I’ve just finished reading a book called Essentialism. Well, ‘reading’ is not entirely true, ‘studying’ maybe more accurate.
Like many people, in my youth I was always told to look after books and not to write in them. These days I have a view that since I paid for it, it’s my book so I can do what I like with it. In this case, I have underlined all over the place, written little comments, and circled what I thought was important. I’ve also got Post-It notes stuck in it with more thoughts and comments. And that was only from the first reading — the second will result in a mind map summary with actions to be implemented.
All of this is because the underlying principle of the book is difficult for me to implement, but I am determined to do so. “Less, but better” is easy to say and even believe, but very difficult to implement.
Knowing what’s not important
It’s impossible to focus on what’s most important until you know what’s not. But knowing the critical issues isn’t easy. It takes time and requires thinking and sorting. Exactly the same is true around money – people who struggle with money often don’t know the critical issues. They think they need to know it all which makes them easily distracted, and constantly overwhelmed.
Most people would see money as critical to survival and directly correlated with happiness. Above a fairly moderate level, more money is not going to increase happiness but the perception among many is that it will. And that’s why it’s difficult. Even though many would like to improve their lifestyle, they are content, and there is a fear of losing their lifestyles.
Many people become stressed by asset values falling, debt, interest rates, and the possibility of losing a job. For those that don’t have these concerns, how their adult children or grandchildren’s manage money can cause anxiety.
Knowing you can’t do it all
Greg McKeown, the author of Essentialism, writes: “The Nonessentialist thinks they can do it all but they feel out of control, are unsure of whether the right things are getting done and react to what’s most pressing.
The Nonessentialist investor reacts to what’s in the headlines, is unsure of the value of assets, and says ‘yes’ to new investments without really thinking
For this person, it’s a vicious cycle as they move from one investment to another. They can’t handle negative returns because they never really understood or trusted the process.
They read a lot of opinions, especially when things aren’t going as well as they expect. This is not helped by the number of ‘experts’ with strong views – and it causes them confusion.
They want to always be optimal, so they are continually looking for a way to improve something.
For those who have both the capacity and interest to understand all the moving parts, their strength can become their weakness. This very ability allows them to attempt to do it all instead of choosing the critical factors and sticking to them. In their quest for perfectionism, they fall well short.
Successful investors and wealthy people understand that asset prices move up and down so they don’t panic. In fact, they look for opportunities when assets go ‘on sale’ because they focus on simple rules. They know how to choose assets, or they have people they implicitly trust. They focus on the ‘essentials’.
Find the first domino
On a trip to Israel a few years ago, I was fortunate to be waiting around an airport with one of Australia’s richest men. Not wanting to miss the opportunity, I asked him what he believed was the most important aspect of wealth creation. “The people,” he said. “It’s the people you trust, and their track record.” And with those essential words he summed up his focus.
Charlie Munger (a billionaire and Warren Buffett’s right hand man) recently said “Part of our secret is that we don’t try to know a lot of things.”
As I work hard on becoming more of an ‘essentialist’ in my work life, I’m grateful for having developed this mentality around money. To me it’s simple: first, cash flow then quality of assets, and then purchase price. Anything more is just optimising.
Find the first domino and the rest becomes easy.