Before we get started with investing and personal finance, I think it’s a good idea to give a brief explanation of Stoicism and why I believe it can be beneficial as an investment and life philosophy. I’ll start with a caveat; you don’t need to follow the Stoic philosophy to a tee. There are parts of the philosophy I don’t necessarily agree with (the idea of an overarching Cosmos or Divine Reason for example), but I believe there are useful lessons that can be learned from the Stoic teachings.
The Oxford dictionary has two definitions of Stoicism, one capitalized and one not.
stoicism refers to “the endurance of pain or hardship without the display of feelings and without complaint” while Stoicism is “an ancient Greek school of philosophy founded at Athens by Zeno of Citium. The school taught that virtue, the highest good, is based on knowledge; the wise live in harmony with the divine Reason (also identified with Fate and Providence) that governs nature, and are indifferent to the vicissitudes of fortune and to pleasure and pain.”
Controlling the Controllables
While the above definitions tell us exactly what the word means, they do not give us the whole picture. In my mind, stoicism and Stoicism can be described as follows (I’m fairly sure I have stolen this from someone else but can’t remember who, if I find out I’ll attribute accordingly).
stoicism is standing in the middle of a field in the rain accepting the fact that you will get wet.
Stoicism is standing in the middle of a field in the rain accepting the fact that it is raining but realizing you have the power to get an umbrella.
Different aspects of Stoicism will resonate with different people. When it comes to investing and personal finance, controlling the controllables is the aspect of Stoicism I try to keep in mind. You cannot control the market, you can control your response to it. As we progress with this blog, I’ll discuss my personal investing philosophy, but for now, I’ll give you a taste. I am a fan of index investing with a long term outlook. If this sounds like meaningless jargon to you, bear with me, it will be described in more detail in subsequent posts.
Markets move up and down every day. It can be easy to get caught up in the ebbs and flows of your investment account and make decisions accordingly. A lot of amateur (and some professional) investors tend to panic sell after a sharp decline. A Stoic investor will realize that this is a natural reaction but can be controlled. Rather than immediately selling, you should take a step back and determine if your reasons for investing in that particular stock or market have changed. Other than the price, has anything else changed?
You may hear the old saying (which I read recently in the comments section of a news website) “never try to catch a falling knife” and why this seems like perfectly rational advice, it really is too broad to be of any use. If your reason for buying that particular stock has not changed, why would you not take advantage of a lower price? This is just an example, we will cover price fluctuations in a later post.
A Philosophy of Self Control
“You have power over your mind – not outside events. Realize this, and you will find strength.” – Marcus Aurelius
When it comes to investing our control is limited. We can control what we invest in, how much we invest and when we buy and sell. We can’t control how our investments will perform or how the market will respond to events. An investment plan can layout our controllables and how we plan to invest our money, but unless we can control ourselves the plan is useless.
Having a plan is great, but when you wake up and you have lost 30% of your money what are you going to do?
“Everyone has a plan until they get punched in the mouth” – Mike Tyson
Stoicism can offer us a framework for controlling our emotions, allowing us to take a step back and work to a rational solution. In the future, I hope to write a more in-depth blog covering some exercises you can use to increase the control you have over your emotions. If you take one thing away from this post I would like it to be this; you control your emotions, they don’t control you.
The Stoic Trader