Ancient Wisdom for Modern Markets - How To Be A Stoic Investor

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After decades in the markets, I have witnessed the full spectrum of investment behavior. I have seen talented traders destroy their accounts chasing momentum and watched prestigious fund managers devastate their investors' portfolios because they could not master their emotions. Through these years of observation and participation, one thing has become crystal clear: the ancient Stoics understood more about successful investing than most modern market participants – they just did not know they were writing about it.

Here is a fundamental truth about markets that you will not hear discussed on financial television: markets will behave according to their own nature, entirely independent of our wishes or analysis. This aligns precisely with the Stoic philosophy of focusing on what lies within our control and accepting what does not. Marcus Aurelius was not analyzing market patterns, but his principles apply perfectly to modern investment challenges.

As a dedicated value investor, I seek opportunities to acquire assets at significant discounts to their intrinsic worth. However, the investment universe offers multiple paths to profitability, and trend following shares more commonality with value investing than most practitioners of either discipline realize. Both approaches demand the increasingly rare qualities of patience and emotional discipline.

Benjamin Graham is best known as the founder of value investing. His students and employees included giants such as Warren Buffett, Walter Schloss, and Irving Kahn.

In 1971, a young Merrill Lynch broker met retired Ben Graham as a Los Angeles, California walk-in account. The broker studied with Graham and took a class in Security Analysis he taught at UCLA.

The broker adopted Graham's value-oriented philosophy and went on to found Brandes Investment Partners, a giant global investing firm.

The students of Graham and their students and employees have created staggering sums of wealth for investors. Those who have the attitude and discipline to apply Graham's concepts today do very well.

As brilliant an investor as he was, most people do not realize that a love of philosophy and literature shaped Graham's intellect. His memoirs are full of references to Baudelaire, Homer, Kant, Bacon, Euripides, and other literary and philosophical greats.

What set Graham apart was his pursuit of "intellectual independence." This was not just about having enough money to think freely – though that was part of it. Instead, it was about developing the capacity to stand apart from the crowd, to think critically when others were swept up in emotion, and to maintain perspective when others lost their bearings.

This intellectual independence was built on three pillars:

First, a deep understanding of human nature gleaned from literature and philosophy. Graham knew that market movements were ultimately driven by human emotions and behaviors that had remained consistent throughout history.

Second, a multidisciplinary approach to knowledge. By studying across fields, Graham developed the ability to see patterns and connections that others missed. He understood that the truth rarely resided in any single discipline.

Third, an ethical framework derived from philosophical study. His investment approach wasn't just about making money; it was about doing so in a way that contributed positively to society while maintaining personal integrity.

Let's examine trend following, which often suffers from misconceptions. The reality of professional trend following bears little resemblance to the frenetic trading often associated with it. True trend following operates as a methodical, systematic approach: identify established trends, enter with precise position sizing, and maintain the position until definitive exit signals appear. It's methodical, disciplined, and effective – precisely the attributes the Stoics advocated.

In the trend-following world, Ed Seykota stands as a towering figure not because he made it complicated but because he understood just how simple it needed to be. After spending considerable time studying his methods and results, I can tell you that his genius lies not in complex algorithms but in his unwavering commitment to systematic trading and psychological discipline.

While Seykota might not explicitly cite Marcus Aurelius or Seneca in his trading philosophy, his approach to markets bears striking parallels to Stoic principles. Having studied both trend following and Stoic philosophy, I have found that understanding these connections can deepen our grasp of both trading and personal development.

Seykota does not frequently directly reference Stoic philosophers, but there are clear parallels between his philosophies and Stoic principles.

For example, the Stoic principle of "Amor Fati" (love of fate) resonates with Seykota's belief in accepting market conditions and adapting accordingly. Similarly, his emphasis on self-awareness and personal responsibility mirrors Epictetus's teachings that we control our actions and reactions, not external events.

His famous line, "Everybody gets what they want out of the market," also echoes a Stoic-like view: our inner desires and motivations shape our experiences and outcomes, a perspective shared by Marcus Aurelius and other Stoics who emphasized the importance of aligning our desires with reality.

Value investing, my primary focus, embodies Stoic principles in their purest form. While others panic during market corrections or chase overvalued growth stories, value investors methodically evaluate banks trading below book value and overlooked industrial companies with strong fundamentals. We are not attempting to predict market movements or catch falling knives – we are identifying objective value and exercising patience.

The convergence of these approaches with Stoic philosophy centers on the elimination of ego from the investment process. Trend followers accept market reality without argument. Value investors allow time and market mechanics to validate their analysis. Both approaches would earn the approval of Epictetus and his philosophical colleagues.

The critical element that binds these approaches? Position sizing and risk management. Regardless of your primary strategy, appropriate position sizing remains essential for survival and success. The Stoics understood this principle of preparation better than many contemporary portfolio managers, recognizing that preparing for adverse scenarios represents prudence rather than pessimism.

Replacing emotion with the grounding principles of Stoic philosophy can make us better investors and traders (if you must).

Maintain a detailed investment journal. Document your investment thesis for each position and your emotional responses to market movements. The Stoic emphasis on self-reflection finds no better practical application than in the systematic recording of investment decisions and their outcomes.

Develop and adhere to a robust investment system. Whether you choose trend following, value investing, or a strategic combination, establish clear parameters and maintain the discipline to follow them consistently. Seneca would recognize the importance of establishing and maintaining sound principles.

Above all, prioritize capital preservation. This fundamental principle often gets obscured during bull markets when speculation runs rampant. The Stoics recognized that preserving financial and emotional resources provides the foundation for long-term success.

That sounds a lot like a margin of safety to me.

Markets operate independently of individual opinions, biases, or desires. The more thoroughly you internalize this reality, the better positioned you become to achieve consistent profitability.

The ancient Stoics identified enduring principles that apply directly to modern investment challenges. By controlling the controllable, accepting market realities, and thoroughly preparing for adverse scenarios, investors can position themselves to profit from market opportunities while maintaining emotional equilibrium.

Markets inevitably teach humility. You can acquire this understanding voluntarily through studied application of Stoic principles or learn it through costly experience. The philosophical approach, while demanding, proves far more profitable in the long run.

The integration of Stoic philosophy with sound investment principles offers more than academic interest—it provides a practical framework for navigating market challenges while maintaining profitability and peace of mind. In today's increasingly volatile markets, these timeless principles become more relevant than ever.

For a quick guide on how to accomplish that, check out our Big Five REITs free special report.