“Give a man a hundred million dollars, and you make a frustrated billionaire.”
– Disclosure (1994)
We all know what envy is. But we rarely admit to feeling it.
After all, envy is one of the seven deadly sins in the Christian tradition.
You may not share that biblical view. But most of us admit that showing envy does reveal a weakness of character.
Yet, as an investor, you have likely felt the pull of envy.
It’s the feeling you get when your neighbor tells you of the millions she’s made investing in the latest hot stock while your portfolio languishes.
Envy is particularly acute in a world that seems to mint cryptocurrency millionaires overnight.
Indeed, envy hasn’t been as prevalent in investing since the dot-com boom of the 1990s.
It’s a psychological challenge all of us face.
Yet it’s a challenge that no investment textbook, behavioral economist or trading psychologist has ever addressed.
I’ve run across only one person who has discussed envy as it relates to investing.
Perhaps unsurprisingly, that person is the investment partner of Warren Buffett, the inimitable Charlie Munger.
Charlie Munger on Envy
I’ve written before about Munger and his 1995 speech “The Psychology of Human Misjudgment,” given at Harvard Law School.
In the speech, Munger highlighted “bias from envy/jealousy” as one of his 25 leading causes of human misjudgment related to investing.
You may have heard the expression “Wall Street is driven by fear and greed.”
Well, envy/jealousy made, what, two out of the Ten Commandments? Those of you who have raised siblings, you know about envy… or tried to run a law firm or investment bank or even a faculty? I’ve heard Warren say a half a dozen times, “It’s not greed that drives the world, but envy.”
Munger also highlights envy as a universal blind spot in understanding your behavior as an investor.
You go through the psychology survey courses, and you go to the index: envy/jealousy, 1,000-page book, it’s blank. There are some blind spots in academia, but it’s an enormously powerful thing, and it operates, to a considerable extent, on the subconscious level. Anybody who doesn’t understand it is taking on defects he shouldn’t have.
The lesson is clear.
If you invest in financial markets, you will, at some point, suffer from envy. It is unavoidable. It’s part of being human.
But once you recognize it, you need a strategy to address it.
How to Handle Envy
Here’s what Charlie Munger recommends…
First, become aware of the role of envy. Accept it as real – and natural. And then put it into perspective.
As Munger says, “Someone will always be getting richer faster than you. This is not a tragedy.”
Munger himself has a net worth of $2.2 billion. But he has been lapped by many younger rivals in the billionaire money race. Yet he genuinely doesn’t care.
Second, have an investment plan in place and stick with it.
This plan gives you a road map to prevent envy from taking control of your decision-making process… and reduces your chances of making knee-jerk investment mistakes.
The Salve of Historical Perspective
Munger offers some terrific psychological insights in his speech. I strongly urge you to listen to it.
That said, I am surprised – perhaps even disappointed – that Munger doesn’t draw more on the lessons of financial history.
After all, Munger is well aware of the eternal story arc of financial manias that are the source of so much envy.
Whether it’s Dutch tulip bulbs in the 1630s, shares in the South Sea Company in 1720, the Florida land boom of the 1920s, the Japanese stock market bubble of the 1980s or the dot-com boom of the 1990s… Financial manias start, thrive and collapse in remarkably similar ways.
A handful of speculators buy in early. They make paper fortunes investing in a new technology or a previously undiscovered asset class.
Popular culture fêtes them as brilliant, cutting-edge thinkers unfettered by convention. Invariably, they herald a “new era” where the object of their obsession can do nothing but go up forever…
Then, quietly, the smart money begins to sell. The bullish story begins to fray at the edges.
After an extreme spike that hits record highs, prices start to fall. Yes, prices rebound somewhat, giving false hope to this new era’s prophets. But, inevitably, the bubble pops.
Prices collapse. Yesterday’s heroes become today’s zeros. A shockingly high number end up bankrupt or in jail.
(An excellent short introduction to this perennial narrative is John Kenneth Galbraith’s A Short History of Financial Euphoria. Galbraith even mentions then-future President Donald Trump as an example of a billionaire who had gone bust in the 1980s real estate boom.)
So what’s to be done?
The parallels with today’s financial markets are clear. Envy of newly minted millionaires is everywhere.
But accept that there is zero upside in envy. Stick with your long-term plan that fits your psychology.
And take comfort in the knowledge that you know how the story ends.
P.S. I’m looking forward to sharing my thoughts on the boom-and-bust cycles that I mentioned above during The Oxford Club’s upcoming Wealth, Wine & Wander Retreat through Paris, Normandy and Amsterdam. I hope you’ll join me on this extraordinary adventure, but you need to act quickly – we are down to the last few open spots. Click here to view the itinerary, then contact Maggie Stephens at 800.638.7640, ext. 125, or Maggie@aesu.com to learn more and register.
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