at the time. I think the key to avoid further foolish actions is patience. I realized that I made many foolish mistakes in the past in all areas of life because I was impatient and I rushed things. Now I do a ton of research, and I’m known to sometimes over analyze the smallest things. You’re right, the only way to improve ourselves is to keep learning. Cool post Steve. Have a good week

  • “I think the main point to be made about foolish choices is that you learn from them.” -SAVNIGDIVA

    It’s difficult to learn from foolish choices if we never take the time to sit down and reflect back on them. As someone who usually thinks she’s doing the right thing at the time, it takes me a while to realize when I’ve done something foolish. Making a list like Steve did really helps.

    As for finances, I’m stuck with a huge student loan, so I’ll be paying that off for the next several years. I’m still trying to decide whether the extra schooling is worth it.

  • I recently saw a movie that had a nice quote in it: “A fool and his money are lucky to get together in the first place.” Your post made me think of that and laugh but I can definitely relate.

    Big fan of your site, and the snark.
    Ben

  • I like Ben’s quote – lol.

    Anyways – I am the epitome of #7 – very complacent (with respect to my career at least).

    Great post.

    Mike

    • @Mike (Four Pillars): Thanks – and thanks! and there’s nothing wrong with being complacent with your career, as long as it’s letting you meet your other goals. You’re pursuing other goals – blogging, staying fit, having kids – so it’s not like you’re just treading water. I don’t view my career as a central part of my life, either – in fact, I’m trying to minimize it.

  • I just noticed your new byline – very nice!

  • Being foolish is only human. The trick is to learn from past mistakes, instead of getting hung up on the “why was I so stupid” factor. Last summer I helped a family member manage and close a retail business. I was new to the trials and tribulations of small business, having only worked as a professional trained to write reports and do research, not manage employees and make a profit. After the experience was over, there were a million things that I obsessed over, beating myself up about why I did this instead of doing that. However, I also realized that I had learned what NOT to do in business. Failure and foolishness is the best education, for those who want to learn.

  • Nice post.

    Nonetheless, being a “fool” at the time can save you a lot of money too. Think about the time when you were about to invest in something then got cold feet towards the end and flaked out. It turned out that the “opportunity” was a flop and you could have lost tons of money. Not just money but it occurs almost everyday in your life. That’s why you take chances.

    I think the only way to attack this is to constantly think and evaluate your options and what you are having. Not being greedy is good, and so is being greedy. Not thinking is bad though, and not realizing that you were only a fool earlier is the worst!

    • @Alex Le: Oh, sure, failing to take chances is sometimes the best decision in retrospect, although I would say (as you’re getting at) making the conscious decision not to do something is a lot, lot better than just getting lucky through inaction.

  • @Danny: Similar to the comment I made to Hunter, right – timing and patience (or timing and rapid action) can make the difference between seeming smart and seeming foolish. Over analyzing is my current problem, too, and I’m trying to build SOME sense of urgency back into my decision making.

  • You don’t measure a fool by the end result. You measure the fool by how the decision was made. People come up with explanations to fit patterns which is why talk after the fact is cheap. You make the best decision you can at the time, and then you see what happens.

    Take your real estate example. I live in the Bay Area. Those people who bought in 2003 and sold in 2006 look smart. But there are far more who went through that same decision making process on very similar data in mid 2005 and now look like fools.

    There might be a few truly wise or truly foolish in each group that deserve their label. But overall, what separated one group from the other is basically luck.