Practicing Stoicism in Wealth Management
Tuesday, 05 March 2019
No doubt you’re familiar with the word stoic. Perhaps you yourself have been described as such at some point.
But are you familiar with the philosophy of stoicism? The Stoics got their start around 300 B.C.E. More than mere philosophy, Stoicism is a way of life. In fact, the tenets of stoicism have been utilized since the early 21st century with the creation of Cognitive Behavioral Therapy.[i] The main objectives of stoicism are clear judgment, inner calm and freedom from suffering as the ultimate goal.[ii] Since being blessed with 2 daughters, I have realized the importance of inner calm and clear judgment will come in very handy as the teenage years start and “boys” enter the picture. Those who practice stoicism live by four major principles: delaying gratification, controlling emotion, always thinking big picture, and only taking effective action. Looking at those tenets it probably isn’t hard to understand why stoicism and wealth management go so well together.
In this article, we will discuss how bringing in stoic philosophy and practice can help improve your portfolio. The investor and entrepreneur Tim Ferriss said of Stoic philosophy: "[it’s] a simple and immensely practical set of rules for better results with less effort."[i] Stoicism has been a popular practice for the ultra-wealthy and successful for hundreds of years, with contemporary figures like Bill Gates, Bill Clinton and Warren Buffett practicing its philosophies, and historical figures like Ralph Waldo Emerson and Theodore Roosevelt to name a few. So, knowing that how do you get started bringing stoicism into your personal investing style. Each of the four main principles outlined below will open with a quote from the famous Stoic Seneca (4 B.C.E- 65 C.E).
"There is no easy way from the earth to the stars”
Delayed gratification is one of the earliest lessons we learn as a child. Saving allowance to buy a toy. Stretching Halloween candy hauls out over weeks or months. Adopting the philosophy that good things come to those that wait is one of the most important lessons to manage long-term wealth. Being the ant and not the grasshopper. To do this, a good first step is to practice misfortune and visualize the negative. Imagine worst-case scenarios like you lose your job, you become sick, a spouse passes away, etc. Now, problem-solving how you would survive each scenario. Confronting your fears and life devastations can prepare you for the unexpected and also help to prevent it from happening. If a loss of a job could derail your plans, for example, making sure to have enough emergency savings and an updated resume, as well as improving your skills may safeguard against that. The more you anticipate and prepare for negative outcomes, the less likely you are to be knocked down by them. The last tenant of delayed gratification is to remain humble, even and especially through your successes. Life can be mercurial and through practicing misfortune and negative scenarios, you can learn to be grateful for your personal successes. As Warren Buffett said: "The difference between successful people and really successful people is that really successful people say no to almost everything."[ii]
“We suffer more often in imagination than in reality”
The goal of stoicism isn’t to become a robot or statue, with no emotion, but instead to practice controlled emotion. In finance, that would mean avoiding reacting from an irrational place. The goal is to alter your perception away from things being good or bad. Negative events can often be learning experiences and create new opportunities, for example. Approaching all life events as just checkpoints and moments in a long life and endeavoring to learn from them, is the goal. Keeping thorough documentation, journaling and meticulous notes and accounts can help work through the more challenging feelings, and also provide a record of the past to learn from. Giving yourself space to be brutally honest may also bring about breakthroughs and course corrections.
Think Big Picture
“As is a tale, so is life: not how long it is, but how good it is, is what matters.”
Big Picture thinking is a major tenet of stoicism. This is especially true for long-term investment and acquiring wealth, as those are long games, not sprints. Markets rise and fall day-to-day, politics and world events happen. Adopting a long view and avoiding giving good or bad labels to moments and learning to adapt and roll with things. Practicing humility when positive events happen and positivity when facing the negative. As mentioned above, keeping journals and accurate records and being able to chronicle your lifetimes, in this case, finances, can help you see that a few losses over a lifetime are not the end of the world. By practicing misfortune and negative scenarios you can also rest easy knowing that even in the face of your worst-case, that you could survive it and overcome it. Knowing any challenge can be overcome gives peace of mind and a more expansive and bigger-picture philosophy that helps combat stress and worry. Being present is also very important, life is long, but each moment is valuable.
Take Effective Action
“Luck is what happens when preparation meets opportunity.”
The above three principles are very cerebral. Thinking and planning, reflecting and pontificating. The last principle is about taking effective action. Stoicism wants you to focus on the aspects of life that you can control and not be mired in that which you can’t. Having practiced misfortune and negative events, you can now make more decisive choices. The measure twice, cut once, approach to life. Avoiding acting on impulse or in an emotional and possibly irrational way is the key to practice stoicism. Only acting once you have assessed the situation, from all sides, looked at the myriad possibilities and found the one which you think will be most advantageous. Then you act. Documenting the process allows you to reflect on the choice and learn from the situation for the future. Since a large number of investment losses are due to hasty buying and selling[iii], learning to sit back and take a beat, can be a more financially sound tactic.
Practical Lessons for Everyone
The thing you've probably realized is that stoicism is a very practical philosophy. Delaying gratification is essential to save and invest. Like planting a seed and waiting for it to grow. Every late spring when starting our garden, I remind my daughters that the tomatoes take time to grow (and to taste so good!) so be patient as July approaches. Learning to avoid acting emotionally and to play out worst-case scenarios helps prepare you for the harder moments in life. Remembering that your life is long and filled with many opportunities can help you keep a big-picture mentality. Ideally adopting those basic practices will help you make smarter and more well-thought-out actions in your life. It will also help you learn from the stumbles and failures. Ideally, bringing a stoic mindset to your wealth management will leave you with less regret and less overall stress about the path you are on.
About the Author
I am a life-long MA native and live in Andover with my wife Nadine and 2 daughters Elisia and Calia. When I'm not in the office, I keep busy helping assistant coach Elisia’s basketball team, watching Calia at gymnastics and dance and enjoy a night out on the town with Nadine following some of our favorite DJs and bands who play the soul, disco and R&B that we love cutting a rug to.