Value
Getting the most out of your decisions
To start this blog off right, the first thing that needs to be discussed is a simple concept I have dubbed “value”. To me, value is reward divided by costs. The higher the number, the better, of course. This can be a very straightforward mathematical calculation, or a very hazy and rough opinion depending on the situation. Let’s make it more clear with a couple examples.
First, we’ll talk about an example for which calculating the value is simple and clear: investing your money (this will be discussed in depth in a later post as well). Currently, you may have your savings in a savings account in your bank. There, your money is not earning any money, it’s stagnant. However, if you simply drop your saved money into a diversified portfolio of low-cost ETFs your money will passively increase. If you don’t want worry about this unknown realm and do all the research, you can simply put your money into a well-managed and highly rated mutual fund like VWELX. This virtually guarantees that in the long run you will make money, not lose money. For VWELX, the average over the past 15 years is nearly 8% annual return, and it’s projected to be similar for the future. On top of that, if you need to use your money, it’s not locked up, you can simply sell some of the stock and put the money back into your account in no more than a day or two.
So in this case, the costs are the time it takes you to make an account on vanguard or another broker, link it to your bank account, and drop a chunk of your money into a fund, which we can estimate high at perhaps 3 hours. If you pay yourself a generous $35/h for this work, that’s ~$100. Then take a rather conservative estimate of 4% gains per year, assuming you are putting in $10,000, you’ll have paid the cost of your work in a little over 2 years. The more money you put in, the faster you pay it off. After that, you’re purely making money for free, with zero effort or upkeep. So in this case, we’re talking about a very clear and obvious positive value for my theoretical example person.
On the other hand, there is nothing that has universal good value — value is very much subjective and depends entirely on your situation. For a homeless person, for example, dealing with investments would have very negative value. Time trying to set up investment account and bank accounts and linking them would be time much better spent trying to learn skills that could make you money. The money you’d make from an investment account with limited savings would take many many years to pay off, and the fact that it takes a day or two to get out funds when you need them could make much more of a difference when you don’t have a steady income or savings buffer.
Now, let’s discuss a couple examples that have more fuzzy value. I’m currently traveling, so I’ll use a real example from my life. In Amsterdam, there are a number of apparently very nice museums, among them the Rijks Museum. My girlfriend and I thought that it might be a nice idea to head to one of them for a couple hours. However, when we got there, it was ~$18 for entry, meaning nearly $40 for both of us. Now we were faced with a value judgement. With all the other things we could do with $36, did we want to put that towards a museum? We discussed it and broke it down. Neither of us are big art fanatics, nor have we studied art extensively. We weren’t familiar with the museum or any of its pieces. On top of that, we are usually paying an average of $40 or so for our nightly accommodation wherever we are, and $36 would easily cover many days worth of food, or a day trip to another town. Finally, we were sure the museum would be interesting and tend to enjoy museums, but would it make any impact on our lives long term? Would we look back in a year or two and remember this museum and reflect contentedly on our visit? Probably not, we thought, it really was simply entertainment for a couple hours — more of an indulgence. So we decided to skip it.
But with this type of experience, it can go both ways. For example, if you have been to Europe, you have inevitably visited a number of churches. After seeing a few of them, the value of seeing churches quickly starts diminishing. For us, they all started to look the same, and before long we didn’t think it was worth paying or going out of our way to visit churches. However, there was one church we did decide to pay to go into, La Sagrada Familia, even late in our trip. It’s expensive to get in, and we weren’t sure it would pay off, but it has been recommended by many, so we tried it. After having visited, we both agreed that it was a great value. This was the most incredible piece of architecture I have ever seen in my life, not even close to the competition. It stands alone as an absolute masterpiece of art and architecture, and honestly I wonder if it will ever be surpassed. The experience of just being in the building was super meaningful to me, and is something I think about regularly and will never forget. On top of this, there is an extensive museum under the church that breaks down the architect’s process and a presents a bunch of really fascinating information about the architect and building. It was hard to know beforehand on this experience whether it would be worth it, but now we can say confidently that it was without a doubt very high value for us.
One more example. In my work as a programmer, value is a concept that I am evaluating constantly. For any feature that’s requested in a website or application, a value judgement needs to be made in order to figure out how high the priority is. For example, adding small flourishes and animations to an interface are a delightful experience for users if done tastefully, but they are also inherently low value — they take a lot of time to implement but do not make a significant impact on the experience. Without the animations, everything would still work perfectly fine and nobody would complain. So compared to features that are necessary to get the app working correctly, these types of things would be lower value.
However, low value does not always mean “not worth doing”, as value is relative. For the example above, the animations are very much worth doing, just after the core functionality. Just because something is comparatively low value does not mean it should be skipped. It simply needs to be moved on the priority list, and if there is time and money to add these features, by all means make it happen. For example, in a product like OSX, Apple’s operating system, the small delights and additional movement-related clarity users get from animation does in all likelihood pay off over time. It’s not negative value, it simply provides less value than something like, say, having a working web browser.
Value is a term I will be using frequently throughout the writing here. It’s not a revolutionary concept by any means — everyone makes value judgements all the time in their lives. I just want to make sure it’s clear what I’m talking about, and assign a name to the phenomenon. I’d love to hear from any readers as well if they have thoughts or good examples of value — just comment below!
Photo is of Machu Pichhu in Peru. It was quite expensive to take the Inca Trail there, but for us it was still a high value experience.
