If a person has a net worth of $100,000.00 and inherits $900,000.00 they feel rich. Conversely, if a person has ten million dollars and loses nine million dollars, they will likely feel poor and moreover devastated. Wealth I’ve found is contextual and largely how someone feels about their financial situation is often if not always contextual. Happiness is the same, in this day and age of social media we’ve stopped “communicating” and are now as Morgan Housel would say “performing for each other”. People don’t want to just be happy or wealthy, they want to be “happier or wealthier” than others.
As always, you must be wondering where this is going, fair question. The point I hope to make is that we live in a new age of communication that I dare say (and fear) will soon be ramped up exponentially as the election cycle draws near. There is continual pressure to evaluate yourself, your wealth, and your happiness against others. Whether it’s your friend’s vacation to Hawaii or that buddy that claims to have made millions in Bitcoin (he did not), you, yes you are forced daily to evaluate yourself against others.
We know that social media has quite often a very negative effect on the self-confidence of young people. We know that the pressure we felt as teenagers (a loooooong time ago) pales in comparison to what kids now face and the results of that pressure are more frequently devastating to families. What I think we as adults and investors don’t often recognize, is the effect this phenomenon is having on us. I will also say if you just thought to yourself, “it’s not affecting me” it’s twice as likely to be ….effecting you. Whether it’s an ad for gold or a doomsday political commercial, we all feel it. If you see a person in a three-piece suit on CNBC talking about his private jet or fleet of cars part of you, yes part of you feels a little inadequate. Inadequate, despite the fact that you yourself are in the big scheme of things amongst the wealthiest human beings that ever walked the earth. Just by virtue of reading this letter and being an American, you are a big deal.
The point, ah yes, the point. The point is that soon political ads will be heating up. Hundreds of millions of dollars will be spent to make you feel inadequate. They will be spent to make you feel scared. They will be spent to make you consider yourself against others. Yes, they will be spent to make you consider your “context” to others. The problem is that when we feel less than in context to others or more importantly that someone (insert political figure here) is the reason for our diminished position, “contextually”, we make bad decisions. We make decisions out of fear and almost never do we make good decisions based on fear. In 36 years, I’ve had numerous conversations with people who missed large up trends in markets because they went to cash because this person or that person might be elected.
In the years ahead try to remember our “context”. In contrast to almost every other generation, you’ve been born in a less violent, less disease riddled prosperous time than the billions who’ve walked before you. As a member of the investor class, you’re likely amongst the richest people who have ever lived. If you were fortunate enough to be born or now live in America, well heck yea, your situation contextually is pretty darn good.
Enjoy the end of your “comparison-free” summer,
Scott