25 Sep 2024 Friends Don’t Let Friends Get Too Cute

My wife Amy and I are fairly rabid Formula 1 fans, which is definitely not something I would have had on my marriage bingo card 10 or even 5 years ago. But COVID changed everyone, and one of the ways it changed us was by introducing us to these racing cars that are more like airplanes than automobiles.

Anyway, this blog isn’t about F1, but something happened in last weekend’s F1 race in Singapore that I think is worth mentioning by way of crossover into the world of personal finance. So bear with me as I introduce some context (if you want to skip all this you can, my main point is just a few paragraphs down):

Lewis Hamilton, widely considered the greatest F1 driver of all time, is in his last year racing for the Mercedes team before he heads to Ferrari next year. Racing in an F1 car is an incredible marriage between the artistry and skill of the driver and the engineering marvels of the car and its design (and thousands of external factors like air temperature, track temperature, track architecture, etc.).

And in Singapore, the Mercedes team sent Lewis to the start line (in third place behind Lando Norris and Max Verstappen) on a set of soft tires, which meant he would have more grip to begin the race, but also that those tires would wear much more quickly than the medium or hard tire. Now, Singapore is widely known (for reasons that largely stem from the heat of the track and the high levels of aerodynamic “wash” that comes from the walls surrounding the track) as being especially hard on tires, and where it is incredibly important for drivers to make the first stint of the race last as long as possible on whatever tires they’re on.

So essentially Mercedes have said this: “We hope Lewis can get past Max at the start of the race (since he will have better grip off the line), and then we also hope that Lewis can hold off Max as the soft tire quickly loses grip (and time) to Max’s medium tire, and then we also hope that there is a yellow flag before Max ultimately passes Lewis back (since the yellow flag creates a “free” pitstop that would allow Lewis to get onto a better tire choice). And each of those has a decreasing probability of happening with each lap! And even if it all goes right, you only get one place out of it! Maybe! But, spoiler alert, not one of those things happened in real life, so Lewis finished the race in a disappointing sixth, out of position and on the wrong tires from the very beginning.

For those of you who skipped ahead, this is where you can join us again. The poor strategy of Mercedes is one that we can all too easily fall prey to in the context of our financial decisions, and that is this: Needing too many things to go right for your strategy to succeed, and, for that success to be marginal at best anyway. 

We talk a lot about simplicity at Beacon, and sometimes I fear what people get from that word is “watered down” or “easy” or something like that. But no, what we mean is: cutting down the number of things that have to go right for you to succeed. And that requires avoiding the siren song of strategies that introduce all sorts of shiny new variables that are unnecessary and often unreliable. That requires doing the best job you can of designing the race car (planning in the face of uncertainty) and driving the race car (behaving well and living your life), and trusting that over time that process will yield positive results. 

Trying to strangle uncertainty with complexity will more often than not put you out of position, and even in the off chance it actually works, why? Why take such a risk-inefficient bet? If you just want to introduce some variability and intrigue into your life, I hope I can convince you to do it in some other area besides the one that will be funding your livelihood for years to come. Try Catan! Or fantasy football! Or romance novels! Or literally anything else!

Do a few things well. Do them with courage and consistency. Be patient. That’s it.