“Let us rise up and be thankful, for if we didn’t learn a lot today, at least we learned a little, and if we didn’t learn a little, at least we didn’t get sick, and if we got sick, at least we didn’t die; so, let us all be thankful.” – Buddha
Next Thursday is Thanksgiving in America, one of only four countries that make a day of gratitude a national holiday. Some might find it ironic that a nation known for its swagger and industrial might would dedicate one day every year to be grateful for all we have, but consider the sincerity of it: Thanksgiving is America’s most popular holiday, even more so than Christmas.
Thanksgiving is a feast day in America. The U.S. Department of Agriculture estimates that 46 million turkeys are eaten on that one day. The Calorie Control Council reports that the average American consumes 3,000 calories of food and another 1,500 calories of drinks, appetizers, and dessert on Thanksgiving. Despite all that excess, Thanksgiving is good for you—and good for your financial security.
Behavioral Finance is Not All Bad
Behavioral finance is a specialized field of psychology. Most of the energy and inquiry in that discipline has to do with negative behaviors, like herding, loss aversion, confirmation bias, framing, and recency bias. But not all human emotions are negative: love drives our desire to nurture and educate our progeny, generosity fuels our charity, and, it turns out, gratitude just makes us better with our portfolio.
Gratitude can have a very significant impact on your success as an investor. It often works to make us better long-term planners, helps us foster positive relationships with our advisors, and generally lowers the overall stress brought on by volatility. Let’s look a little more closely at the power of thankfulness, providing citations along the way.
A paper published in 2011 (Emmons and Mishra) found that gratitude increases an individual’s ability to handle adversity. This resilience may be the single most important success factor in investing because it helps us keep our eye on the long-term prize and thus avoid the damage done by market timing.
A practice of gratitude can lead to more thoughtful investing decisions. A researcher in positive psychology (Seligman, 2002) suggested that gratitude encourages a balanced outlook, which works as a buffer against impulsive actions. Few things can do more harm to a well-crafted financial plan than an emotional overreaction to bad news or even to good news. Fear and greed can both lead to underperformance.
The consulting firm DALBAR, which we have referenced in past Chronicles, highlights the negative consequences of emotional decision making in its annual Quantitative Analysis of Investor Behavior. Gratitude appears to be an antidote to that condition, enabling investors to appreciate what they have and the progress they’ve made and resist the urge to react to short-term events.
Another researcher in behavioral finance (Shiller, 2017) found that a person’s perceptions of their financial situation can improve mental health and satisfaction with life. By putting the focus on what they’ve achieved and the wealth they’ve accumulated, investors can become less likely to take uncompensated risks, thereby protecting their portfolio and staying true to their strategy.
A Better World
For those investors who work with financial advisors, gratitude can increase trust and improve cooperation (Gino and Schweitzer, 2008). This is very much a two-way street: grateful clients will communicate more openly and will be more likely to listen to advice, while an advisor who is grateful for the trust placed in them will operate with more transparency and a higher level of personal commitment to their client’s welfare. This positive combination can lead to better outcomes.
Practicing gratitude, it seems, can lead to a better world. Studies (DeSteno et al., 2014) found that thankfulness encourages prosocial behavior, which in turn can lead to a broader culture of generosity. A grateful investor is more likely to consider socially responsible or “impact” investments into causes that align with their values. This, in turn, can create a feedback loop that makes investors more satisfied with their progress.
There are several ways you can incorporate a practice of gratitude about your financial life. You can keep a diary of positive experiences, a process known as “gratitude journaling.” You can celebrate milestones or teach your child or grandchild how to buy a share of stock. You can begin to think of wealth not in terms of its size but of what it can do.
It’s been over two weeks since a bruising election finally settled the political debate, at least for a little while. Tens of millions of Americans were disappointed by the results, but we’re hoping that everyone can take at least one day to remember the things we have to be grateful for. There will be more elections, and there will be bull and bear markets, and natural disasters, and laws will be passed that we don’t like. But there will also be friends and family, gratitude and hope, and most of all, love.
One other thing you can do is get some more transparency about your financial affairs. We will be happy to provide you with a no-cost analysis of your portfolio, including your costs, your tax efficiency, your diversification and your risk exposure. To get your free report, click here.
