It's a stretch to argue happier people make better investors.
Years ago, Warren Cormier, CEO of Boston Research Technologies and co-founder of the RAND Behavioral Finance Forum, approached the question: Does money lead to happiness, or do happy people end up making more money?
In this article, he concluded that both factors may be at play.
“You have to look at causation. There is a link between happiness and stock market participation. Endorphins are released when people are happier, and this in turn leads among some people to an increased acceptance of risk,” he said. However, being happy doesn’t necessarily make an individual more intuitive or skilled at investing.
Graham Hand, editorial director of Morningstar Australia, broached this topic and from where most of the content for this article has been taken, says that if the daily volatility of the market and share prices make you tense and losses create anxiety, then you're not living your best life. It would be better to diversify your investments across a range of funds (active or passive) according to your risk appetite, and leave the asset management to someone else (even if it's an index) while you get on with something that gives you more pleasure, while trying to ignore the market noise.
If a portfolio is constantly adjusted due to the worries of staring at a screen all day, the results are likely to be inferior versus staying invested for the long term.
If you enjoy investing for yourself, then go with it, although this quotation from Thomas Kennedy, the Chief Investment Officer at Trafalgar Partners, a U.S. hedge fund, when asked if he likes his job, shows an extreme:
"Absolutely. Best job ever but you have to love it, otherwise the volatility will kill you. My team and I work 85 hours a week on average. The stress is offset by the money we make and spend when we are not working. My work week runs from 3pm on Sunday until 1pm on Friday here in San Francisco so I get about 50 hours off a week to relax with my wife, kids, and 5 dogs ... there is such a rush standing in the center of the markets as they swirl about, that is the most exciting thing about my life and feeds my passion. If you aren’t geared for it though it will kill you."
A better option would be to take Charlie Munger's advice and look for rules that make you happy rather than worrying day and night on your investments. There's no point spending your time trading and investing if it kills you.
Warren Buffett and his business partner Charlie Munger are by far the most quoted people in investing and finance.
Munger, who will soon turn 100, often talks about how to enjoy a happy and fulfilling life, despite his many personal setbacks. In 1953, Munger was divorced. Around that time, he invested in a business for the first time, buying part of a troubled transformer company owned by one of his legal clients (he was a lawyer). The financial pressure came at a difficult time; Munger’s 9-year-old son, Teddy, died of leukemia in 1955.
He remarried, had 8 children with both wives, and went on to become one of the world's most successful and an incredibly wealthy investor.
With that as a background, his views on leading a happy are fulfilling life are worth reading. There are many articles on Munger's rules for a happy life, but here are a few from various sources.
- Think about your thoughts: "Generally speaking, envy, resentment, revenge, and self-pity are disastrous modes of thought. Self-pity gets pretty close to paranoia…Every time you find your drifting into self-pity, I don’t care what the cause, your child could be dying from cancer, self-pity is not going to improve the situation. It’s a ridiculous way to behave."
- Manage expectations: “The first rule of a happy life is low expectations. That’s one you can easily arrange. And if you have unrealistic expectations, you’re going to be miserable all your life."
- Avoid envy: Envy not only makes people miserable, but turns them into lousy investors. "Envy is a really stupid sin because it's the only one you could never possibly have any fun at."
- Eliminate resentment: "I cannot recommend it [resentment] highly enough to you if you desire misery." Wallowing in resentment leads to more misery, and it's better to think of things to be grateful for. “Can you be cheerful when you’re absolutely mired in deep hatred and resentment? Of course you can’t. So why would you take it on?”
- Stay cheerful: Life does not follow a predetermined path. “Life will have terrible blows in it, horrible blows, unfair blows. It doesn’t matter. And some people recover and others don’t.”
- Be reliable and surround yourself with reliable people: Reliability is about being predictable and reasonable but don't spend too much time worrying about what other people do. “If you’re unreliable, it doesn’t matter what your virtues are. Doing what you’ve faithfully engaged to do should be an automatic part of your conduct. You want to avoid sloth and unreliability.”
- Follow your natural drift: “If you can’t somehow find yourself very interested in something, I don’t think you’ll succeed very much, even if you’re fairly smart.” Do what you are supposed to do. You are supposed to do what you are good at doing. Figure out your talents and use it to your advantage.
- Read and study constantly: Learn from past mistakes and become as educated as possible.
- Don’t overspend your income.
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