Most investors reading this will, at some point, have felt the pull of envy or jealousy by watching others' investments perform well while theirs languish.
Value investors, in particular, are more likely to feel these emotions than other investors, as value stocks can lag the market for years during bull markets or periods of market euphoria.
Keeping a cool head and sticking to your strategy is fundamentally important to achieving long-term investment success.
Unfortunately, it's also challenging from a psychological point of view. Understanding how difficult it can be to stand apart from the rest of the herd is the first step one can take to improve one's ability to overcome envy and jealousy.
Munger on envy and jealousy
In his speech at Harvard Law School in 1995, Charlie Munger (Trades, Portfolio) discussed his 25 leading causes of human misjudgment.
During the speech, titled "The Psychology of Human Misjudgement," Munger picked out "bias from envy/jealousy" as one of his 25 leading causes of human misjudgment.
Specifically, he said:
"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.'
Here again, 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, oÂn the subconscious level. Anybody who doesn't understand it is taking oÂn defects he shouldn't have."
This last section of that quote really pulls out how detrimental not understanding these qualities and drawbacks can be.
Everyone will, at some point, suffer from envy or jealousy. It's part of the human condition and is, therefore, unavoidable.
If it's unavoidable, the only route available to us to overcome the issues associated with it is to acknowledge and embrace them.
By adopting a strategy of conscious awareness, it may be possible to catch ourselves becoming envious and take action to stop these emotions driving decisions, rather than letting these emotions dictate our movements.
Tools to help
There are a handful of tools one can use to help with this process. As noted above, the first tool is to be aware of the emotions in the first place.
Another tool is to have a strategy or plan and stick with it. A plan gives investors a road map to follow to prevent emotions from taking control of the decision-making process.
Some psychological speed bumps may also help. A great strategy to control impulsive spending is to wait a week before buying the item to see if you really still want it. One could use the same approach to investment decisions.
Warren Buffett (Trades, Portfolio) and Munger both spend a considerable amount of time thinking and very little time acting. By taking time to think through an idea, one can reduce the chances that one will make a knee-jerk investment decision and, as a result, a mistake.
There are a couple of other Munger quotes that I've also found to help me control envious and jealous tendencies over the past few years:
"Envy is a really stupid sin because it's the only one you could never possibly have any fun at. There's a lot of pain and no fun. Why would you want to get on that trolley?"
And
"Someone will always be getting richer faster than you. This is not a tragedy."
Both of these try to get the point across that those emotions of envy and jealously are no fun and never lead to good outcomes. What's the point in becoming absorbed by an emotion that has no favorable outcome? It is not worth letting it influence decisions.
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