Sep 14 How Philosophy Can Help Your Portfolio
Warren Buffett, a billionaire and one of the most successful investors of the twentieth century, was once asked about what made him so much more successful than the rest of the market. Steve Forbes, the interviewer, enquired, "What makes you different? In investing there are a lot of bright people. They've all claimed to have read Graham and Dodd. They've all claimed to be disciplined, and yet there's only one Warren Buffett."
Buffett first started by mentioning that, unlike many people, he was lucky in that he found his passion. Then, he changed gears and talked about an internal quality that truly made him unique: "You don't need a lot of brains in this business…What you do need is emotional stability. You have to be able to think independently and when you come to a conclusion you have to really not care what other people say."
There are dozens of books published every year about how to get rich off the stock market. All of these books teach slightly different methods and investing approaches. They all claim to be able to teach people how to invest – or the process behind investing. The truth of the matter is, these books all say something very similar: buy low and sell high. What investors really need to learn, aside from different investing methods and styles, is the emotional stability Buffett credits with his success. One of the best sources for this stability can be found in the ancient philosophy of Stoicism.
Stoicism was founded in Athens, Greece by Zeno of Citium toward the end of Ancient Greece in the 3rd century BC. Like many Greek ideas and values, it flourished in the Roman Empire, and was most famously practiced by Seneca the Younger, a wealthy banker and advisor to the emperor Nero; as well as Marcus Aurelius, Rome's emperor from 161 to 180 AD.
Stoicism asserts that "virtue" – or happiness – is achieved after a person identifies and accepts what is within and what is outside of one's control. The Stoics accepted that life was very difficult. Hope had no place in Stoic philosophy and was actually frowned upon by its practitioners. The Stoics took a more indirect path to happiness. They believed that happiness was achieved when no external events could impact one's internal state of mind and emotions. As Marcus Aurelius wrote in his Meditations, "You have power over your mind – not outside events. Realize this, and you will find strength."
The strength Marcus refers to is meant to sustain a person as they endure life's difficulties. In his own life, Marcus used Stoicism to remain calm, content, and gracious even as he had to deal with constant wars on the edges of his empire on top of the struggles of being the emperor of Rome. Similarly, investors can benefit from Stoicism the same way Marcus Aurelius and Seneca did: by having a framework to process, understand, and deal with the emotional aspects of investing that could get in the way of profits.
In order to do this, investors first have to understand that controlling emotions in the market is difficult, in the same way the Stoics understood that life in general is difficult. In today's online world, investors have to deal with a variety of different opinions on where a stock is going, where the market is going, and what they should buy, hold, and sell. The amount of advice is overwhelming and there are so many differing opinions about the future that it is hard to discern which viewpoints have merit and which do not. Naturally, many market predictions do not come true, and investors suffer losses as a result.
The Stoics, though, can help in dealing with this situation. According to the Stoics, no one can control the opinions of other investors or pundits. An individual investor can only control his or her perception, analysis, and thought process. Naturally, that is all that should be trusted.
Stoicism also helps investors deal with one other thing: fear. The fear of losing money is something all investors have to deal with, no matter their track record. There is never a one hundred percent guarantee that a certain investment will work out, and it is natural to fear the consequences of an uncertain future. Stoicism advocates for acceptance in the face of fear.
As Alain de Botton, a philosopher and advocate of Stoicism puts it, "The Stoics advised us to take a different path. To be calm, one has to tell oneself something very dark: It will be terrible… but one must keep in mind that one will nevertheless be okay." Stoics found boldness and courage in the realization that, in the end, they will be okay.
Sanjit Deepalam, Dartmouth Business Journal
Any and every investment could fail. However, it is important to understand and accept that one will be okay despite what could happen as long as a trusted strategy is followed with discipline. As billionaire hedge fund manager Seth Klarman put it, the qualities of a successful investor include "the arrogance to act, and act decisively, and the humility to know that you could be wrong." As long as investors focus on the facts and think independently, there is no reason to be terrified of fear. All they need to do is accept that they cannot always be right and move forward.
There are many different approaches to investing. Each one claims to offer the best way for investors to evaluate a company and the market. What is arguably more important than a particular approach, though, is the mental and emotional stability of an investor. To some investors – Warren Buffett being one of them – this kind of stability comes naturally. Others have to work harder and be more diligent. The best way to achieve this is to have a way of thinking – or a philosophy – as a guide. For investors, Stoicism, despite its ancient origins and sometimes depressing tone, offers the best chance for achieving this necessary stability.
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