Greetings, First of all !
Public figures like Charlie Munger contributed a lot to investing and markets. He was much more than the vice chairman of Berkshire Hathway. He gave his wisdom to the society at times when they needed it. He also contributed a lot to other fields of life other than investing into markets. He advices people to read a lot about why some businesses make histories and some fail so fast.
He gave one such Equation. Let’s deep dive into it:-
Munger’s Equation of Happiness:-
Happiness = Reality – Expectations
This equations might seem very generic to you but believe me folks this much more than anything that we can think. Most Importantly, you can apply it to any aspect of your life be it Investing, markets, life, went to see a movie last weeek, purchased a new car, buying a new house, topping a competition exam, and many more. It applies to all such fields.
This equation simply tells you to either lower your expectations or increase the magnitude of reality.
Examples :-
- For Example – You started an SIP of 15,000 rupees today for 15 years assuming 15% CAGR per annum (That’s quite high, but we are taking that for example purpose). It fetches you one crore of rupees as per mathematics and you just start after seeing this ad somewhere. And wached more videos on youtube and started investing into an Index fund of Nifty 50. Here, your reality is not true but your expectations are quite high and this way your Happiness will be negative after 15 years.
- Let’s take an another relatable example. Suppose you are doing an SIP in ABC Fund gien to you by your Mutual Fund Expert and it outperfoms its benchmark by significant numbers but you came to see a fund of your friend whose CAGR was more than yours, your happiness level drops.
In that case, you got enticed by your friends Fund and stop SIP in yours without consulting the Expert and start SIP into that Fund. After two years, you saw the real results and got disappointed again as that new fund was not even able to beat the benchmark but your old fund was still beating its benchmark. Now again, you carried away with that stopped SIP into it and started into a new one and this goes on again and again. This is one of the worst way to invest your money.
Conclusion:-
Always keep your expectations low as we hardly can increase our reality. In this way only, we can invest Happily without getting afraid of news adn media. Do not hesitate to meet Mutual Funds Expert, in case you think you need one.
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