March 29, 2024

Bucks: The Unasked Question at Berkshire

Carl Richards

Carl Richards is a certified financial planner in Park City, Utah. His sketches are archived here on the Bucks blog and on his personal Web site, BehaviorGap.com.

Familiarity can lead to making decisions without thinking through the consequences. The neighbors use their hands to unplug the snow blower or drivers are convinced that they can text and drive at the same time. They all know better, but every year 1,000 people lose a finger or two to snow blowers anyway, and 20 percent of car crashes with injuries are due to distracted driving.

When it comes to money, we’re equally susceptible to letting the familiar get in the way of making the smart decision.

For many money decisions, the consequences are small. A friend told me the story about the time she paid her credit card bill online, but failed to realize that the payment was coming out of the wrong account. She got the notice that the payment was approved and didn’t discover the problem until she checked her bank balance and saw that the account was overdrawn.

Over time, she had gotten comfortable making the payment without looking at the details, and the system didn’t raise any warning flags. Now, after paying an overdraft fee, she double-checks the account number every time she makes a payment.

For every 100 small decisions that seem relatively painless, however, there are the big decisions that change lives. This past week, Warren Buffett’s deputy, David Sokol, resigned after it came to light that he made an unwise stock purchase connected to a Berkshire Hathaway deal. Mr. Sokol is a smart guy, otherwise he wouldn’t have held the position he did. But his actions are baffling. He should have known better, and his failure to question the potential consequences of his decisions seems to have cost him his job.

In Andrew Ross Sorkin’s DealBook post on the matter, he highlighted a quote by Mr. Buffett that seems appropriate for everyone to remember:

“Contemplating any business act, an employee should ask himself whether he would be willing to see it immediately described by an informed and critical reporter on the front page of his local paper, there to be read by his spouse, children and friends.”

Simple enough, but it’s advice that’s easy to forget. And sometimes all it takes to avoid trouble is asking just one more question before you make a decision. It turns out that the extra question could keep you from paying an overdraft fee, or perhaps even losing your job.

Article source: http://feeds.nytimes.com/click.phdo?i=43dec88ca538092f06405f7b5e0ff587