Becoming a Better Investor: Envy Jealousy Tendency

Charlie Munger, the longtime business partner of Warren Buffett and vice-chairman of Berkshire Hathaway, often emphasised how human psychology influences decision-making, especially in investing. He broke these down into 25 psychological tendencies that we can identify to help us avoid common mistakes and make better investment decisions.

This week, we’re looking at tendency number eight, the Envy/JealousyTendency, and how it impacts investment decisions.

What is it?

Munger claims this tendency stems from the basic evolutionary need for food and sustenance. When people saw food in the hands of others, they wanted it, particularly if they were empty-handed and feeling hungry. And this brought about feelings of insecurity and inferiority. A classic case of haves and have-nots.

In other words, comparison is the thief of joy. A more detailed explanation that works better for modern times, is that Munger believed envy and jealousy can drive people to make irrational, harmful decisions, even when they know better. Unlike greed, which seeks personal gain, envy is about resenting someone else’s success. With greed, we want more. With envy, we want more and also want other people to perhaps have less! Munger famously said, "It’s not greed that drives the world, but envy.”

How does this tendency play out in the world of investing?

Envy is destructive, in that we are constantly chasing what other people have and in the process, may feel inferior. In the world of investing, this can be particularly dangerous, because we are allowing comparison and emotions to drive our investment decisions instead of fact. 

Munger believed that envy, more than greed, pushes people into poor investments. For example, when investors see others making quick gains, they may feel pressured to chase similar returns, even if it means ignoring fundamentals, taking on too much risk, or investing in trends or companies they don’t fully grasp. Instead of focusing on long-term value, envy tempts people to copy others or outdo them, which can lead to losses.

So how can we, as investors, avoid the envy trap?

• Avoid the comparison trap: Envy begins with making comparisons. Constant comparison leads to dissatisfaction, poor decision-making, and possible financial harm.
• Make a personal investment scorecard: We need to measure success by our own standards, not based on FOMO. Our scorecard/success shouldn’t be based on what someone else earns or the returns they get. It needs to be based on our goals, plans and principles.
• Drown out the noise: We know best what our investment goals are. Completely tune out what others are doing, and focus on rational-decision making and investments that bring the best value.

Ultimately, Munger says we should avoid envy because it has no upside. It is a self-destructive emotion that clouds our judgement. Constantly comparing our returns to others can spark envy and tempt us into taking unnecessary investment/financial risks just to "keep up with the Joneses." Charlie Munger’s advice is simple: we should stay focused on our own path and long-term goals. Thoughtful, disciplined investing with a long-term view is what ultimately leads to the best outcomes.