a2 + b2 = c2

e = mc2

y = mx + b

Odds are, your head is full of formulas of which you have only a vague recollection and no ongoing use. You needed these formulas for a season – most likely to pass a test – and now they have receded into some dusty corner of your mind. But what if I told you that there’s a formula that is exceedingly easy to remember and could positively impact almost every decision you make? What if I told you that there is a formula for happiness?

One such model comes to us from Martin Seligman, the father of positive psychology. Whereas the likes of Freud, Jung, and Rogers spent years studying what happens when the psyche breaks, Seligman devoted his life to studying what makes life go right. In so doing, he arrived at five basic needs that load onto happiness and are referred to as the PERMA model. They are:

  • Positive emotion – We need fun
  • Engagement – We need deep work
  • Relationships – We need other people
  • Meaning – We need to be working for something bigger than ourselves
  • Accomplishments – We need to be better today than we were yesterday

Seligman’s findings are research-backed, intuitive, and, at least for me, highly consistent with my own waxing and waning levels of happiness. While the PERMA model is powerful, it still fails to account for one important variable: our own expectations. We all want the five facets of the PERMA model in our lives, of course, but we expect them to a greater or lesser degree and that level of expectation has much to do with our experienced levels of happiness. Thus, it may be said that the most basic formula for happiness looks something like:

Happiness = Reality – Expectations

As is so often the case, philosophy and religion have long understood what the business world is just beginning to realize and implement: changing our expectations can be at least as powerful as changing our reality. The second of Buddhism’s Four Noble Truths is “the cause of suffering is craving.” It is not hardship itself that causes pain, Buddha taught, but instead the mistaken idea that we shouldn’t expect pain in the first place. The great Stoic Epictetus likewise taught, “The more we value things outside our control, the less control we have.” Happiness, in these formulations, becomes less about getting what you want, and more about wanting what you already have.

Perhaps the single best advice any investor can receive comes from Jason Zweig, who counsels us to “control the controllables.” Market volatility and political strife may be outside of our control but patience, consistency, appropriate fees, and a long-term view are very much within our control. But the controllable is not simply limited to what we pay our advisor, it also includes being thoughtful about the very goals we set when we meet with that advisor. In the same way that a penny saved is a penny earned, a penny not dreamt of is a penny in excess returns that we do not need.

So, how do we begin to “want what we have” en route to setting goals that are both fulfilling and realistic?

  • Gratitude – The process of hedonic adaptation – or becoming inured to the gifts that we have as our wealth grows – is insidious and corrosive to our happiness. By vocalizing, naming, and showing gratitude for what we already have, we combat the corrosive effects of “never-enoughism.”
  • Negative visualization – The Stoic practice of negative visualization – or imagining a loss before it occurs – may seem depressing, but it is a powerful means of constraining our desires and appreciating what we already have. As we imagine our lives without the presence of some good – be it our health, a cherished relationship, or even our wealth – we become better positioned to appreciate the gifts that those things truly are.
  • Increase mindfulness – It has been correctly noted that the conveniences and pleasures of daily living now available to the average middle-class consumer would have exceeded the wildest dreams of royalty from just one generation previous. Yet, we move through the world unaware of the richness all around us, hurried as we are. Increasing mindfulness allows us to savor small moments and truly appreciate what a miracle so much of our every day truly is.

The future trajectory of the market may be unknown, but our ability to manage our lifestyle and our ambitions remains a seldom-tapped superpower available to truly savvy behavioral investors. We spend so much of our lives working, striving, and grinding to get what we want, but maybe it’s time that we focused just a bit more on wanting what we already have.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Brinker Capital, Inc., a registered investment advisor.

Tagged: Daniel Crosby, behavioral finance