Many individual investors in the stock market are interested in the intrinsic value of a company, the fair value, so they can invest in undervalued businesses. The typical individual investor sits down with the financial statements and research reports, to determine if a company is operating well with a long term plan for profitability. They are focused on a review of the financial statements, including revenue, expenses, assets, and liabilities, to calculate the intrinsic value of the company. When they reach a level of comfort with their “fundamental analysis”, they invest their hard earned capital.
Then…the share price goes down, and they are puzzled by the poor trading performance and unrealized loses. What happened?
The individual investor’s analysis focused predominantly on what had already occurred, but the sophisticated institutional investors trade based on current and future expectations of what will happen.
We can learn a lot about finding “happiness” in life from this financial market example.
It is important to note that “happiness” is a term to describe how one feels about their lot in life, and is not necessarily synonomous with ambition, achievement, power or maximizing one’s potential.
After all, Genghis Khan, the Mongol genocidal ruler of the largest empire on earth, was incredibly ambitious and successful, but historians rarely ascribe the word “happy” to describe Khan and his murderous campaigns of conquering brutality. Compare that to the numerous poverty-stricken, but clearly generous, kind and happy people (I met many when traveling the world in places like Honduras, South Africa and Cyprus). This is an important distinction. This article is about finding “happiness”, not achieving success. They are not mutually exclusive, but also not absolutely correlated.
The key to finding the optimal life happiness is to manage expectations.
However, before I dive into my rationale, allow me a brief sidebar, of which I am certainly not an expert, but I believe it is an important part of the nuance required when discussing this topic.
Bio-chemical researchers believe that we are all born with a general range of happiness. Measured on a scale of 1-10, a person may have a range of 3-6, versus another who may have a range of 6-9. The range is determined by the bio-chemical composition of the brain, with happiness determined primarily by the brain’s secretion of serotonin.
Approximately 90% of the human body’s total serotonin is located in the GI tract, where it is used to regulate intestinal movements. The remainder is synthesized in the Central Nervous System, where it has various functions including the regulation of mood, appetite, and sleep. Regulation of serotonin is a major objective of prescription antidepressants.
It is not my intention to imply in this post that people with bio-chemical imbalances can overcome the challenge of sustained happiness without anti-depressants. I do believe that the following observations may help to operate at the upper bound of your bio-chemical range of happiness.
So back to the discussion of expectations, and how they drive happiness. Happiness can occur when the objective reality matches one’s subjective expectations.
It doesn’t matter if the objective reality is horrible (car crash), or exhilarating (winning the lottery). Both can have a positive or negative effect on happiness, depending on the choice of expectations.
If the victim in a violent car crash prays simply for survival so that she may be involved in her children’s future, even though she may have sustained life-altering injuries, she will likely appreciate each day with a sense of serenity and thankfulness. Just as a lottery winner who decides to utilize the money to help others without a focus on enriching himself, he will likely achieve happiness through the channel of his new found wealth. In both cases, subjective expectations of what the future would hold were applied to the objective reality, both horrible and exhilarating. The result of comparing their expectations to the objective reality, was happiness.
If that same car crash victim becomes despondent because her injuries have limited her physical capabilities to meet her old expectations of the future, she will likely be overwhelmed by bitterness and paralyzed by self-pity. Similarly, if the lottery winner expects the money to bring about personal happiness through acquiring excessive material possessions, he will ultimately normalize to his new state of wealth, and incremental purchases will no longer bring about the same level of short-term happiness, but instead boredom and emptiness. The result of comparing their expectations to the objective reality, was unhappiness.
Let’s compare a Kansas farm boy in 1920, versus a similar kid today. The 1920 boy measured himself primarily against other local community members, whether it was based on athletic prowess, intelligence, family wealth, attractiveness or ambition. His expectations were based on calculations relative to the world he knew in the small community. A big fish in a small pond, and he probably felt good about himself and was happy with his lot in life.
Today, that same kid has unlimited access via media to a massive universe of comparison benchmarks, including world class athletes, glamorous movie stars, reality tv stars and the world’s most intelligent and ambitious people. Although this access helps him to become a much more intelligent, aware and capable boy, he may not feel that way about himself. It is the double-edge sword of the access to unlimited knowledge.
How many parents are concerned with their teenager’s confidence level, even though the kid is talented, bright, attractive and hard working? Most of the time, the kid is comparing herself to the exceptional people she knows about through 24/7 media, and she just can’t measure up. Consequently, that gap between object reality and subjective expectations erodes her self-worth.
I am not suggesting that we cut off our children’s access to the world, but we should recognize the underlying problem, and focus our energy on helping them to learn how to better manage expectations.
This will be difficult, because it doesn’t just apply to children, of course. It very much applies to adults.
How many people are generally healthy and fit compared to the average global citizen, but the unreasonable expectations result in the inability to measure up, and that gap makes it difficult to feel content and happy? “If I only could get abs of steel like that 21 year old in the infomercial!”
How many adults who earn a stable income, with a nice work-life balance, throw everything is disarray to pursue more money or prestige, because their ambitious expectations are far beyond their objective reality? Is it worth it?
The entire cosmetic, retail apparel and beauty industry is based on the clever understanding of the massive disconnect between the average person’s objective reality and subjective expectations (after being bombarded with images of “true beauty”). Remember, that Kansas farm boy or girl can no longer simply compare their attractiveness to the people actually in their lives; they have to measure themselves against PEOPLE magazines Most Beautiful Woman and Sexiest Man Alive lineup. Lots of money is spent chasing the desire to connect the subjective expectations of attractiveness with objective reality, and of course it often falls short…and unhappiness ensues.
What about global poverty and societal unrest? Can anyone not see the connection between escalating subjective expectations with declining objective realities? Access to the internet provides the greatest educational equalizer in poverty stricken regions for children to have a better education using revolutionary websites like http://www.khanacademy.com, and that is a wonderful development.
However, should we not be more sensitive to the double-edged nature of the internet? Would it not likely cause local instability and resentment when those same poverty stricken community members gain 24/7 access to “Ballers” or “Rich Housewives of New York”? How does that shape their view of the western world, and their view of wealthy and educated members with means and skills, within their own countries?
I hope it motivates them to positively strive for a better life, but many of these countries do not have the structure, or ladders of opportunity, for them to climb up and out, as in the United States. So, their desire for self-improvement turns to resentment, hopelessness, and they join groups that aim to settle the score. Globally, problems will grow unless we solve the growing gap between rich and poor (objective reality) or hope for more reasonable subjective expectations.
If happiness is your only personal goal, it is critical to focus on selecting and maintaining expectations within short term grasp of your objective reality, and that will result in optimal happiness.
If happiness and personal growth are your goals, then do the same as above. However, once the objective reality catches up with your subjective expectations, it is time once again to incrementally adjust your expectations higher. Rinse and repeat.