How Empathy Can Make You A Better Investor

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As 2016 winds down and my two-week vacation comes to a close, I have had time to recharge and reflect on an incredibly packed year.  While there have been many highlights from the year including my son’s first birthday and cruise, there were some lowlights when my wife’s grandfather and my great aunt passed away.  

 

I haven’t written about these things previously because honestly, I’ve been sad to write about them.  Both of them lived wonderfully long lives, 92 and 101 respectively, and both got to spend time our son before their passing.  Truthfully, I’m not sad for them as much as sad for me as I miss them.  But, I know both are in Heaven enjoying eternal salvation.

 

I have been thinking a lot about both of them recently.  They both lived extraordinary fulfilling lives.  I’m trying to imagine all that they saw in their lives over the last century.  

 

My Wife’s Grandfather

He was a high-ranking Iranian government official who was second in command over the creation of the major railway system in Iran during the reign of the Shah.  He was fluent in a few different languages and was very intelligent.  On top of that, he was a father to 8 children, grandfather to 11 children, and great-grandfather to 1 child (my son).  He was a very warm, kind man.  I’m glad to have gotten to know him over the few years when he lived close to us.  

 

My Great Aunt

My Great Aunt, on the other hand, had no children, but she was always like a third grandma to me.  We even called her Nana.  She had to quickly get a job to support herself after her beloved husband died when she was only 43 years old.  She obtained one at the CIA and very much enjoyed working there.  I know she wished to have had her husband with her for the second half of her life, but she always focused on what she did have more than what she didn’t.   

 

Empathy

Since experiencing these losses, I’ve been thinking a lot about empathy and trying to imagine myself in other people’s shoes.  I know many, many people are dealing with loss as well.  After the recent election, I have been trying to put myself in both the supporter and dissenter shoes to try to gain a better understanding of the discourse between the two groups.  While I don’t pretend I can completely understand each side fully, I do believe I am beginning to appreciate the differing viewpoints between the groups.

 

With all the discourse though, I wonder if empathy is becoming a lost skill set in the US.  Recently, I read studies that found that empathy is on the decline.  In fact, since 2000, college students’ empathy levels are 40% lower than those that graduated before them, according to University of Michigan researchers.

 

Decline of Empathy

Even with the declining rate of empathy among college students the United States, the US still ranks #7 in the world in empathy according to a survey completed by researchers from Michigan State University, the University of Chicago, and Indiana University.  Interestingly enough, Ecuador and Saudi Arabia finished #1 and #2 in the survey.

 

There may be a specific reason for these rankings, though.  Financial hardship seems to play a direct role.  Researchers found that those who grew up with financial stress were much more likely to exhibit empathy than those who grew up in much more comfortable economic situations.  Those with affluent backgrounds showed empathy far less.  

 

Empathy and Investing

In the book, The Emotionally Intelligent Investor, Ravee Mehta explains, “Many of the best investors utilize empathy, which is what allows them to take advantage of the behavioral mistakes of others.  They also utilize gut instincts for things such as evaluation of management, position sizing and sensing danger.  Intuition is not a magical sixth sense.  It is a complex feeling that arises from pattern recognition.”

 

Empathy and Management

Author Simon Sinek believes that exceptional organizations, “prioritize the well-being of their people and, in return, their people give everything they’ve got to protect and advance the well-being of one another and the organization.”

 

In a previous post, I wrote about how I utilized Glassdoor to find companies that treat their employees exceptionally well.  This is because this type of treatment breeds loyalty to highly well-run management.  Is it any wonder that Google, Facebook and Adobe, which are currently ranked in the top 10, have had great financial success?

 

How to Increase in Empathy

Sinek posits that people can train themselves to be more empathetic by heeding everyday gestures, such as holding elevators for others or refilling the coffeemaker.  Even small acts of kindness release a tiny shot of feel-good oxytocin.  He describes how these small acts for others have a building effect in relationships that is likely to be reciprocated.  From friendships to work relationships, empathy can have a hugely positive effect. 

 

Empathy can also make one more aware of their own needs, emotions, and behaviors.  This leads to a greater self-realization and likely greater overall disposition. 

 

The Power of Humility

Along with acts of kindness stems humility.  In leaders, humility has a very interesting effect.  In the Harvard Business Review Blog, Jeanine Prime and Elizabeth Salib found that when employees observed diminished ego in their managers — such as humbleness and empowering workers — they reported being more innovative and engaged.  These employees were also more likely to suggest new product ideas and ways of doing work better.  Humility clearly goes a long way.

 

Psychopaths on Wall Street?

So we’ve seen demonstrated through various studies how vital empathy and humility are in the workplace.  But, do you realize how few on Wall Street actually exhibit these sorts of behavior?

 

Various studies point to the fact that certain types of people are prone to the pressure and stress of Wall Street.  These types of people generally have personalities that dispose them towards impulsivity, fraudulence and lack of empathy.  The psychological profile actually lines up with a psychopathic personality.

 

Another study from the University of St. Gallen also affirms the above research in terms of risk-taking behavior and competition.  Researchers found that professional traders actually outperform diagnosed psychopaths.  And of course, a common observation of psychopaths is that they lack empathy.  How much better would these traders be if they were able to exhibit some empathy?  

 

I guess this explains a lot about the selfishness associated with the Greed is Good mentality.  So readers, I plan to become a more empathetic leader and human in 2017.  Have you thought about empathy in terms of investing or management?  Share your thoughts below.

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22 Comments

    • Thanks for stopping by and sharing Matt!!! I totally agree with you that this election cycle brought out a lot of discourse with people.

