Written by: Corey Janoff
This post was originally published on our previous blog website on March 14, 2018 and has since not been revised and/or updated.
I think we can all agree that everybody would like to be happy. A big component to happiness is expectations. Exceeding expectations results in happiness. Falling short of expectations results in disappointment. That’s really the summary of today’s post, so you can stop reading now if you want. But for those that want to keep reading, let’s dive into this further.
A Quick Example
I am a lifelong Philadelphia Eagles fan. My father was born and raised just outside of Philadelphia, PA. So were his parents (my grandparents). Throughout their history, the Eagles have been a pretty disappointing team to be a fan of. They had some decent success in the late 1940’s when they won two consecutive NFL championships (before the Super Bowl was created). They won their last NFL championship in 1960 – a game in which my dad and grandfather attended together, back when the home team hosted the championship game. It was held in Philly and they had season tickets.
Since their inception in 1933, the Eagles have won 568 of their 1,188 games (less than half) and are 21-21 in the playoffs. If that is not the definition of mediocre, then I don’t know what is. By comparison, the Cleveland Browns have an above .500 record (525-519 including playoffs). So based on wins and losses, the Cleveland Browns are a more successful football franchise than the Philadelphia Eagles.
From 1961 to 2017, the Eagles had zero championship victories and just two Super Bowl appearances. Until this year when they defeated the New England Patriots to win their very first Super Bowl, in one of the most exciting and entertaining football games ever.
Obviously, all Eagles fans were ecstatic to finally celebrate a championship for their team. However, they were even more elated in the way it all played out. See, the Eagles were not expected to win the Super Bowl. They weren’t even expected to win any of their playoff games – they were underdogs in all three. At the start of the season, gaming company Bovada had the odds of the Eagles winning the Super Bowl at 50/1. That means if you bet $100 on the Eagles at the start of the season, you would have won $5,000 after they won the Super Bowl. The Patriots by comparison were at 13/4 odds to start the season (bet $100 to potentially win $325).
NOBODY expected the Eagles to win it all this year. The most optimistic of fans and sportscasters thought they might be able to win their division and host a home playoff game. If they could get a single playoff win, then chalk the season up as a success. Because they so greatly exceeded expectations by winning the Super Bowl, the level of happiness was through the roof for players and fans alike.
By comparison, the New England Patriots were expected to win. It seems like they have been expected to win it every year for the last 15+ years, with Bill Belichick and Tom Brady at the helm. And they have been pretty darn successful by appearing in eight Super Bowl games and winning five Super Bowls since 2001. For the New England Patriots and their fans, anything short of a Super Bowl victory is considered a disappointment.
Obviously every team starts the season with a goal to win the Super Bowl. But everyone knows that some teams have better chances than others. This creates different levels of expectations.
If you expect to win and you win and you do win, you are content. You met your expectations. That is the Patriots in years they win it all – the best they can feel is content. If you expect to lose and you do lose, you met your expectations, so you are also content (albeit, a little less content). That is the Cleveland Browns. If you expect to win and you lose, you are significantly disappointed. Patriots. If you expect to lose and you win, you are extremely happy. Eagles.
We see this with Olympic athletes too. Every Olympic Games we have the feel-good story of the athlete who overcame the odds to qualify for the Olympic Games and is just happy to be there. They don’t expect to win a medal, but they are proud to represent their country on the world stage. Win or lose, they will have a great time and walk away happy.
On the other hand, if Usain Bolt doesn’t win gold in his events, he is a failure. If Michael Phelps doesn’t come away with more medals when he competes, it is a disappointment.
Where is the Bar Set?
This same bar of expectations affects all aspects of our lives, especially when it comes to our finances. We are always comparing ourselves to others and setting expectation levels.
Now, this can be healthy in some respects when you are setting goals for yourself and trying to improve. But it can be detrimental to your happiness when you set expectations for things that are out of your control.
For example, if you start interviewing for a new job and you expect that your starting salary will be around $120,000 and the employer presents an offer to you for $80,000, you won’t be very happy. On the other hand, if you expect your salary to be around $80,000 and the employer says they want to start you at $120,000, you can’t sign the contract fast enough!
If you expect to get promoted within three years of starting your new position and year three rolls around and you don’t get that promotion, you might start looking elsewhere. However, if you are under the impression that year three is when you will be up for promotion and your boss promotes you in year two, you’re pumped! You must be working hard and doing a great job!
Expectations are Bad for Investing
It is really tricky to set expectations for investments, because you cannot control how well an investment will do. You can take a guess, but if the actual results fall short of the guess, you will be disappointed. If the results meet the guess (extremely rare), you will be satisfied. If the results exceed the guess, you will be overjoyed.
For example, in 2017, nobody knew what to expect from their investment accounts. We knew the economy was doing well, but Donald Trump was entering his first year as the President of the United States, and all bets were off. Many people who voted for him were concerned about how it might affect their investments. Hard to say what will happen moving forward, but 2017 was a great year for investments, when compared to historical averages. Pretty much every asset class generated positive returns for the year and many were up double digits. So most people were pretty pleased with how things fared.
Now, if you entered 2018 thinking we will see a repeat of 2017 when it comes to investment performance, then you will likely be disappointed. Who knows, we still have almost 10 months remaining in the year, but seeing a repeat of 2017 will be like the Eagles winning back to back Super Bowls. Possible, but hasn’t happened since the late 1940’s and the game was a bit different then.
When you fall short of expectations, you feel compelled to make changes. However, be careful not to confuse bad luck with poor planning. You may have done everything in your control that you were supposed to do. If things don’t play out as expected in the short-term, that doesn’t necessarily mean you need to change your strategy.
If you expect the possibility that your investments may decline in value, you won’t be surprised if that actually happens (it will likely happen about 25% of the time when looking at annual figures. More often than that if looking more frequently).
Focus on the Long-Term
Rather than looking at annual, quarterly, or even monthly performance figures, focus on long-term results. And focus on achieving qualitative goals, rather than quantitative performance figures (because you cannot control those).
For example, if your goal is to be able to retire one day and live comfortably, stop fretting about whether or not your 401k went up or down each month. Just focus on whether or not you are on track to achieve your goal of retiring and living comfortably. When you are in retirement and look back, are you going to remember your monthly performance figures? How about annual? Are you tracking it? Will you remember you’re your yearly average over your 40 year working career? If the answer is “no,” then why does it matter so much? Will it really make a difference if your 401k grows by 2% or 12% this year? What if it goes down by 10%?
Now, critics will say that yes, it does make a difference. Too many low or negative-return years will hurt the chances of reaching your goals. True, but again, the returns are out of your control. Stop fretting over what you can’t control and focus on what you can.
You can control your goals. Maybe the goals need revisions if it takes lofty returns to reach them.
Maybe you should expect the possibility of low returns and plan to save a little more in case that is the reality.
Maybe we should really evaluate what makes us happy and focus more time and energy on that and being able to sustain that throughout our lifetimes. Is it spending time with your family and friends? If so, how can you adjust your life to spend more time with your loved ones?
Studies have shown we get more joy out of experiences than material things. I don’t think we need scientific research to tell us that. All of your stories revolve around activities and events you experienced. The joy of buying a new pair of headphones wanes pretty quickly and doesn’t make for a very good story. You’re not going to tell your grandkids about the pair of wireless Beats you got on sale at Best Buy.
Your grandkids will be like, “Who is Dr. Dre and what is a Best Buy? You’re so old, grandpa.”
So spend your resources on doing things that will make for a good story and spend fewer resources on replacing your stuff with more stuff.
Alright, I’m starting to ramble, so this is probably a good stopping point. I love how you can just end a blog this way. No editor approval needed.
Hope you enjoyed this week’s post. Don’t expect anything good from me next week and you might be pleasantly surprised!
