This is an article by The Weakonomist, an anonymous blogger responsible for everything at Weakonomics.com. As a banking insider he’s witnessed the economic implosion from inside the bubble. You can usually find him at the corner of Wall Street and Main Street throwing rocks at traffic.
If I presented a monkey with two choices: a grape or a piece of paper that could be exchanged for a dozen grapes, what will he choose? Before the question is even asked, he will take the single grape. Stupid monkey.
We’re all stupid monkeys. Sure as an individual you’re smart, but as a population we’re terribly stupid. And much of that goes back to our monkey brains. We see value in the single grape but not the paper. And this isn’t a matter of instant gratification. Your senses are playing tricks on you. As a collective people, we place too much value on the things we can see, touch, taste, smell, and hear.
The best examples of sensuous value come from people that come into wealth quickly. Think of celebrities, rappers, and athletes. According to Sports Illustrated, an estimated 60% of former NBA players are broke within 5 years of retirement and 78% of NFL players have similar issues within 2. Now part of that may be due to poor spending habits and not just investments, but the two are really one in the same.
Bad investing and poor spending both focus on the material. You want to take cash and turn it into something you can really own. It might be cars, jewelry, houses, friend’s businesses, vacations, or restaurants. They can all be consumed in some form or another. You can brag about the company you’re invested in, sample Beluga caviar while cruising the Mediterranean, or take a hot date to your restaurant in your Maserati. The only thing that differentiates bad investing with bad spending is the expectation of a return. But if the return was unrealistic, then the only difference really is a tax write-off.
But why do we put our money into such ridiculous things? It’s because we put more value on something that appeases our senses. Our senses are really a low level genetic trait, we know this because just about every type of animal shares the same basic senses. And their lives are spent acting on these senses, because that’s how they survive. But the presence of opposable thumbs isn’t the only differentiator between us and other animals. We can think critically, and we can see value in things that go beyond our senses. Here’s an example:
Apple has assets of about $85 billion. If they used those assets to pay off all their liabilities (like bills, taxes, debt if they had it) they would still have $55 billion in value left over. This is a rough example of Apple’s book value. It’s the value of all the stuff the company owns. And yet, the company is actually worth more than $300 billion. What accounts for the difference is what separates us from other animals.
We can see beyond the simple value of something. We can understand that value can be created (and destroyed). Value doesn’t have to be material. Value can be something you can’t touch. Value can be an idea. Think of all the value in the Internet. There are trillions of dollars of value in the Internet, and yet you can’t touch it, see it, or smell it. All you can do is interact with it.
But even though we understand this value, we often reject it. When we’re worried about inflation, we buy gold. We believe that because it can be seen, touched, and not created that it must carry more value than a currency. Classic monkey thinking.
Thinking like a monkey isn’t necessarily bad. In fact it should be embraced quite frequently (it’s that gut instinct). But when it comes to what you should be doing with your money, you’re better off finding sensible, not sensuous, value.
Updated June 23, 2016 and originally published February 9, 2011.