“You have power over your mind – not outside events. Realize this, and you will find strength”, said Marcus Aurelius, one of the most famous Stoics in history. Stoicism is a school of thought whose teachings of virtue, tolerance and self-control have inspired generations of thinkers, leaders and investors like Benjamin Graham, Warren Buffet, George Washington, Theodore Roosevelt, Nelson Mandela, and many more.
Today, we want to give a short overview of Stoicism and share how it can help you to become a better investor.
What is Stoicism?
Stoicism is a school of thought that flourished in Greek and Roman antiquity, but it is still relevant today. According to The Daily Stoic, Stoicism is “a philosophy designed to make us more resilient, happier, more virtuous and wiser – and as a result, better people, better parents and better professionals.” Sounds good, right?
One of the key principles of Stoicism is the idea to separate between what you can control and what you cannot control. This is called the dichotomy of control.
However, while Stoics accept the fact that they don’t always have control over their environment, they are convinced that they do have control over how they approach and react to things. Over their mindset so to say. This dichotomy of control decreases emotional reactivity, which can be of great help in many situations – also when investing. The famous Stoic Epictetus said: “Where then do I look for good and evil? Not to uncontrollable externals, but within myself to the choices that are my own…”
Today, we also use the word “stoic” to describe someone who seems to be indifferent to emotions like pain, pleasure, grief, anger or joy. But this is not accurate. Stoics do feel pain, pleasure, grief, anger or joy of course. The difference to other people is their reaction to it.
Origins of Stoicism
Stoicism was founded by Zeno of Citium, a once-wealthy merchant who one day found himself shipwrecked in Athens around 304 BC, more than 500 miles away from home with no money or possessions. Most people would be devastated, cursing their awful fate and misfortune. But not Zeno.
With not much else to do he started reading about the great Greek philosopher Socrates. Intrigued, he started to discuss with other philosophers in Athens and eventually started talking about it in public. Zeno’s teachings happened in a decorated public colonnade called “Stoa Poikile”, literally meaning painted porch. Here, Zeno laid the cornerstone of the school of thought called Stoicism.
He supposedly later joked about his shipwreck saying: “I made a prosperous voyage when I suffered shipwreck”, which again is a great illustration of his Stoic mindset. Famous Stoics that followed Zeno were Seneca, Epictetus and the Roman emperor Marcus Aurelius.
The four virtues of Stoicism
While accepting the world as it is, Stoics always try to be and become their best selves by preparing themselves for an uncertain future. To achieve this, they follow the four cardinal virtues of Stoicism. These are:
- Wisdom, meaning the ability to navigate complex situations in a logical, informed and calm manner,
- Temperance, meaning the exercise of self-restraint and moderation in all aspects of life,
- Justice, meaning treating others with fairness even when they have done wrong, and
- Courage, not just in extraordinary circumstances, but facing daily challenges with clarity and integrity.
Although these Stoic core values were defined almost 2,000 years ago, they are still more relevant than ever.
“You have power over your mind – not outside events. Realize this, and you will find strength.”
Prepare for the future with Stoicism
We live in a complex world, filled with uncertainty. The Corona pandemic is one of the best examples, that we as human beings cannot control everything. However, Stoicism can help us to prepare for such scenarios.
The popular author, coach and Stoic Tim Ferriss for example uses “planned poverty” to confront his fears and to be able to stay calm – and stoic – when needed. He deliberately takes days where he fasts, exposing himself to hunger, or has another routine where he confronts himself with the cold. In one YouTube video he explains the ratio behind this planned suffering: “The more you sweat in peacetime, the less you bleed in wartime.
Another practice that he uses is “fear setting”, inspired by Seneca’s “premeditatio malorum”, which means the premeditation of evils. In this exercise, Ferris visualizes the worst-case scenario of his fears in detail, helping him to accept this outcome mentally, and then overcome the paralysis by getting into action mode.
Stoicism in investing
Stoicism can also be used when it comes to investing and personal finance. Here, as in general life, controlling the controllable while remaining calm in the face of uncertainty is key.
Obviously, we cannot control the market. But we can control other aspects like what we invest in, how much we invest and when we buy and sell.
Furthermore, we can control whether and how we get investment advice: We can choose to get the expert opinion of a financial advisor, craft a DIY-investment strategy with books, websites and YouTube videos, use a robo-advisor or trust our family and friends.
When creating an investment strategy, “premeditatio malorum” – the mental anticipation of the worst-case scenario – can help us plan our investments accordingly and remain calm in stressful situations. Because even if we have an investment plan laid out, things can get rocky – challenging our patience.
Benjamin Graham often referred to as the “father of value investing”, was also a Stoic. He used to emphasize how important it is for investors to keep their emotions in check: “The investor’s chief problem – and his worst enemy – is likely to be himself. In the end, how your investments behave is much less important than how you behave.”
Stoicism in investing can help us better control our emotions, allowing us to take a step back, taking a breath and working out a rational solution. In that way, when we learn about Stoic investing, we also learn about life.
Alpian has submitted an application for a full banking license to Switzerland’s Financial Market Supervisory Authority (FINMA). Content of this publication is for informational purposes only, you should not construe any such information as legal, tax, investment, financial, or other advice.