Cooking is something I really started getting interested in when I was living in Saudi Arabia. It may have started with my desire to make some of the amazing flat breads and hummus I was eating at the time. It’s also where I first started flirting with eating more like a vegetarian, inspired by a friend I met in Oman. I started experimenting more and more with grain and vegetable based meals and continue to do so. Cooking remains an activity that brings me a great deal of joy and since it’s my most expensive category of spending each month, I thought I would share with you guys some of the things that are cooked in The Stoic’s Kitchen. Continue reading
Sunday night we received almost a foot of snow, around 10″ depending on whose numbers you use. Now for some of those living in the northern states or even outside the United States who experience colder temps with more snow, this is a joke, but here in the Bluegrass State it’s cause for a state of emergency, literally. Continue reading
I’ve had a strange morning routine over the last couple of months. With temps in the morning just below 30 degrees, I’ll step outside, sans shirt and shoes, and let myself feel the cold on my body. I’ll do a few stretches and listen politely to my mind in its weak protest to what it perceives to be an injustice. In most situations it’s the mind that is the weak link. Continue reading
“What is needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding that framework.” Warren Buffett
It was fall of last year that I really became interested in stoic philosophy and how it could apply to modern living. A great introduction to stoicism is, A Guide to the Good Life: The Ancient Art of Stoic Joy by William B. Irvine. If you have any interest in philosophy, particularly the stoic philosophers, then Irvine’s book is a great introduction. Since that time I’ve continued to learn more about the Stoic movement of both ancient Greece and Rome as well as some more popular individual practitioners, such as Epictetus, Seneca, and Marcus Aurelius. Today I want to offer a glimpse of how the basic teachings of stoicism can help us all become better investors.
As Buffett noted above, what is needed is a sound intellectual framework to aid us in our investment activity. One of the reasons I adopted dividend investing as the foundation of my investment strategy is that it gives such an intellectual framework suggested by Buffett. There are thousands of stocks out there to choose from; by narrowing the selection down to the dividend payers with acceptable yields you have reduced the total down to a more manageable list. From here you can add other criteria such as payout ratio, dividend growth, length of dividend payment, and debt level to name just a few. As a new investor it was important for me to have a screen in which I could narrow the world of possibilities. Depending on your goals you may have a very different approach to investing. It’s not so much which approach you choose, but that you have one that is most important, otherwise you’re just drifting along allowing the enthusiasm or depression of the market to guide your attention. It’s never a good idea to take advice from a manic-depressive like Mr. Market. Now that we have our framework lets look at the other point Buffet brought up, controlling emotion.
Emotions are tricky creatures. They are also stealthy and have a way of controlling our behavior without us even being aware of it. Never forget that we were emotional beings way before we became reasoning beings. These emotions allow us to appreciate love, companionship, beauty and a host of other feelings that make living an enjoyable experience. However, when it comes to money/investment decisions, you would be wise to seek the counsel of reason rather than rely on the capriciousness of emotion. How do you know when emotion is likely the one controlling your investment thoughts? A good rule of thumb is to step back and ask yourself if you are feeling especially fearful or greedy. If you detect either of these it’s safe to say that emotion rather than reason is calling the shots. If you can get to the point to where you make your investment decisions based on reason you will know because reason will be indifferent to what your choice is. It will weigh the risk vs. reward without bias, without concern for your greed or fear. In a word, you will be emotionally detached from the decision-making process.
One of my first experiences with this was when I started investing in NYB. If you have looked at my portfolio you will notice that NYB represents my largest position. Although some may question the wisdom in investing in a bank these days, I did my homework and felt that NYB was a solid bank to invest in. Here is where the practice of setting aside emotion and relying on reason comes in. I didn’t stake my position in NYB all at once. I actually built the position up over the course of five separate occasions. Purchasing a stock and immediately watching its value decrease and then continuing to buy on four other occasions was hard to stomach. I doubted myself each time I bought more shares. My fear was working overtime. I made those purchase each time NYB had hit a new low, after all this is what you’re suppose to do right, buy low? Knowing it is what you’re suppose to do and then actually doing it are two different things. It was an exercise in averaging down by purchasing shares at lower costs and higher yields as well as trusting my judgement. Could I be wrong? Of course. That is a risk you can’t eliminate 100%, the risk that you could be wrong.
