The world is filled with wise words on increasing your life satisfaction by ceasing to compare yourself with others. A quick search on the ubiquitous Google delivered 24,7 million relevant quotes, including gems such as “what lies behind you and what lies in front of you pales in comparison to what lies inside you” (which makes me feel vaguely worried) and “don't compare your beginnings to someone else's middle” (which somehow makes me think of an advert for a weight-loss product).
Don’t get me wrong, avoiding comparisons with others is sound life advice in my experience. However, it is also very easy to fall into this trap because decisions in our daily lives require us to choose. Whether you are trying to find a place to live, deciding what to have for dinner or which route to take to work, as human beings we are pre-programmed to make decisions by evaluating the alternatives. Making comparisons becomes automatic; soon we also compare and contrast ourselves with other people.
The question is, can working in the investment industry, where we compare investment opportunities on a daily basis, teach us anything about when and how to avoid making damaging comparisons between ourselves and others? A few common caveats from the investment world spring to mind:
“X Ltd is the next…”
No, Taste Holdings has not proven to be the next Famous Brands. When investors decide to believe one company is the next version of another very successful business, it is usually either because they missed out on the first opportunity and fear missing out for a second time or, alternatively, because they made a bundle on the first opportunity and are greedy for more.
The mistake in this comparison is focussing only on the elements of similarity between the two companies, while ignoring any significant differences. This is problematic because the similarities are usually overwhelmingly positive while the differences between the companies and market conditions could be negative. For instance, the success of the first company is likely to have attracted significant competition and increased market saturation with the result that the opportunity for new entrants has diminished significantly. Moreover, highly competitive markets are not appropriate targets for inexperienced management teams looking to simply duplicate the success of others who have gone before them.
In the same way, when we are tempted to compare ourselves with other people, we often only consider their apparent effortless successes, not the pain, cost or failures in their lives. Financial success can come at the cost of personal relationships, people with great personal relationships could struggle in their careers and so the list goes on. When comparisons focus solely on others’ strengths, they can cause us to feel worthless and isolated. Meanwhile the very person we are comparing ourselves to might be yearning for big changes in their own lives. Perhaps the solution to this particular fallacy is to consider what you might have to sacrifice in order to swap places with the person you are comparing yourself to.
“This time is different…”
No, Bitcoin at the end of 2017 was in a bubble, despite the “revolutionary” technology backing it. A sure-fire way for investment professionals to be ridiculed by their peers is to claim that a scenario with all the characteristics of previous disasters will somehow escape the classical consequences thereof. Investors will often make this statement when they need to convince themselves (rather than others) that the impending doom, which they legitimately fear, will be averted.
The mistake in this comparison is focussing only on the elements of difference between two scenarios, while ignoring any similarities. This is problematic because it closes your eyes to potential risks at a time when you need to be most aware of them.
Similarly, when we compare ourselves with others, we sometimes only note how different and (possibly) how much better we are compared to them. This might lead us to miss out on potentially great personal connections because, as human beings, we fear and avoid people that we perceive as different. Alternatively, it could make us feel discontented as we believe that our “superiority” entitles us to more than what we are getting out of life. Possibly, we need to remember that the strengths of others frequently fill out our own weaknesses as we go through life and that, more often than not, there are others in life who greatly desire to switch places with us.
“This worked for X Ltd…”
No, following your competitors into new markets is not always a successful strategy. While Nando’s succeeded incredibly well in the UK, Famous Brands has learnt to its cost that copying your rivals often doesn’t work. In the business and investment world, we frequently end up trying to replicate the success of others by copying their strategies.
The mistake in such decisions is twofold. Firstly, you are coming in after the real window of opportunity has already closed. Secondly, you are trying to play the hand that was dealt to others instead of your own. It is difficult to ignore the noise of your competitors’ success while you are struggling, but swallowing an aspirin is not going to cure cancer. In other words, the solution to your struggles is frequently different from that of your competitors.
Likewise, when we look at others in life, we might do well to remember that we are not required to become someone else. In trying to be someone that you are not, you (and the rest of the world) miss out on the unique contribution that you could make as you neglect to develop your own talents and abilities. We might avoid comparisons such as these, if our goal in life is to become the best version of ourselves, rather than trying to become our idea of the perfect human being.
The investment world requires constant comparisons to be made. However, these comparisons can have negative consequences if we do not realise the biases that they frequently incorporate. Similarly, when we are tempted to compare ourselves with others, it is important that we remember how easy it is to fall into one of the many comparison traps.
As a human being, I am a work in progress, trying to become the best version of myself (yes, I do try to take my own advice). I also know that somewhere out there, there is at least one of you that could do a much better job of handing out advice on how to avoid making damaging comparisons both in life and in investments. But, although I hate to have to break it to you, I have decided not to compare myself with you as (according to at least 24,7 million quotes on Google) that would decrease my life satisfaction…
