Time to Buy, Time to Sell

There’s a great mental heuristic I like to use whenever I’m deciding if I want to purchase something. I visualize a table with both the thing I want to buy on it, and an amount of cash equal to the purchase price sitting next to it. I then decide which I would take, if I could only take one.

That gives me my answer. Shiny new things are shiny and new, but money is pretty dang versatile, despite not being terribly interesting in comparison to some new trinket. So it’s worthwhile to give them both an equal shake.

This trick also works if I’m deciding whether or not to keep something. I can visualize the object I already have next to either a.) the cash I could get for it, or b.) the empty space I’d free up if I got rid of it. That helps me decide which things are worth keeping. (For me, very few things get kept in this instance – I value versatility in my objects, and few things are as versatile as money and empty space.)

Taking those two concepts together made me realize that there’s an additional question I should very often be asking myself, but seldom do.

If I’m looking at, for example, a new tool and I decide not to buy it because it doesn’t pass the heuristic above, I should then immediately ask myself: “should I sell any of the tools I already have?” I mean, if the tool I don’t have doesn’t pass the “better than money” test, then maybe the tool I do have wouldn’t pass, either. If I don’t allow myself to be fooled by status quo bias, then there’s no difference between two objects just because I own one of them and don’t own the other.

The same applies to the reverse – if I’m deciding whether to sell something or not and I decide to keep it, the next question really should be: “should I buy more?” After all, if an object is worth more to me than its cash equivalent, that might still be true for the next one.

Of course, diminishing marginal returns keep this from being a universal rule. The second identical hammer is a lot less valuable to me than the first. The third is virtually worthless. Not everything maintains the same per-unit value if I get more than one.

But that means that for any given category of item, there’s an optimal level – the number where the one I have is worth more than its volume in space or amount in cash, but the next one wouldn’t be. I don’t always know if I’m at the correct level, and certainly I err on the side of less. But asking the question is a good idea.

This goes well beyond personal effects. It’s probably pretty easy to figure out if I own the right number of spatulas. (Even if somehow that number were more than “one,” which it certainly isn’t, the ease at which money can be converted into spatulas means I can probably hold off.) But what about investments? Those are trickier. I think the question helps.

Certainly it doesn’t hurt to ask, and asking unusual questions can help refine your thinking in other ways. So the next time you decide not to buy something, ask yourself if you should sell something similar. And if you decide not to sell something, ask yourself if you should buy more of it. You never know what strange insights these kinds of questions can bring.

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