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Investing principle: Stoic Investing

ICICIdirect 9 Mins 05 Jul 2023

We often read stories of people doubling their money in a short period by investing in high-risk options. Such stories make us wonder - how easy it is to make money? However, you might get lucky only once, and wealth cannot be created by getting lucky. It is a process. Like any other process, wealth creation takes time.

One of the main reasons most investors are unable to create wealth is because they are unable to control their emotions. Many successful investors have been using the Stoicism philosophy to manage their emotions. In this article, we will understand Stoic Investing so you can apply it in your financial journey.

Understanding Stoic Investing

Stoic investing refers to an investment philosophy that draws inspiration from Stoicism. He was an ancient Greek philosopher. Stoicism emphasizes the importance of focusing on what is within our control and accepting the things that are not. It encourages individuals to cultivate virtue, rationality, and emotional resilience to lead a fulfilling life.

In investing context, stoic investing applies these principles to the decision-making process and investors' mindset. It advocates for adopting a long-term perspective, maintaining emotional discipline, and focusing on factors that can be controlled rather than getting overwhelmed by short-term market fluctuations and external events.

Stoics' view on money

We would also like to share the Stoics' view on money - it is deep and highly relevant for today's time. The Stoics had a unique perspective on money and wealth. While they recognized the practical necessity of money in daily life, they viewed it as indifferent to true happiness and moral virtue. According to Stoic philosophy, true happiness, and fulfillment were not dependent on external possessions or wealth but on cultivating wisdom, virtue, and living in accordance with nature.

The Stoics believed that external things, such as money and material possessions, were neither good nor bad in themselves but rather indifferent. They argued that it was the individual's attitude and use of money that determined its moral value. The key was to maintain an attitude of detachment and not become excessively attached to wealth or possessions.

Principles of Stoic Investing

Let us better understand Stoic investing by looking at its crucial principles: 

Focus on the things you can control: In investing, many factors are beyond your control, such as market fluctuations and economic conditions. Stoic investing encourages you to focus on factors within your control, such as your investment strategy, asset allocation, and risk management. By directing your energy toward the aspects you can influence, you can make more rational decisions and avoid unnecessary stress.

Maintain emotional detachment: Stoicism emphasizes the importance of emotional resilience and detachment from external events. It means avoiding emotional reactions to market fluctuations, such as panic selling during market downturns or chasing after speculative investment trends driven by fear of missing out (FOMO). Stoic investors aim to maintain a calm and rational mindset, making decisions based on long-term principles rather than short-term emotions.

Embrace market volatility as an opportunity: Stoic investing recognizes that market volatility is an inherent part of investing. Rather than being fearful of market downturns, stoic investors view them as opportunities to buy assets at discounted prices. They understand that market fluctuations are temporary and that over the long run, well-diversified portfolios tend to grow in value.

Focus on intrinsic value: Stoic investors prioritize the intrinsic value of investments over short-term market trends. They seek to understand the underlying fundamentals of companies or assets they invest in and make decisions based on long-term prospects rather than short-term market sentiment. By focusing on intrinsic value, stoic investors aim to make more rational and informed investment choices.

Accept the uncertainty of outcomes: Stoicism teaches acceptance of the things that are beyond our control. In investing, this means acknowledging that there is inherent uncertainty in predicting market movements and investment outcomes. Stoic investors recognize that despite their best efforts and research, there will always be an element of unpredictability. By accepting this uncertainty, they can maintain a balanced perspective and avoid excessive attachment to specific investment outcomes.

Cultivate discipline and patience: Stoic investing emphasizes discipline and patience. It encourages investors to stick to their long-term investment plans, avoid impulsive decisions, and resist the temptation to time the market. Stoic investors understand that successful investing requires consistency, perseverance, and the ability to weather short-term fluctuations in pursuit of long-term goals.

Setting investing goals like a Stoic

Now that you have understood the principle, let us see how you can use it in your financial journey. Once you embrace Stoic principles, the first task is to define your investing goal. In the process, you must accept that you cannot control external market forces. You would prioritize wise decision-making, disciplined portfolio management, and a commitment to continuous learning over short-term gains or losses. 

With a Stoic approach, you would remain resilient during market volatility, and accept that fluctuations are a natural part of the investing journey. By aligning your goals with Stoic principles, you seek to cultivate inner tranquillity and make rational investment decisions that are based on sound fundamentals and long-term value creation rather than being driven by impulsive reactions to market fluctuations.

Before you go

In this article, we have just talked about the basics, and there is more more on this principle. Attempt to learn as much as you can. After all, Benjamin Graham was also a Stoic, and we know how successful an investor he has been for so long. He used to emphasize how important it is for investors to keep their emotions in check. Stoic investing can help individuals develop a more rational, disciplined, and resilient approach to managing their investments, allowing them to navigate the ups and downs of the market with greater equanimity. 

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