Lottery Losers - The Perils of Envy

red sports car on gray surface near building

$10K is the median household income worldwide, the US does much better with $40K annually. Lawyers earn over $150K a year, while doctors earn over $250K. CEOs average $15M, while Lebron James makes more than double without even counting endorsements.

Moral of the story, wealth is relative. It's not hard to find someone who has more. It's natural to be envious of those wealthier, but envy is useless. It's bad for decision making and just plain bad for life.

“Envy is a really stupid sin because it's the only one you could never possibly have any fun at." - Charlie Munger

It's prevalent in investing. Everyone is comparing their performance to everyone else's. Seeing others get stronger returns is understandably difficult. It's even more difficult when you are financially more responsible than those who outperform you.

You save diligently and invest regularly into a risk-appropriate portfolio, but your co-worker YOLO'd into Telsa in 2010, now he's retired and touted as an investment genius. Jealously bubbles up and you start questioning your investment strategy.

Envy leads to destructive behaviour. This is especially true when you're comparing yourself with people who were effectively lucky.

A 2016 study found that neighbours of lottery winners had a greater risk for bankruptcy. Neighbours showed increased borrowing and consumption, spending on visible assets (i.e. cars, housing) to close the perceived wealth gap (keeping up with the Jones). Neighbours also took on more risk in investing, theory being they'll catch up to lottery winners by doing well in the markets.

Successful investing is about defining your goals and implementing a rational plan to achieve them. Ultimately it's about you and what you want to accomplish. Performance is best measured against your goals, not against other people. Envy will only push you to deviate from your strategy, make emotional decisions and take on unnecessary risks.

There will always be those who have more, in the same vein, there will always be those who have less. Be grateful for what you have, ignore the noise and focus on your goals.

Comments

Today's Special: Humble Pie

You champion a project, fight for an idea, and then...reality sets in. That churning in your stomach isn't butterflies, it's the realization you've missed the mark. Pride will puff up your chest, and kick in the "defend at all costs" instinct. But arguing with the umpire never changed a call. Admitting you're wrong isn't a sign of weakness. It can strengthen your professional standing. In a world obsessed with the illusion of infallibility, the courage to adjust course is a breath of fresh air. It shows you're confident enough to be wrong, and adaptable enough to learn from it. Do your research, think critically, and stand behind your decisions. But when the data whispers (or screams) otherwise, don't be afraid to swallow that slice of humble pie. Be the first to acknowledge. Don't wait for someone to point out your mistake. Be open, take responsibility, and most importantly, focus on what you're going to do to address it. Don't dwell ...

Negative Feedback, Positive Lessons

In the battle against plastic bags, a five-cent tax was shown to be much more successful at deterring usage than a five-cent credit for bringing your own bags. Carrots satisfy but sticks sting, and they sting hard. So we default to the less painful choice of avoiding loss. Loss aversion impacts the way we process information. A 2019 study invited participants to learn through a series of multiple choice questions. Each question only had two options to choose from. Whether guessing correctly or not, they would still learn the right answer. Despite the identical learning opportunity, participants were much more successful at recalling the answers they guessed correctly than those they got wrong. "You're right!" feels good. We savour the moment, analyzing every detail. "You're wrong!" stings. We want to quickly forget, dismiss, and move on. When we succumb to loss aversion, we miss opportunities to learn. Failure is part of the process. We'll experie...

Starting Really Really Small

On your desk is one of the most intimidating sights known to man. A blank page. The prospect of filling it up with anything resembling decent seems insurmountable. Staring at the long road ahead fills you with anxiety and dread. The first step is the most difficult. So we procrastinate. We " research ", we " prep ", we " plan ". We do everything except tackling the problem. We avoid the pain for as long as we can. To make a blank page less intimidating. Tear it in half. There, half as scary, twice as easy. Still too much? Do it again. And again. Keep doing it until the task is so small that it's too easy not to do. Getting starting is the hardest part. So make the hardest part as easy as possible. This doesn't guarantee amazing results, but it gets you in the game. You can't win if you don't play.

Herman Ye

Search