Why Stoics Are Better Investors

The principles of Stoicism offer a timeless and robust framework for becoming a better investor.

Stoicism originated in ancient Greece around the 3rd century BCE (over 2000 years ago). The term "Stoicism" is derived from the Greek word "Stoa," which refers to the painted colonnade or porch in Athens where the founder of Stoicism, Zeno of Citium, used to teach. The Stoa Poikile, or Painted Porch, served as a gathering place for philosophers and thinkers, and it was here that the Stoic school of thought began to take shape.

Stoicism is a philosophy of personal ethics that emphasizes virtue, wisdom, and resilience in adversity. While it may seem unrelated to modern investing, Stoicism and sound investment practices share common ground.

Here’s why Stoics are better investors.

Fundamental principles

Stoicism's enduring appeal lies in its practical approach to living a virtuous life and achieving tranquility. Stoicism is not overly concerned with abstract metaphysical concepts.  It focuses on the development of character and the cultivation of a resilient mindset.

Focus on What You Can Control

One of the central tenets of Stoicism is that we should focus our energy and attention on things we can control and accept those we cannot.

Here’s a wise insight from Epictetus, an ancient Greek philosopher born around 55 CE. He was born into slavery but gained his freedom and went on to become a prominent Stoic philosopher known for his practical teachings on ethics, resilience, and inner freedom: "Happiness and freedom begin with a clear understanding of one principle: Some things are within our control, and some things are not."

Many factors are beyond our control in the financial markets, like economic downturns, geopolitical events, and market sentiment.

Successful investors recognize these external factors and concentrate on areas they can control, like asset allocation, low costs and fees, and global diversification.

Stoics Control Emotions

Emotional reactions can be the downfall of investors. Fear and greed (often encouraged by irresponsible financial media) drive impulsive decisions that may lead to poor outcomes.

Stoicism encourages cultivating emotional resilience and maintaining a rational mindset, even in adversity. Epictetus famously said, "It's not what happens to you, but how you react to it that matters" and “People are not disturbed by things, but by the view they take of them."

Investors who embrace Stoic principles are less likely to make rash decisions based on fear or euphoria. They approach market fluctuations with equanimity and make investment choices guided by reason and discipline.

This emotional detachment allows for more rational and consistent decision-making, essential for long-term success in the financial markets.

Simplicity and Virtue

Responsible investing isn’t complex or time-consuming. Some of the most successful investment strategies are simple, easy to implement, and require minimal effort.

Stoicism promotes a similar simplicity in life, emphasizing the pursuit of virtue and wisdom over material wealth.

The Stoic principle of simplicity aligns with sound investment practices like "buy and hold." This strategy involves broadly diversified low-fee exchange-traded funds that track a global index of stocks, regardless of short-term market fluctuations. It minimizes transaction costs and capitalizes on the power of compounding.

Stoicism also encourages us to live within our means and avoid unnecessary extravagance. This frugal mindset is consistent with basic principles of sound investing: regular savings and keeping investing costs low.

Acceptance of Outcomes

Stoicism teaches us to accept the outcomes of our actions, whether favorable or unfavorable. In investing, there are no guarantees of success, and losses are an inherent part of the journey. Stoic investors approach gains and losses with equanimity, understanding that they have done their best based on available information.

As Epictetus counseled: "Make the best use of what is in your power, and take the rest as it happens."

By accepting the uncertainties of the financial markets, Stoic investors avoid the destructive cycle of regret and recrimination. They use their experience as an opportunity for personal growth and improvement. This resilience and adaptability are valuable traits for navigating the volatile world of investments.

The Stoic Perspective

Stoicism encourages us to be prepared for an uncertain future, but not to be overwhelmed with anxiety about it. Here’s what Seneca, one of the most important Stoic philosophers, said:

“It is likely that some troubles will befall us; but it is not a present fact. How often has the unexpected happened! How often has the expected never come to pass! And even though it is ordained to be, what does it avail to run out to meet your suffering? You will suffer soon enough, when it arrives.”

Successful investors adopt this mindset. They understand financial markets are subject to short-term fluctuations but tend to appreciate over time.  They don’t obsess over events that may not come to pass.  

Stoic investors ignore short-term market fluctuations.  They remain invested for the long term.

Final Thoughts

Stoicism teaches that good investing, like a virtuous life, is built on fundamental principles that withstand the test of time. It reminds us that simplicity, discipline, and rationality are potent allies in pursuing financial well-being.

Whether you're a seasoned investor or just starting on your financial journey, consider embracing the wisdom of Stoics.

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