During my MBA, Sam Zell, a multi-billionaire real estate tycoon in the US, came to our campus as a guest speaker.
Just before that, he had sold Equity Office Properties to Blackstone for $36 billion, at the peak of the real estate bubble in 2006. Incidentally, soon after his sale, real estate crashed.
So one of my classmates asked Sam, “Did you time the market?”
Sam Zell replied, “When Blackstone made me an offer, I asked myself – would I buy at this price? The answer was ‘no’. But if I am not willing to buy at a price, I should be willing to sell. That is why I sold.”
But this is not how we normally think. Here is an example:
Even if a company’s stock is likely to perform so-so, most of us will keep holding it. But if we had spare cash, we would never buy it.
However, here is the thing: Financially, holding a stock or holding cash are interchangeable (ignoring transaction costs). Then why are we happy to stay in a situation which we would not want to get into?
It is the ‘status quo bias.’
Whether it is a job, a relationship, the city you live in, or any other life choice, once we are in a situation, we are reluctant to change even if we hate it. We are ok with the devil as long as it is a known one.
Bad idea. This bias often degrades our life.
As Sam Zell showed, if you wouldn’t get into a situation, you should be willing to exit it. Following his thought process may not make you a billionaire, but you will make better life decisions.
Remember — a no-choice is also a choice. So if are choosing anyway, why not choose well?
– Rajan