Stoicism is a great discipline for investors in these uncertain times
The Coronavirus pandemic has led to a huge increase in uncertainty in our lives. At the moment, we have no answers to questions such as: How long will the pandemic last? What will be the extent of the hit to the economy, to our livelihoods, to businesses and to our investments? And so on and so forth. The virus is a bolt from the blue and it is entirely understandable that our first reaction has been panic.
Perhaps more importantly, since the outcome of this pandemic is not in our hands, all we can do is control our reactions, our minds. True, that is easily said than done, but there are ways of thinking that can help get us through this valley of darkness.
Stoicism, for example, is known for its teaching of virtue and virtuous living. A Stoic is someone who is indifferent to emotions such as grief, pain, pleasure or joy. The ancient philosophy of Stoicism was developed in 301 BC by Zeno of Phoenicia in Athens, Greece, was followed from the emperors of Rome like Marcus Aurelius and philosophers such as Seneca, Epictetus to modern writers like Ryan Holiday, Tim Ferriss and many others. Here are some of the principles of this philosophy, which can help investors stay calm and unruffled through the violent ups and downs in their lives as well as their investments:
1) Change what you can. Accept what you can't. As the famous Stoic philosopher Epictetus said, "Just keep in mind: the more we value things outside our control, the less control we have."
As investors few of us have expert knowledge about the world economy and the impact of events such as the Coronavirus and other issues that the world is grappling with. But we certainly have control on things that we know about and we can avoid greed and fear and decide to dispense with predictions about things we know little about. Warren Buffett in his latest letter to shareholders said, "Forecasting interest rates has never been our game. Charlie and I have no idea what rates will average over the next year, or ten or thirty years. Pundits who opine reveal by that very behavior far more about themselves than they reveal about the future"
Buffett was making a point about why predicting macros is a waste. In the same letter he stressed that anything can happen to stock prices but investors who do not borrow and can control emotions will do much better in the long run.
2) Being calm and balanced regardless of external situations. Like markets, volatility and stress in investors mind could cause lot of damages. Decisions made in times of stress accompanied by other emotions such as anger could be biased and lead to poor judgement. The stoic wisdom, instead, guides us to calm down, accept our mistakes, learn from them and move on. The other important tool is to shift focus on the big picture, which could help our present problems look tiny on a relative basis. To take an example, think of the migrant labourers with nothing to eat who are making journeys of hundreds of miles on foot and thank Providence that you are not in their shoes.
Stoic teaching says, if one takes the mile-high view from above everything else will look small and it’s gives a proper perspective to things. As the philosopher Marcus Aurelius said, “If you are distressed by anything external, the pain is not due to the thing itself, but to your estimate of it; and this you have the power to revoke at any moment.”
3) Speak little, speak well and listen more: The world is afraid and investors are not spared. In fact they have many reasons to worry, watching the value of their holdings fall with every passing day. In times like these the level of social noise increases and everyone wants to speak. Contrary to this, stoicism teaches us silence.
As Epictetus said, "Keep silence for the most part, and speak only when you must, and then briefly." When we speak less, we have reasons to listen or read good things and think more of what is right instead of getting trapped in the noise. As investors when we are silent we can escape the noise and use this opportunity to ask right questions.
4) Grow Wiser each Passing Day: Each situation comes with a unique experience and it could be a huge mistake to not learn from them. For instance, in the present situation, think what mistakes we made? What went wrong and what could be learned? For example, the current crisis shows us that we were foolish to ignore investment in our health services and it must teach us to demand that governments spend more on healthcare in future.
As the great investor and thinker Charlie Munger says, "All I want to know is where I'm going to die so I'll never go there."
We can write down our investment mistakes, such as investing in stocks where we as investors had no real knowledge and advantage, and learn from others to form a list of investment mistakes which could be used in future as an investment checklist.
5) Be in tune with nature: Many people admire stoicism for the simple reason that it is simple, basic and based on nature. The stoic values emphasis on living in harmony with the nature. Similarly, if we understand what is the basic nature of the market and investing we can adopt its behaviour and use volatility to profit. Benjamin Graham, the father of value investing, coined the word Mr. Market. He is often quoted saying, "Mr. Market’s job is to provide you with prices; your job is to decide whether it is to your advantage to act on them. You do not have to trade with him just because he constantly begs you to."
Warren Buffett, the student of Graham, perfectly describes it further: “Mr. Market is kind of a drunken psycho. Some days he gets very enthused, some days he gets very depressed. And when he gets really enthused you sell to him, and if he gets depressed, you buy from him. There’s no moral taint attached to that.”
Understanding the basic of the market and its nature and acting accordingly is the most important thing, which many investors miss due to market noise.
6) Be in the present: The Stoic teaching of being in the present allows us to be aware and remain grounded. We can ask the right questions and make better judgments.
The famous Greek philosopher Seneca once said, "We suffer more in imagination then in reality."
Being in the present is constantly monitoring our thoughts in order to make better judgments in times of excessive fear and greed in the market. Like in a boom, in periods of gloom and burst investors tend to compound the near-term problems. They worry that the consequences will be long-term and fear the corresponding pain.
7) This too shall pass: Stoic belief suggests that pain and hardship are part of nature. And as humans, we are not special. Good or bad things will happen randomly to everyone. The best way is to prepare for hardship. Similarly it is in the nature of the market to reflect on random events. It has frequently demonstrated a tendency to bring good or bad things at regular intervals to cause boom and burst cycles and periodically bring chaos in the markets.
Renowned organizations such Netflix and Facebook which value risk as key factor in determining sustainability have this concept called chaos monkey whose job is to randomly cause disruptions within the system to constantly check the reliability of the system from the external and internal shocks. Similarly, it is worth checking the quality of stocks and reliability of portfolios to prepare for the worst. Like Graham said, investors who build a margin of safety which is good enough to take care of our mistakes and shocks in the market, have a huge advantage in the long run.
And finally, stoicism teaches us that time is a great healer.
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