The color green is attributed to many positive things in life. Green is often used as a symbol of prosperity and even represents life itself. But not all green is good. Being green with envy is a characteristic we should avoid like the plague. As Charlie Munger put it… 1
“There’s an old saying, ‘What good is envy?‘ It’s the one sin you can’t have any fun at’. It’s 100% destructive.”
Envy in the Financial Markets
Envy is a feeling of resentment aroused by another’s circumstances, good fortune or outcomes. And it rears its ugly head frequently among participants in financial markets. It can creep up on any of us and can feel quite natural. But just because it may feel natural or an innate part of who we are, doesn’t mean it is advantageous.
In the past year there have been several securities and stories of quick wealth that may make us envious. Tesla, Zoom and Bitcoin had significant gains last year as did many other technology companies. And just last month we saw huge run ups in GameStop and AMC. Among the headlines and stories of instant riches by people that have no clue what they are doing, we may feel very envious. We may feel entitled. We may regret our “boring” investment strategy and consider how much quicker we could reach our goals by purchasing high growth or speculative securities.
Physiologically, it is all very alluring. Whenever we imagine financial gains, dopamine receptors in our brain are activated. Dopamine provides us with good feelings such as confidence, euphoria and whatever we do will be right. So…acting on envy can feel very right.
Check Envy at the Door
Envy, when not checked, often leads to unhappiness and influences risky behavior as we seek what others have achieved, without respect to the role of luck in the initial outcome nor the probability that such luck will continue. We want it. We feel entitled to it. We are determined to get it.
The challenge is that there will always be someone, or some investment, that performs better than us. Hitting financial home runs and grand slams are exciting and activate many receptors in our brain. Building wealth through compounding is the financial singles and doubles – yawn inducing.
Envy is shroud in perpetual regret and disappointment. Sure, it may be exciting for a while. It may feel really good. But there is a cost to that feeling. Empirical evidence over decades shows that investors who chase what’s hot significantly underperform a more “boring” disciplined investment strategy.2
It’s Good to Feel, Just Don’t Invest With Feelings
Feelings such as envy, which are natural, make investing difficult. It’s one reason why patience and discipline are the greatest virtues an investor can develop. It won’t be easy, but it is the best chance we have to achieve our financial goals. This is a significant reason why a solid understanding and application of behavioral finance is essential to being a good advisor. It is proactively talking about these things to clients that can help them filter the noise, stay off the ledge and improve their overall experience.
To learn about using timely “behavioral” content such as this piece that can be white-labeled by your firm and several other behavioral finance resources, contact me.
©2021 The Emotional Investor. Not to be Copied.
1. Carlson, Ben. Don’t Fall For It: A Short History of Financial Scams. Page 69
2. JP Morgan. A Guide to the Markets. December 2020.