Investing can be complex, but Stoic Investing can help navigate it effectively. Stoicism is a philosophy that has been practised globally for thousands of years. At its core, it teaches us to focus on what we can control and accept what we cannot. This approach is particularly useful for investors, as it helps us to manage our emotions and cultivate discipline.

TABLE OF CONTENTS:

An intro to Stoic Investing.

Looking back at all the greatest investors over the last 100 years the majority have displayed almost all the disciplines and principles of Stoicism. Having a handle on our emotions is the biggest underutilised edge we can create.

The website logo of a market fluctuation and a Stoic observing it calmly represents how we should approach the markets. To be Stoics, we must accept that there are external factors beyond our control. We can analyse and predict, but we cannot eliminate chance. However, a correct mindset, independence, and emotional discipline can help us succeed in investing.

Below is an illustration of the impact that behaviour has on the outcome. We believe all our additional efforts, skills, and forecasting capabilities have a much bigger role on the outcome.

Stoic Investing involves prioritising long-term growth over short-term gains, avoiding risky investments, and acknowledging that investing has uncontrollable factors.

Controlling our emotions is crucial to the wealth process. Applying Stoic principles to investing can provide significant benefits. I have compiled a list of ideas generated from the practice of Stoicism that I believe can help all investors implement new frames of thought.

Stoic Investing is knowing what’s outside your control.

The Stoic Investors know what lies outside of their control, such as knowing they cannot predict the future, so they don’t apply energy to try and guess. They know market crashes happen, and “Black Swans” occur. The logical investor understands the symmetric and asymmetric risks associated with the stock market. More importantly, they understand what lies in the circle of their control and what they have no handle on.

Irrational thinking investors believe certain occurrences lie within their control. However just like the phrase goes, “it’s what you think you know for sure, that gets you into trouble”, it’s no different here. Investors place a lot of emphasis on areas that they believe they can either analyse, predict, or minimise risk when in fact they have no control over what happens.

Rather than allocating efforts to what is within their control, it is spent often “ruminating” about hypotheticals. Simply understanding what lies outside of your control as an investor can reduce a lot of anxiety and emotional disruption.

Areas outside an investors control:

• Market fluctuations and sell-offs.
• Recessions, rising interest rates, inflation.
• Volatility in their portfolio.
• A large holding releasing negative news.
• Negative analysis and media reports.
• Opinions of other investors and analysis.
• A competitor coming along and wiping your idea out.
• Someone not buying your shares at your price.

Invert with “Premeditatio Malorum”.

Ancient philosophers were early practitioners of inversion and second-order thinking. The practice of “Premeditatio Malorum” which translates to a “Premeditation of evils” is a great way to look ahead and think about what could go wrong, and then accept those emotions.

The ancient Stoics would use this in a rather depressing (yet very helpful) manner to meditate on death, the uncertainties of life, and severe hardship. I believe, to bring things into perspective. It would help them to be grateful and appreciate where they are now with who is around them. It was a preparation of their minds for inevitable hardship when and if it comes.

As stoic investors, I believe envisioning the negatives, and worst-case scenarios on companies and inverting using this premeditation of evils can be very helpful. Rather than thinking about all the gains, consider the losses, and run through those emotions. It is a great safety check too, if losing that amount makes you feel sick even at the thought, perhaps you’re risking too much. Or perhaps on the inverse too little?

I use this thought process often when evaluating new companies, I don’t think of the growth or the gains, I envision the company going to ZERO, and what could cause it to do so. I use it as a check to my emotions, would I be emotionally affected by a big loss like this?

Imagining the worst possible scenarios ahead of time can allow investors to overcome their fears and help make calmer decisions. Most investors focus on achieving multi-baggers; Stoic Investors, invert, and think about how they would handle losses.

What would it look like if it all came crashing down? Am I prepared?

Develop resilience and accept your fate.

Resilience is crucial when it comes to investing. Losses are inevitable, any long-term investor who has a handle on their emotions will tell you about the losses, the ones that got away, the signs they missed. They were resilient enough to get back up and keep on moving forward.

The definition of resilience is the capacity to withstand or to recover quickly from difficulties. The Stoics practised resilience and accepting their fate. Understanding they could not control or change what’s happened. A lot of investors that take substantial losses, or first-timers often don’t come back to the markets.  

Stoic Investing is about acknowledging that life is unpredictable and hard times will come. When they do come, when those losses happen, accept it. Resilience is about getting back up and staying the course regardless. Taking a loss sucks, there is little investors can do to completely switch off the emotions towards loss.

When I take a loss now, I accept it, I do have a whinge of course and then the next day I bounce back, move forward recalibrate and start again. I accept losses happen, I accept I get it wrong; I accept you can do all you can and still take a hit.

Resilience is about never quitting, being in it for the long term being grateful for the winners and reflecting on the losers.

Stoic Investing focuses on what you CAN control.

Stoic investing is about directing your energy toward the aspects you can influence, you can make more rational decisions and avoid unnecessary stress. Your behaviour is largely within your control, and the way you react is within your control. Other elements that are within your control should be prioritised. You can control what you allow in by filtering out the noise and abundance of information. If it is within your control then why worry?