That leads me to the title of this post, how stoicism can assist us in becoming better investors. One of the principles of stoic philosophy is that man has a purpose just as everything else has a purpose. To a stoic, mans purpose rests in his nature and his nature is that he is a reasoning being. Our capacity for reason separates us from the other animals, it secures a unique place amongst the other living creatures of this earth. When we use our capacity to reason we are being true to our nature. We have the ability to use our reason when we make investment decisions and the more we make these decisions from a place of detached reason, we put our emotion in check and take the reins from their unpredictable hands. The more we exercise this ability the better we get and that will serve us well over time. We can’t always make the right decision, even if we are using reason to the best of our abilities it is still possible to make the wrong decision, or a decision that was made for the right reasons, but still had a poor outcome. If we allow our emotions to overtake us we are doomed to be at the mercy of a market that carries us on a wild ride to exhilarating peaks as well as stomach churning lows. This is no way to carry out an investment plan and is one of the main reasons why so many investors don’t even match the average market return. Don’t be that investor. Use your reason to develop a plan and faithfully execute that plan irregardless of what the market does. It’s no easy task to tune out the emotions that question our every move, but I’m convinced that doing so will reward a person for their effort.
So, have you fallen victim to fear or greed in your investing? I would love to hear your story in the comment section.
I usually don’t post on the weekend, actually I don’t really have a schedule but it looks like Monday and Thursday are turning out to be posting days. Today was different. While cruising around the net trying to pick up chics, er, I mean blogs, I found a true gem. If you have not yet come across it check out www.spillingbuckets.com Very nice thought provoking writing, the kind of fix The Stoic is out to score. A particular post really got my mind to churning and hence today’s post. You can find it here, but I want to share a couple of sentences that made me pause and think (always a good thing).
“The way that each of us thinks makes the major difference in where each of us arrives.”
This goes to the heart of my own recent transformation with financial matters. The things I’ve done have been what frugal people in all places and all times have always done. What really changed was my thinking and that transformed my behavior. If you stop for a moment and really reflect on where you are today in your life you can generally connect it to the series of thoughts linked together as a chain that influenced your behavior that had a cumulative impact on where you are. If you have always been a saver you are most likely setting on a nice net worth with little or no debt. Did this happen overnight? Did you wake up one morning and decided you would have a nice, fat bank account? The answer is likely no. Think of every thought that you had that led you to act a certain way that was responsible for the fiscal rewards you now enjoy. Consider the opposite (my former self). I spent every dime I had, massive debts, paycheck to paycheck living and a failed marriage that ultimately found the origin of its demise in failed fiscal policy (yes I am one of the statistics that claim finances being one of the main reasons couples fight). What was my thinking in regards to this behavior? Are you sitting down? I literally thought money was of no significance. I can remember a time in my life (most of it) in which I openly claimed that money was not important. I’m not sure what I was smoking back in those days, but someone should have come along and smacked the shit out of me and try to assist in removing my head from the dark nether regions in which it was so shamefully lodged! It was thinking that made it so and in this case a poor quality of thinking, which is responsible for a good deal of human misery.
Here is another quote from the website that I really enjoyed because it goes to the heart of the freedom/independence I so passionately seek at this juncture in my life:
“Independence is not something one has; it is something one is.” Jacob Fisker
This sentence is like a dagger to the heart, it penetrates so deeply and completely to leave the landscape of ones soul thoroughly changed. I’ve been going about it all wrong. I’ve been thinking of my freedom/independence as something I could possess or a destination in time I would someday arrive at, but that’s not it. Instead it is what one is and that is powerful stuff. For it’s not x amount of an investment balance or some passive income stream that will support you forever and ever. No, it’s being so independent that one is less and less in need of such things and that is an entirely different conception of independence. It is being independent vs. having independence.
Hope you guys are having a great weekend and well on your way to discovering the independence that already lies within you, even if now it lie dormant.