      Hopefully empathy is something that we can all exhibit in 2017 🙂

  1. Empathy is unfortunately somewhat of a dieing art. I agree that organizations that practice empathy for employees tend to get ahead in the long run. Especially in the service industry the companies with the best service also tend to be the ones that take care of their employees. I invest in index funds primarily, so this isn’t an investment play for me. However it is important as I consider changing employers. Thanks for the reminder.
    Full Time Finance recently posted…The Origin StoryMy Profile

    • Thanks for sharing your perspective Full Time Finance!!! I tend to agree that companies that treat their employees well tend to attract higher quality employees which breeds a cycle of innovation. I think that’s why the Googles of the world continue to stay one step ahead and reward their shareholders.

  2. Great points. I’ll be the first to admit I probably don’t employ empathy as much as I should. However, it’s good not only for investing as you mentioned, but to really improve daily life as well. I’m trying to use it more in the work place for that reason.
    Andrew recently posted…2016 Year End Thoughts And Goals For 2017My Profile

    • You are absolutely correct with the numerous benefits that come from displaying empathy on a daily basis.

      I’ve noticed since I’ve been at work that I’m much less stressed and enjoying work a bit more as I try to imagine myself in the other person’s shoes when executing on a difficult decision.

      Thanks for stopping by and sharing!!!

  3. I was in some recent leadership training at work that had a focus on empathy (although they didn’t call it that). It was all about seeing things from other peoples perspectives and eliminating your preconceived notion when dealing with others. I thought it was a helpful reminder to look at the world from other peoples perspectives more often. I think your goal to be more empathetic is a great one for 2017!
    Liz@ChiefMomOfficer recently posted…Year in Review – A Chief Mom Officers Annual ReportMy Profile

    • That’s awesome that your work provides you leadership training in this area. I know of way too many companies that offer too few opportunities for training or concentrate on technical skills over management development skills. So kudos to you and your company for taking advantage of these classes.

      Thanks for sharing your perspective and have a great New Year!!!

    • Absolutely I think too often companies look at the bottom line and pay lip service to their employees being an asset.

      Hopefully as companies continue to wise up we’ll continue to see rising empathy among companies and executives 🙂

      Thanks for stopping by and sharing!!!

  4. While I feel like I have a lot of empathy for others, I’ve never made a connection between empathy and finances or investing. I can totally see the connection between companies that treat their employees well and financial success, but I feel like some huge companies have such tunnel-vision about making their shareholders happy through growth that they don’t always do what’s best for the good of people overall. There are some great companies out there for sure though!
    Making Your Money Matter recently posted…ST301: Saving for Medical Expenses (HSA and FSA Accounts)My Profile

    • Personally I think companies that have a laser focus to keep both employees and customer happy will reward shareholders in the long term.

      For years I have read about how well Southwest treats their employees and keep fares low for customers. They have rewarded their shareholders with outstanding growth in a difficult airline industry.

      Anyway thanks for stopping by and sharing your thoughts!!!

  5. Your son’s great grandfather and your Nana both sound like they were such interesting people. I am sorry for your loss. I love hearing about the lives of people who lived long _and_ are missed and mourned when they do pass – they are clearly doing something right, and we can stand to learn from them.

    I hope 2017 is a fantastic year for you MSM! Happy New Year to you and yours.
    Mrs. BITA recently posted…The Evolution of our Plan for 2017My Profile

    • Thanks for stopping by and sharing Primal Prosperity. I can’t say I’m familiar with either one of those. So I will definitely be reading/watching these over the long weekend.

      Thanks for the awesome share 🙂

  6. As a worker bee, I’ve been trying to climb the corporate ladderer for years. When I reached the people manager position, my philosophy is to ensure that I manage people that are both above and below my levels. It’s tough to find a manager that takes interest in your career, so when I am managing people, I do make the effort to ensure that I provide the support that my team members need to grow professionally and personally. As for empathy investing, this is a new idea from me. I guess it makes sense to invest in companies that do genuinely cared about their employees and go to great lengths to keep them happy.
    Leo T. Ly @ isaved5k.com recently posted…Part 1: How To Improve Your Financial HealthMy Profile

    • Thanks for sharing Leo!!! Sounds like you’d be an awesome manager to work for especially if you are taking interest in others careers.

      I know it’s so easy to get wrapped up in all the work that needs to be done that it’s easy to forget about the dreams of the employees working for you.

      Thanks for sharing!!!

  7. Having empathy is a great trait. My wife and I volunteered at a soup kitchen last weekend. We saw people from all sorts of walks of life. It’s easy for those who are well off or who were born in a strong family to look down on these people and see them as just lazy. But looking at some of the situations kids are born into, you can’t help but feel empathy. Yes there are some who game the system, but there are so many others who are born into a no win situation. It helps puts things in perspective and to be grateful for what you have.
    Go Finance Yourself! recently posted…Investment Fees are Costing You Years in RetirementMy Profile

    • Thanks for sharing Go Finance Yourself!!! That’s awesome that you took the opportunity to volunteer and get to know some of the people you were serving.

      You are absolutely right that sometimes things are outside their control and it has nothing to do with lazy but unfortunate circumstances.

      Definitely a great perspective to have!!!

  8. Interesting perspective, especially in regards to empathy and investing. I actually think that one of the most important traits a leader can have is humility. Second after that is empathy. If those traits are present in leadership, eventually they tend to filter throughout the rest of the team/organization.
    SomeRandomGuyOnline recently posted…2016 Year In Review, 2017 ForecastMy Profile

    • Thanks for stopping by and sharing SRGO. Having worked for some nightmare bosses and some excellent bosses, you are absolutely correct that it filters through the organization. It’s a toxic atmosphere that drives people away with an arrogant boss that lacks self-awareness.

      On the otherhand excellent bosses seem to attract the best and brightest which makes the office and boss look that much more productive.

      Thanks as always for stopping by 🙂

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