Hot Stock Tips from a Roman Emperor
Stoicism is a practical philosophy that aims to help us live well. As Stoics, we learn to focus on what is within our control. We ask ourselves, "What can we do to create a good life, no matter the circumstances we find ourselves in? What is required of us as human beings and what prevents us from living up to our full potential?" These questions could not be more pertinent to investing and meeting our financial goals. How to Meet the Markets
We can reflect on the markets with a general reflection used by the Roman Emperor, Marcus Aurelius, a Stoic, on “how to meet the morning”:
“Begin each day by telling yourself: Today I will be meeting with interference, ingratitude, insolence, disloyalty, ill-will, and selfishness--all of them due to the offenders' ignorance of what is good and what is evil.”
We can view this Aurelius quote as, “people are jerks, let’s be prepared.” Since he mentions ingratitude, insolence and ill-will as being non-Stoic, we can infer that Aurelius wouldn’t be a jerk to a jerk. Instead he is embracing the world as it truly is, so he can act meaningfully within it. The Stoics are quick to point out that bad actions come from bad thinking, or in Aurelius’ terms “ignorance of good and evil”. Let’s put this into investing and financial terms:
Begin investing by telling yourself: every day I will be meeting with irrationality, volatility, exhilaration, pain, desperation and liveliness – all of them due to the offenders’ ignorance of what is speculation and what is investing.
How can we act meaningfully within such an environment? We can start by accepting the reality of financial markets, instead of being a jerk to the market simply because the market is a jerk to us. Yes – the market is a real jerk! The market definitely doesn’t care about us at all. It doesn’t care about our feelings or if we reach our financial goals. It doesn’t care if we have food on the table for dinner, a bed to sleep in or clean water to drink. We can be a total jerk back to the market by telling it that we will beat it, but most of the time this simply does not work. In fact, the more we act like a jerk to the market, the more likely it is that we will not reach our goals. Instead, we need to act consistently, taking actions that allow us to flourish. We need to accept that the market fluctuates over time, rather than growing angry or becoming nervous. We also need to make sure we set attainable goals and invest accordingly to meet them.
The Stoics teach us to control that which is within our control and relinquish that which we are powerless to change. We have full control over setting our financial goals, prioritizing them, and investing for them to make sure we accomplish them. Here are some examples:
Our goals dictate our time horizon and our time horizon dictates how we invest. Therefore, the latest hot stock or “once in a lifetime opportunity” is simply not relevant to us. We control our goals; we don’t let our temptations control us.
Stoic Doesn’t Mean Unemotional
The Stoic path is not one of emotional repression. Stoics expect a life well lived to result in tranquility and joy. Stoics experience emotions, they just don’t believe they owe them a lot. For example, they don’t expect emotions to be good guides for behavior. They’re better treated like the weather. When it snows, we take out the shovels, wear warmer clothing and drive more carefully, but we don’t take the day off from work. The same goes for emotional storms. We wouldn’t be get angry at someone just because it’s cold out, just as we shouldn’t throw our long term goals to the wind just because Mr. Market causes us a little pain or fear.
Control in the Face of Bad News
“News, on any subject, never falls within the sphere of the moral purpose. Can anyone bring you word that you have been wrong in an assumption or in a desire?—By no means.—But he can bring you word that someone is dead. Very well, what is that to you? That someone is speaking ill of you. Very well, what is that to you? That your father is making certain preparations. Against whom? Surely not against your moral purpose, is it? Why, how can he? But against your paltry body, against your paltry possessions; you are safe, it is not against you.” – Epictetus, Discourses
Essentially, Epictetus is saying: yes, something in the world is happening. It could mean the loss of possessions or physical comforts. But what about the situation can force you to act less than your best? The Stoics teach us what really matters isn’t what happens to the world, but how we respond to what happens to the world.
Applying this to finance, the first quarter of 2016 saw a volatile market. Despite this, the S&P 500 returned 1.35%, including dividends. Yet we saw the following headlines:
“The market has lost its leaders. Expect more pain: BofA” – CNBC, February 12th, 2016
“Banks drag Wall Street lower as growth fears, rate outlook weigh” – Reuters, February 11th, 2016
“Brace Yourself, Global Stocks Are Close to a Bear Market” – Bloomberg, February 8th, 2016
The S&P 500 fell from $2,104.27 on December 2nd and hit a low of $1,810.10 on February 8th. If we listened to the information released by the media (outside of our control), we would have missed a 14% rebound, plus a dividend. We have no control over the path returns take nor investment outcomes, but we do have control over how we react to the market’s movements. Like I said, the market is a jerk. It took huge swings to return a paltry 1.35%, all while forcing speculators to lose their lunches. It’s important to remember: Mr. Market’s actions are not against our moral purpose. We have the freedom and the will to respond in a rational way and be our best selves. The market’s movements are not a personal assault. Its movements simply exist. It doesn’t matter what path the market takes or where it ends up. What does matter is that we act in our own best interests by saving, investing and letting our money compound over a long period of time. Let the headlines be someone else’s problem, while we are busy dealing with the things we can actually control.
Maybe CNBC, Reuters and Bloomberg should make Marcus Aurelius proud with their next headline: “Market Moved? Didn’t Notice!”
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