3. Confusing That Which Is Near with That Which Is Valuable
Psychologists have long told us that we overestimate the importance of what is near and readily at hand as compared to that which is far away. That may, in part, explain why so many people apparently cheat on their spouse, embezzle from a corporate conglomerate, or, as one business leader illustrated, a rich man with $100 million in his investment accounts may feel bitterly angry about losing $250 because he left the cash on the nightstand at a hotel.This principle may explain why some people feel richer by having $100 of rental income that shows up in their mailbox every day versus $250 of “look-through” earnings generated by their common stocks. It may also explain why many investors prefer cash dividends to share repurchases, even though the latter are more tax efficient and, all else being equal, result in more wealth created on their behalf.
This is often augmented by the very human need for control. Unlike Worldcom or Enron, an accounting fraud by people whom you’ve never met can’t make the commercial building you lease to tenants disappear overnight. Other than a fire or other natural disaster, which is often covered by insurance, you aren’t going to suddenly wake up and find that your real estate holdings have disappeared or that they are being shut down because they ticked off the Securities and Exchange Commission. For many, this provides a level of emotional comfort.
