“The Dangers Of Calculating Too Much” by Warren Buffett’s Partner

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“People calculate too much and think too little.” – Charlie Munger (Warren Buffet’s Partner)

Sometimes we’re so focused on the numbers that we forget what the objective is.

It reminds me of a story an old client, Jeffery, told me.

Jeffery’s company produced plastic parts for automotive companies. Especially luxury car brands.

When he was just starting out his career at the company, Jeffery was tasked to find ways to reduce the cost of an item by a few percent.

He managed to find a way to reduce it by a whopping 10%.

That was almost twice his original target.

When he brought it to his boss, he almost got fired.

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Why?

It’s because his cost reduction involved reducing the surface shine on the plastic part.

That extra 5% cost is the difference between a plastic part looking normal, and looking luxurious.

His clients were luxury car makers. Yes they wanted a lower price, but their cars needed to look fantastic.

That 5% cost premium wasn’t optional, it was necessary!

If Jeffery presented this cost saving idea to his client, they would have thrown him out! Potentially taking their business elsewhere.

Jeffery was too focused on calculating the part cost. Missing the bigger picture of his customer’s need.

We do it all the time as well. Calculating the small gain, and missing out the bigger picture.

I for one, always make this mistake.

A few weeks ago, I went to IKEA to buy some new LED bulbs. They were about 3 dollars cheaper, per piece, than the Philips equivalent I saw being sold online.

I needed 7 of these bulbs. So, overall, saved 21 dollars.

Not bad, right?

Unfortunately, I lost 20 dollars of that 21 dollars savings to my GrabTaxi ride to IKEA.

In hindsight, I should have just spent that extra 1 dollar and ordered those bulbs online.

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Maggie Loh

Financial Analyst
With the time I saved, I could have cooked a nice dinner for my partner!

I’d gladly pay $1 to have an entire afternoon to do something nice for the person I love.

Instead, I missed the big picture. I calculated too much without thinking enough. (so much for my “bright” money saving ideas)

It’s a fallacy of human thinking. I’m glad I made the mistake. I’m wiser having done it.

What about you? When was the last time you missed the big picture?

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