Emma Seppala is a director of Yale’s Center for Emotional Intelligence and The Happiness Track summarizes her research on the science of happiness.
Here’s my summary of the book and how it can be applied to investing:
We crave anticipatory joy. Most investors are return chasers and buy what they wish they bought years ago. Sophisticated institutions are no different. They’re quick to hire managers that have recently outperformed and fire those that have recently underperformed. Short-term thinking is a bad way to manage a long-term plan.
The biggest myth of success is that we have to sacrifice short-term happiness for long-term fulfillment. The book’s main premise is that happiness leads to success, not vice versa. Happiness is a precursor to success and brings out the best in us psychologically (better mood = better day), socially (people like happy people), and physically (positive emotions increase cardiovascular health).
Stress ≠ success. Chronic stress damages our health, relationships, and work quality. Work just for the sake of it isn’t a productive use of time. This is especially true in a domain like investing where performance isn’t a direct function of effort spent on research.
Lower stress by exercising, taking a walk, or slowing down your breathing. Slow breathing activates the vagus nerve and quiets our fight-or-flight response. Stressed investors imagine patterns that don’t exist and are in a poor mental state to make important decisions.
Most of us don’t have physically demanding jobs but we’re exhausted after work. Knowledge work requires self-control over our mental focus. Self-control is like a muscle and gets worn out the more we use it. Put yourself in an environment so you don’t have to use it as much: set your phone to do not disturb, block social media sites, or use noise-cancelling earbuds.
Self-belief separates those who thrive from those who get demoralized when life gets hard. Failure is success in progress. A “woe is me” attitude is a surefire way to never live up to your potential.
An inflated self-esteem makes you vulnerable to future adversity. Narcissism and recent success typically blind you to your weaknesses. The current market is particularly prone to this as analyst and investor expectations are elevated.
Doing nothing is sometimes better than doing something. Technology lets us spend every waking minute focused on something. Overtrading is a big issue for investors and Fidelity found that its top performing accounts were owned by clients that were either dead or never logged in.
Overall, I enjoyed the book and recommend it if you’re interested in behavioral finance.
Here’s a talk the author gave at Google discussing the book: