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RS Weekly Update - Munger, Envy, CLX and HTLD

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April 08, 2011 – Comments (1)

Dear Fools,

Picking up where we left off last week, here is tendency #8 in Charlie Munger’s take on the psychology of human misjudgment from Poor Charlie’s Almanack.

Tendency #8 – Envy/Jealousy Tendency

I’ve been getting a lot of questions lately from my daughters about jealousy. They’re only 6 and 4, so it’s a relatively new concept. But explaining it isn’t as easy as I thought it would be. Munger makes the observation that envy has a lot to do with food; specifically the fact that one person has some when the other person doesn’t. With food being a necessity for life, this makes sense. From there, the evolution of man and just progress in general has given us more to be envious of.

Today, some of the most obvious examples can be seen in envy between friends and sibling rivalries. When you’re a kid and your friend gets the cool new lunchbox (OK, maybe today it’s more like an iPod), it’s perfectly natural to see that and want the same thing. No, it’s not a necessity, but we don’t have to worry as much about that kind of thing today. Food is readily available and there’s plenty of water (relatively speaking of course). And sibling rivalries can run very strong, especially as children. They are simply not mature enough to think differently.

But envy and jealousy are also still very prevalent in our adult lives. When you’re a kid if someone says you’re jealous, it can be somewhat confusing and maybe somewhat insulting, but as a kid you haven’t built up any kind of reputation in the world where this may seem like the ultimate insult; you’re just a kid and your experiences are very limited. But look at something like a law firm where you have a number of senior level partners. Often these partners are compensated the same, thereby eliminating any envy factor (at least in regard to pay). We see the same thing in many of the companies we research as potential investments. Look through the DEF 14A forms and often you will see compensation is geared around sector averages so that companies can all keep it in the ballpark, making it seem reasonable. If accusations of envy and jealousy start flying around, the end result is going to be brutal.

Is it fair when executives are paid multiples upon multiples more than the daily workers in a particular company? Do you think this creates an envy or jealousy factor? I think most certainly it does on some level. The worker making $50,000 a year may look at the CEO who makes $25 million a year and say that he could do the same thing, just sitting around an office all day and eating in the executive lunch room (granted we know most CEOs do a little more than that). I don’t know that they’ll always admit actual envy though. Of course there are workers who will readily admit that they don’t possess the same set of skills and couldn’t take on an executive position like CEO. I don’t know any numbers as to how that breaks down.

Munger makes a good reference to a Buffett quote: “It is not greed that drives the world, but envy.” I believe this is true as I believe that greed is derived from envy. Envy is as old as time itself.

Foolishly,

Jason (TMFJMo)


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1 Comments – Post Your Own

#1) On April 08, 2011 at 9:00 PM, HarryCarysGhost (99.70) wrote:

Jason,

“It is not greed that drives the world, but envy.”  I can see that, but I would argue that a worker or shareholder being properly treated is much less likely to pinpoint on the CEO"S salary. Thus the envy factor goes out the window.

(That being said $25 million is an obscene amount and I would tend to stay away from companies who paid that much to one person, when you get #'s like that it's stealing from everyone else)

I'm a Cubs fan so I can post this : )

http://www.onionsportsnetwork.com/articles/chicago-cubs-cant-believe-theyre-doing-this-again,19870/?utm_source=recentnews

 

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