Rather than spending all your energy on what lies outside of your control, like defending your idea to a user on a forum hoping they see your intelligence, focus on your lane. You have control and the ability to think independently. To control your investment strategy, control a methodical and careful process. You can control how disciplined and patient you are.

When I look at what I can control the investing journey becomes clearer. I block out 99% of the noise from market news to what other investors are doing. I am focused on my process, what I am looking for and what remains in my control. Whether it is research, analysis, or my reactions to certain outcomes I am always thinking, can I control this? If the answer is no, then why deploy energy to it? I don’t always get this right but it does help.

Not driven by impulse but rational thinking.

Impulses crush investors. I’ve heard many stories (admittedly including many of my own) about impulsive decisions that turned out to be massive flops. The striking gold stories are far and few in between. Impulsive buying based on the fear of missing out, impulsive selling on the back of the slightest negative noise. Today short-termism investors move in and out of the markets irrationally on impulse.

Impulsive; acting or done without forethought. That sounds like 95% of the behaviour that drives stock markets. Stoics were aware of the impact of impulsive behaviour and how irrational thinking usually always creates poor outcomes.

Impulsive investing often leads to buying high and selling low. Rushed research and first-order decision-making. Investors process information quickly and badly, which leads to poor decisions. Sometimes they work out and large gains are made but investing based on feelings is hard to replicate without a sound fundamental approach.

Rational thinking can counter impulsive behaviour. Understanding what you own, the fundamentals of the business, and your investing strategy and philosophy, can help avoid impulsive buy and sell decisions. Rather than getting caught up in the impulse of the herd, think rationally, is this euphoria or this there something behind it?

Detachment from not only wealth but ideas.

The practice of detachment was another idea that the ancient Stoics used to not get too comfortable with their belongings. They practised frugal living, eating plain and minimal food to detach from the niceties and creature comforts of life.

I believe detachment has a place in investing. Not falling in love with companies, and ideas and then avoiding the warning signs when it was time to get out. We are not made up of our holdings, like wealth, it is a tool. Our portfolios and holdings are not our lives. It is helping us to create wealth and achieve objectives.

I’ve witnessed many investors fall in love with the idea, a business, a theme, a concept, and it led to them going down with the ship. When I was building companies, I never fell in love with the idea, the brand the service. I detached, as much as I could so I could think logically.

Getting too caught up in rebalancing, investing styles, strategies, or intellectually stimulating forecasting can stop us from seeing the bigger picture. Detach from monthly returns, 0.1% position sizing, alpha, beta, CAPM, and return on this ratio and that ratio. Detaching from it all can help to see if your goals are being met. Is your portfolio growing?  

I admit I too get caught up in the world of investing…I love it! It’s a challenging yet rewarding passion. Sometimes I have to remind myself to detach, step back, consider why I started and what I am aiming at.

Like Charlie Munger says, “A year without killing your best-loved idea, is wasted”. Detach from the emotions of it all.

Lifelong awareness, self-examination and learning.

The Stoics always encouraged life-long learning, continuous self-awareness, and examination all to improve and be the very best they can be. Developing a Stoic Mindset along the lines of “I either succeed or I learn, but never fail”. The Stoics knew the journey to wisdom was over a lifetime. There is no rush to become a master investor, it will take a lifetime and we will still not know everything there is to know.

Stoicism focuses on us, our minds, honest awareness, and reflection. It pushes us to evolve, adapt and never rely on what got us to one place. Investing is no different, we must cultivate the discipline of lifelong learning and self-examination. Stretching our thinking, consider the possibilities, and look at it from all angles. Learn from everything. Failure is just a perspective, if we learn from failures, we become wiser over time.

Rather than debate which investment style is right, and which is wrong and poke holes at the ones who don’t align with your ideologies, focus on yourself. I am always open to being wrong, I don’t try to be the smartest in the room, I want to improve, to be better than I was yesterday.

This was what drew me to practicing Stoicism, it was the inward focus by self-examination rather than ignoring your faults by highlighting others. Being a life-long learner is Stoic Investing.

In Summary…

Investing is a complex process that requires a lot of skill and knowledge. However, Stoic Investing is a different approach that considers the things that you can and can’t control in order to create an edge over other investors. It involves focusing on the right areas, prioritising wiser decision-making, disciplined execution, and a commitment to self-examination and improvement.

Stoic investing is about being prepared for both good and bad outcomes. It means accepting losses as an inevitable part of the investment process, while seeking to minimise them through logical thinking. By adopting a Stoic approach, investors can become more resilient when markets fluctuate and keep their composure when things don’t go to plan.

To be successful in Stoic Investing, it is essential to understand the nature of cycles, markets, and investor psychology. By doing so, investors can see the opportunities that arise from these factors and make more informed decisions. With a calm and rational approach that is backed by fundamentals and a long-term perspective, investors can avoid being swayed by impulsive decisions and achieve greater success.