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Applying Stoicism To Investing

Applying Stoicism To Investing

August 31, 2023

Stoic Principles in Modern Investing

This summer I had the good fortune to go on two one-week-long camping trips with my family. I enjoy camping because it provides a large amount of free time outdoors to slow down and think. I typically use this downtime to read. I try to intersperse the various finance books with other topics. Stoicism is something I have been intrigued by because, like most people, I can overreact in certain situations where I wish I had more control over my emotions. I purchased a collection of books by the modern day Stoic philosopher Ryan Holiday. They were The Obstacle Is The Way, Ego Is The Enemy, and Stillness is The Key.  Let us discuss the 4 Virtues of Stoicism and how they apply to financial planning. 

Courage

The Stoics place a large amount of effort on staying calm in the face of adversity. People seem to avoid conflict and hardship at all costs but by enduring tough circumstances we can see growth in ourselves. It is easy for me to type those words and I fully understand the difficulty in putting them into action. 

The most savvy investors realize it is not our actions in bull markets that have the greatest affect on our wealth. It is keeping our heads during the bear markets when everyone around us is looking for the emergency exit and running for their lives. They see these tough times not as a burden to bear (pun intended) but an opportunity to sharpen our resolve and take advantage of valuable opportunities. 

A principle that Holiday also discusses is learning to accept the things you cannot change. This relates to the sunk cost fallacy in investing where people have a hard time moving on from investments that have lost value. By sticking with an investment with small upside you are in turn giving up opportunities at better investments. 

Temperance

Do nothing in excess. Everything in moderation. To me, temperance describes discipline which is doing what you are supposed to do when you are supposed to be doing it. Can you control the urge to do the things that you know you shouldn't? Conquer your temptations for excess and develop this as a daily habit. 

Budgeting is one of the core tenets of successful investing. Without excess income you won't have anything to invest. Harness the ability to avoid the trappings of purchases you don't need to allow yourself the opportunity to invest. This principle even applies to investing itself. Log into any financial news website and you are sure to encounter the latest "hot stock" or fad in investing. This can lead us to abandon all self control because we are afraid of missing out. FOMO (fear of missing out) is a real phenomenon. The reality is that these rarely manifest into reality. Stay disciplined. Control your emotions. As Jocko Willink says, "discipline equals freedom." 

Justice

The Stoics mention this virtue to explain the ability to always do the right thing. This one doesn't take a whole lot of explaining. From the moment we become cognizant of right and wrong we are taught to always do the right thing. But we are all human. We stray from time to time. The key is to make it a priority to attempt to limit these slip ups. 

So how does it apply to investing? Integrity applies to everything. Greed is a constant temptation many in the investing world deal with. There are plenty of laws in the finance world aimed to avoid people exploiting advantages like insider trading but the draw of wealth can lead even the most well intentioned people to break them. Seek justice in all things including your choices.

Wisdom

One of the draws to the finance world for me is the constant evolving nature of it. Each year brings new events to dissect. Last year it was inflation and how we were surely headed for a recession. This year it was bank failures, interest rates, and.... well, still inflation. Rarely do things pan out the way everyone thinks they will. It is enough to make someone think that it is all just luck. Good investors know it isn't. 

This tenet of Stoicism seeks to teach us that we should always be learning. This is done through establishing good mentors who can guide us during our journey and establishing a habit of reading. Holiday states, "The goal is not just to acquire information, but the right kind of information." 

To be a good financial advisor means to dedicate my life to the study of the different areas of financial planning. I devote time every day to follow market trends, investigate solutions in the families I serve, and always be reading books to advance our knowledge. I also find a large amount of joy from continuing to enhance my knowledge of all areas. 

Moderation is all things. Even With Moderation

If it was easy then everyone would be rolling in money. It isn't. Spending money is fun, there is no denying that fact. To me these four principles provide a roadmap for living a balanced life that allows for equal parts of happiness and work. It is no different than with investing strategies. Work hard. Earn a nice living. Stash a portion away for the future. Spend the rest. Enjoy your success.