Contemplating the Sage: Applying Stoic Principles to Investment Decision-Making
Recently, I’ve spent a lot of my leisure time reading about the ancient Stoic philosophers. They’re a fascinating bunch. The three most famous, Roman Emperor Marcus Aurelius, former slave Epictetus, and statesman Seneca the Younger, each lived fascinating lives. Marcus Aurelius, for example, was born into a powerful Roman family and served as empower from 161–180 CE. This may sound like a cushy life, and in some ways/ it was. Still, during his reign, Marcus Aurelius dealt with the Antonine plague, the death of his children, betrayal, civil war, sickness, and defending the empire from foreign enemies — no wonder he leaned into the principles of Stoicism.
Image by 6212079 from Pixabay
In many ways, these ancient practitioners wouldn’t recognize modern financial problems — whether the Federal Reserve will hike interest rates too high or too quickly, if housing prices are in a bubble, or whether crypto-currencies are a short-term fad or a long-term solution. Yet, more people are looking to them for help in dealing with modern worries and anxieties.
As I’ve gone deeper into the Stoic canon, I’ve found their principles and techniques suitable today, several thousand years after there formation. Despite the world constantly changing, humans keep on doing human things. The Stoics weren’t interested in debating philosophy for the sake of debate — they saw philosophy as a tool for living. This led them to implement various exercises when confronted with life’s challenges.
In many ways investing is a microcosm of life; the same traits and behaviors that benefit investors also aid people in other areas of life. Thus, even if you don’t consider yourself a Stoic, you may find their techniques helpful when you encounter financial challenges — like managing the stress of a bear market.
Here are six Stoic tools for coping with financial anxiety:
The Dichotomy of Control:
Have you ever shot a bow and arrow? Imagine you’re an archer, out in the woods, hunting deer. You’ve prepared for years, shooting at targets and honing your technique. Finally, after hours of waiting patiently, a massive buck walks from behind the trees and presents itself in the range of your weapon. You focus, notch your arrow, draw your bow, control your breath, aim, and fire. Up until the arrow left the bow, you were in control. But as soon as the arrow is in flight, you are no longer in control. A gust of air could send the arrow off course, or the deer could bolt as his instincts sense danger lurking.
Suppose you miss. It’s easy to be disappointed for missing the target, but you shouldn’t be. Did you do your best until you released the arrow from your bow? Epictetus said, “Make the best use of what is in your power, and take the rest as it happens. Some things are up to us, and some things are not up to us.” This is true of life and markets. You can’t control market fluctuations, inflation, monetary policy, or other variables that impact financial markets.
However, you can control your mindset and your actions. Do your best and take the results with equanimity.
The View From Above:
Think about where you are right now. Now zoom out, imagining a view from above. Imagine what a bird might see from above if flying over the building you’re in right now. Continue to zoom out. People now look the size of ants. Cars and buildings shrink as the perspective becomes more distant. The countryside begins consuming the landscape, like seeing your surroundings from a plane at 10,000 feet in the air. Keep zooming out. Through the clouds, you start to see the roundness of the earth. Zoom out. The earth is now a marble in space. You get the idea — continue to zoom out if you’d like, seeing the galaxy as but a speck in an infinite cosmos.
Taking the view from above reminds us that many things we stress over are trivial in the grand scheme of things. Marcus Aurelius discusses this in his Meditations, at one point paraphrasing Plato:
One who would converse about human beings should look on all things earthly as though from some point far above, upon herds, armies, and agriculture, marriages and divorces, births and deaths, the clamor of law courts, deserted wastes, peoples of every kind, festivals, lamentations, and markets, this intermixture of everything and ordered combination of opposites.
During bouts of market volatility, I often remind myself and my clients to zoom out.
Contemplation of the Sage:
What would a disciplined long-term investor do? Would she try to time the market when she worries? Would she diverge from her plan when the going gets tough?
Posing these questions is similar to the Stoic practice called contemplation of the sage. The Stoics believed we could gain insight into life by thinking about how a sage person might think and act in our circumstances. Author Donald Robertson explained the technique, saying, “carefully consider the qualities you admire most in other people. Then ask yourself how it would affect your own life if you were to genuinely embody more of the same qualities.” - How to Think Like a Roman Emperor
Separating Judgements from Events:
Our minds are busy places. We’re quick to create a narrative about a situation by adding value judgments that can make a false perception of reality.
Epictetus eloquently discussed our value judgments, asserting, “People are not disturbed by things, but by the views, they take of them.” In other words, we have control over how we feel about things.
For example, during a bear market, one might think, “the market is down 35%; I can’t believe this is happening to me; I’m not going to be able to retire.” The Stoics would take things as they are, saying, “the market is down 35%.” They’d omit the personalized fantasy and stick with the facts.
By separating our judgments from events, we can see things for how they are and resist catastrophizing. Additionally, we can make more rational decisions without unnecessary worry.
Postponement of Responses:
We must make some decisions immediately. If a car bolts out in front of you while driving, you don’t have time to contemplate whether or not to hit your brakes — you have to act quickly. But other decisions shouldn’t be made hastily, especially when in a highly emotive state.
We know that money provokes emotions. The Stoics have a lot of thoughts about desire which are worth exploring, but when we get emotional about money, it’s important not to allow those emotions to carry us away.
When feeling worried, angry, or even excited about major financial decisions, a simple technique is to wait until strong emotions and desires have subsided before taking action.
Premeditation of Adversity (praemeditatio malorum):
We get better with practice, but there are some things we cannot practice — but we can get repetitions in our minds through negative visualization. This might sound like something a pessimist would do, but the idea isn’t to worry about the future, only to consider possible adverse events. Seneca said, “Misfortune weighs most heavily on those who expect nothing but good fortune.” In other words, if you expect only good things to happen, any adversity will feel like a catastrophe.
The Stoics take this to the extreme, even visualizing their own death. The idea isn’t to worry or dwell on dying; it’s the opposite. William Irvine explained the benefits, saying negative visualization will “make us appreciate how wonderful it is that we are alive and have the opportunity to fill this day with activity.”
When we negatively visualize a recession, for example, we get two benefits:
More enjoyment during prosperous economic times
Being better prepared when an economic downturn happens
Premeditating adversity reminds us to appreciate what we already have and that things can and will change.
Stoicism was born out of turmoil and chaos, so it makes sense that its principles apply in modern times.
Here are several Stoic quotes I find helpful in dealing with financial hardship:
“Be like a headland of rock against which the waves continually break. It stands fast nevertheless, and around it, the crashing waters come to rest.” — Marcus Aurelius.
“We suffer more often in imagination than in reality.” — Seneca
“If a man knows not to which port he sails, no wind is favorable.” — Seneca
Stoicism is a pragmatic philosophy. You don’t need to consider yourself a Stoic to implement some of their techniques; in fact, many of their ideas have been adopted into psychological therapy (cognitive distancing, for example).
Money occupies a lot of our mindshare (something the Stoics would advise against). It causes stress and anxiety for people across the wealth spectrum. These exercises and techniques aren’t quick fixes or magic bullets, but they have been used for thousands of years to help people deal with misfortune and fortune alike and might be helpful if you find your mind getting the best of you.
Disclaimer: This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for purchase or sale of any security, or investment advisory services. I encourage you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from James Vermillion, and all rights are reserved.
