Alan Fox

As many of you know, a few years ago I wrote People Tools, a guide for enjoying a happier and more productive life.  That book became a best seller and was followed by two sequels – People Tools for Business and People Tools for Love and Relationships.  One of my all-time favorites is the People Tool of “Sunk Cost,” which is both obvious and counter intuitive.  It is a strategy I have written about before, but it bears repeating because it can significantly improve the quality of your life.

Let me elaborate.

When I was studying accounting in college, the following question was posed.  Suppose a manufacturing company has just installed a new machine at a cost of $2,000,000.  A salesman calls, trying to sell the company a much faster, more efficient machine priced at $3,000,000. Should they consider a replacement?

The easy response is, “No, they just bought a machine that is brand new, and it is working fine.”  But that is not necessarily the more profitable solution.  In business, as well as in our personal lives, we need to focus on the future because we cannot change the past.

So we have to completely ignore the “Sunk Cost” of the old machine and compare the future cost savings and potential profit from each machine.

For example, if the new investment of $3,000,000 will earn back its entire cost in six months and make a significantly greater profit after that, then it is certainly an investment we should consider.  The previous “Sunk Cost” is irrelevant.  Whether the existing machine was purchased twenty years ago, twenty days ago, or twenty minutes ago makes no difference.  It is a part of the past that we cannot change, and this is why a “Sunk Cost” shouldn’t influence our decision.

Another example comes to mind.  Suppose you have just moved to New York to take a new job, and two weeks later your ideal position becomes available – in San Diego.  Would you turn it down because you have just paid to move your belongings across the country?  ”Sunk Cost” says that your past move is makes no difference.  If you think you will be better off, you should accept the San Diego job. Why thwart future opportunity and potential upside because of an expense incurred yesterday?

I also apply “Sunk Cost” to the use of my time.  Just because I bought a ticket does not mean that I have to sit all the way through a boring two-hour movie.

You have now invested three or four minutes in reading this blog, so I hope “Sunk Cost” will be worth your time.

Thanks.

Alan

During the past four years, Daveen and I have seen just one movie in a theater — Westside Story, a remake of one of our favorites.  So on Saturday afternoon we thought it was time to see one of the two blockbuster films that opened last week.

We drove to Universal City, parked (at a fee of $75.00 for three hours — I recommend against valet parking), and found our way to the multiplex theater.  At the box office I requested two tickets to the Imax screen for Oppenheimer.  We could leave the Barbie film for another time.

The young lady behind the glass window could have been Barbie’s twin sister.  But alas, with a smile, she told us that the Imax showing was sold out – every seat for the next several weeks.  I was shocked.  I’d never heard of a new movie being sold out for that long, even on an Imax screen.  To assuage our disappointment, we stayed to enjoy lunch at the food court, but left in less than an hour, saving $50.00 on the parking lot fee.

I must admit that in a few ways I’m starting to feel my age.  For one thing, even though I own a property management company that exclusively oversees shopping centers, there were several retail stores at Universal City with names I didn’t recognize.  For another…well, I’ll just say that paying more than $10.00 for a hot dog – all right, a chili dog — seems a bit much.  Who do they think they are – Dodger Stadium?

On Sunday afternoon we enjoyed an early dinner with friends at a local Italian restaurant.  The total price of dinner for four was less than three hours of valet parking at Universal City.

And what will we do this evening?

Maybe I’ll have a 75-cent hot dog at home and watch a movie on Netflix.  The parking fee will be zero, the cost of the movie is included in our monthly subscription fee, and when it’s over we won’t have to remember where we parked the car and wonder how long it will take to drive home.

No, when the credits roll on a Netflix movie, I’ll be right in bed where I belong.  (The name of this People Tool is “Sweet Grapes”.)

Alan

For many years this has been my favorite quotation.  It comes directly from Hamlet, a character in a play written by (another) great writer more than 400 years ago.

But let me be more specific.

CHOCOLATE ICE CREAM

THE BIDEN ADMINISTRATION

THE LOS ANGELES RAMS FOOTBALL TEAM

Are these “good” or “bad”?

I expect that the opinions of my readers will differ.  Some of you will say “good,” others will say “bad,” and still others may have no opinion either way.

But even if you agree with me that chocolate ice cream is “good,” we must realize that there is no book or human authority that offers the final word on the goodness or badness of chocolate ice cream or anything else.  What we are really saying is that we like chocolate ice cream, or that we dislike or don’t care about the Los Angeles Rams.  In short, “good” is just a shorthand way of saying, “I like it,” And “bad” is just a shorthand way of saying, “I don’t like it.”

Why is this distinction important?  Because it reminds us that our opinions are exactly that – opinions, and not statements of fact (other than the fact that we like or dislike something).  Facts are facts – in Los Angeles the sun will set today at 8:05 pm, whether you like the Rams or not.  The 8:05 time is not a guess.  It is reported as a fact on the internet, which I assume is correct and a fact we can all agree and rely on tonight.

In these days of political divisiveness, I believe it would help us to remember that our opinions are not eternal. Some of our opinions have probably even changed over the years.  My dad taught me, in the stock market, to be a contrary thinker – sell when others are buying and buy when everyone else seems to be selling.  That makes perfect sense to me, but obviously a majority of investors disagrees.

Wouldn’t it be interesting to take a moment to refrain from negative judgements of other people’s thoughts and feelings and agree that it’s okay for us to disagree?

Do we agree on that?

And as for dessert after dinner tonight — I vote for chocolate ice cream, but even there I wouldn’t expect the vote to be unanimous.  After all, some folks prefer vanilla.

And – you may find this difficult to believe – I have actually met a few folks who don’t care for ice cream at all.  It’s a matter of taste.

And that is a fact.

Alan