Thu, 13 Aug, 2020

Stoic investing

Today’s article talks about applying the principles of stoicism to investing for better decision-making.

05th January 2020, 02:57 Hrs

Marilyn Luis Dias

Picture an animal standing in the rain- its face impassive, its body indifferent to the pouring rain, going about its business regardless.

Now contrast this with a vision of the stock market and all the madness its volatility brings, caused by fake news, ever-changing government policies and behemoth investors to contend with. It is easy to get caught up in a swirl of emotions in such an environment, selling hastily in fear as the market slows down or tanks and buying greedily as the market soars.

Reacting emotionally, driven by stock “mood swings”, is exactly the opposite of what a true stoic would do. A stoic, like the aforementioned animal, is unaffected by pain or pleasure. It is a state of being detached in any and every circumstance, whether in plenty or in want. It means being unemotional and uncommitted to any particular point of view. It requires that you deal with the external world but not become consumed by it, that you observe the emotions you experience from a removed perspective and evaluate them rather as data points to some larger conclusion. It is based on the premise that emotions are unstable and passing but facts aren’t.

As Benjamin Graham nicely puts it, “Being an intelligent investor is more a matter of character than of brain.”

Living life as is, with all its ups and downs, being stoic doesn’t mean you won’t be hurt or unaffected. You just won’t be swayed by emotions and constant change, but you would accept reality gracefully, taking the joys and sorrows of life equanimously, thus making space for more rational and objective thinking. This leads to ideal, stress-free decision-making.

In applying this principle of stoicism to investing, our outlook would be one of stewardship over all our personal wealth, acting as trustees rather than owners thereof, considering all our treasures as temporary gifts that are here today and gone one day. In this way, we learn to become users of and not slaves to our riches.

Wealth consists not in having great possessions but few wants, said Epictetus, a Greek philosopher and stoic. 

Learning to be a stoic investor is a process that doesn’t happen overnight but rather by repeated practice of the values that stoicism preaches. Ordinarily, it is easy to be impulsive and fall prey to the fear and greed that the stock market breeds, but as stoic investors we need to separate what we can control from what we can’t control and focus exclusively on the former, gathering information in a disciplined manner in line with set personal goals and clearly defined values. We should not be swayed by the fortunes the stock markets can bring or be dampened by the losses it can inflict, but rather remain true to our core beliefs.

Most people are terrified of personal losses and the very thought that they could lose all of their capital in a stock market downturn is distressing. What if we took a stoic approach and faced our greatest fear – living and being content with the scantiest and cheapest fare for a given period. And then asked ourselves- “Is this is what I was afraid of?” We might find the answer quite shocking and revealing that it wasn’t as bad as we imagined. If we are now able to remove this fear out of our minds, wouldn’t our investment decisions be made more objectively and optimally?

In conclusion, I would like to say that we need to aggressively guard against all the external influences of social media from confusing us, misleading us and wasting our precious time and energy that could otherwise be spent on making prudent decisions. That isn’t to say that all viewpoints are to be ignored. There is always something to be learnt from others. However, we should know when enough is enough when making a decision without becoming overwhelmed by our emotions.

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