Envy: The painful or resentful awareness of an advantage enjoyed by another joined with a desire to possess the same advantage. (Merriam-Webster.com)
All seven deadly sins are represented in the E-Trade advertising campaign. But envy, unapologetically gets top billing. Envy is a very human instinct. And a truly nasty one.
In this advertising campaign, the primary motivation for opening your trading account is seeing jerks and morons enjoying fabulous wealth that you do not.
We see in the "If I Were A Rich Man" commercial the protagonist is openly envious of his boss's good fortune. The envy is heightened because his boss is cartoonishly obnoxious. (Being envious of people we see as good and decent creates cognitive dissonance). We can relate to the character's resentment.
The "Yacht Life" ad is actually designed to make YOU (the viewer) experience envy by proclaiming that the "dumbest guy in high school just bought a boat". They want to make it personal. Surely you can certainly remember some dope from high school, so picture that person (whom you didn't like) being more successful than you.
So what's wrong with envy as a trading motivation?
1) Forget just being a better person for a minute. Envy by definition introduces irrelevant emotional and financial variables to your trading process. What is possessed by other people (including jerks) is not only irrelevant, it's completely beyond your control. Trading/investing success comes from focusing on what you DO control and accepting what you cannot. Envy as a motivation inherently takes you out of that frame.
2) It engages a competitive instinct that doesn't belong. Being competitive is great in some environments, sports for instance, when a "will to win" and "never say die" attitude are huge intangibles. But a huge part of trading is KNOWING WHEN TO QUIT. This is a lot harder to do when you frame the activity as a contest against someone else - which, it isn't - and apply entirely different mentality.
3) It leads to bad risks. In football when you are down by lot of points, you adopt a faster pace (hurry up offense) and throw the ball more, risking interceptions. Eventually, you resort to the "Hail Mary" pass. The trading "contests" featured in these ads start with you already trailing by down millions. If you want to catch up, you have no choice but more frequent trading, bigger positions and more volatile stocks. Trying to play catch up basically guarantees bad risks and makes your portfolio a ticking time bomb, waiting to be blown up.
Envy is actually a real life motivator for many investors, especially in extended bull runs in which it feels like everyone is "getting rich" but you. Wanting to join the party is normal. It becomes envy when you find yourself resentful of others success (and if you dig a little deeper, there may be an undercurrent of resentment at yourself for not having "the guts" to do what they did).
It's one thing to keep up with Joneses. But investing your money to beat the Joneses (and resenting the hell out of them in the process) is not a healthy mindset for investing.
More deadly sins to come.
And hey, let's be careful out there.
Frank Murtha, Ph.D.