Author and psychologist Benjamin Hardy paints a picture I'm sure any parent can relate to: You stop to pick up dinner on your way home. You decide to get a treat -- say, a candy bar -- for your child. When you present it to your son/daughter, their immediate response is: "But I don't like that kind! Why can't I have the kind I like?!?!"
It's maddening. "How could they possibly be disappointed when -- before -- there was no candy bar at all?" As an adult, you can see this is a recipe for disaster later in life. There's no room for perspective or gratitude.
Here's the rub: Investors in the stock market -- all of us adults -- are often just as guilty of this. Becoming aware of this is vital. Without it, we'll have no perspective or gratitude. And chances are, we'll burn out as well. Luckily, one author has offered an antidote.
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When investors act like kids
"It's depressing, isn't it?" said a college friend. He was referring to the 20% drop in Shopify's (SHOP 0.19%) stock price in early September. "Our family could have taken that vacation to the islands! I wish I would've sold..."
Even though its my family's largest holding, I was only vaguely aware Shopify's stock price. My family friend was perplexed at my apparent ignorance. But I'd argue the difference was simply a matter of perspective.
No one forces anyone to invest. You could simply keep the extra $100 you have in a safe. For most of human history, that would've been just fine.
Or you could invest it in the stock market. Over the past 150 years, you could expect a 10% return per year. Over five years, your $100 would turn into $161 -- and you didn't have to do anything! Just think about that for a second. It's crazy.
Let's back up and look at how Shopify has done over the past five years (I first purchased shares in 2017).
So when I hear someone upset about how Shopify has done, knowing they've been invested along the way, it's hard for me to take it seriously. The stock has turned $100 into almost $3,200 in five years. If you are feeling anything but gratitude, the following would be very helpful.
The gain vs. the gap
Enter our solution, offered by Dan Sullivan -- founder of The Strategic Coach and author of The Gap and The Gain. All of us, Sullivan contends, have a choice: We can exist in the gap, or the gain. First, definitions are in order:
- The gap: The space between where you are as compared to your "perfect" ideal.
- The gain: The space between where you are as compared to where you started -- your progress.
The gap isn't a great place to exist, but that's where many of us are. Sullivan contends that this is because when we set off on an adventure, we use our ideals to help us determine where to go. It fills us with a sense of excitement and anticipation. There's nothing wrong with that.
The problem arises when we try to recreate that excitement and anticipation later on. Once we have set off on our journey, Sullivan contends, we should instead focus on our progress. Instead of using ideals to create excitement and anticipation, this focus cultivates contentment and quiet confidence.
Just think for a moment about all the ways this applies to investing. If your ideal is to be a "perfect investor" who maximizes all her returns (not a great ideal in my opinion), you'll never be satisfied. If you focus on the gain:
- Instead of kicking yourself for missing Shopify at $40, you have no problem buying at $100 -- which would still be a 10-bagger.
- Instead of regretting the fact that a stock has gone down slightly in the short term, you can remember how much it's up in the long run -- which is the only timeline that should really matter.
- Instead of constantly checking your portfolio, you can be satisfied knowing that it's there, and focus on the things that really matter in life: your relationships, your health, and whatever gives you purpose and meaning.
Content and complacent are not the same thing
I can already hear the objections. "If we're content, then we'll never strive to grow or do better. We'll just sit around all day doing nothing." It's as if we assume our natural human state is one completely void of intrinsic motivation to do anything. If there's not a carrot to chase, we won't get off the couch.
Of course, a little introspection should put this myth to bed immediately. And Sullivan contends that switching from a "gap mindset" to a "gain mindset" can not only improve your inner well-being, but your results as well. That's because positive energy feeds on itself, leaving you more willing to continue engaging in whatever you're doing -- investing or otherwise.
Comparing yourself to your ideal -- striving to be the "perfect investor" -- won't end well. You'll be depressed, dissatisfied, and probably eventually bow out of investing. Simply put, it leads to burnout. We don't talk about that too often, but we should.
I've been at The Motley Fool for over a decade. The investors who seem to experience the most success are the ones who think being part of an investing community is a joy. They measure their progress versus where they were -- and they're motivated to continue the journey simply because it's fun.
It may seem counter-intuitive, but the gratitude gained by existing in the gain is healthy for you now and in the long run. That's a lesson we'd be wise to apply in investing and in life.
