Sunday, February 11, 2024

The Calm in the Storm: How Stoicism Can Make Us a Better Investor

 


Stoicism is an ancient philosophy that emphasizes the importance of reason and self-control. It teaches that happiness comes from accepting what you cannot control and focusing on what you can.

These principles can be very helpful for investors, who often face volatile markets and uncertain outcomes. Let me share some key stoic practices that can be applied to investing:

Focus on what we can control: This means focusing on our investment strategy, asset allocation, and risk management. We cannot control the market, but we can control your own decisions and certainly not let emotions rule over our mind.

We should design and develop a well-researched and diversified portfolio aligned with our risk tolerance and financial goals. This includes choosing appropriate asset classes, understanding their historical performance, and rebalancing regularly. Decide how to distribute your investments across different assets like stocks, bonds, real estate, and cash. Consider their volatility, potential returns, and correlation to each other to manage risk.

Accept what we cannot control: The market will fluctuate by going up or down, and there will be unexpected events. Accepting this reality can help us to stay calm and rational when faced with losses. Likewise, we must be prepared to lose what we can afford to invest. Otherwise, do not invest in risky financial instruments such as stocks or bonds.

Market ups and downs are inevitable. Understand historical trends and cycles, but accept that short-term volatility is unpredictable. Don't let emotions like fear or greed dictate our decisions. Black swan events like geopolitical crises or economic shocks can impact markets significantly. Focus on building a resilient portfolio that can weather such storms.

We cannot control how others behave in the market. Avoid getting caught up in herd mentality and make decisions based on our own research and analysis.

Focus on the long term: As an investor, do not get caught up in the short-term volatility of the market. Instead, focus on our long-term goals and make investment decisions that are aligned with them.

Resist the temptation to time the market and frequently trade our investments. Historically,  buy-and-hold strategies with diversified portfolios have yielded better returns over long periods. Actively trading is stressful and akin to having a part-time job compared to the laid-back passive mode of an income investor who does nothing but gets paid with dividends consistently.

Live virtuously: Stoicism emphasizes the importance of living a virtuous life. This means acting with integrity, fairness, and wisdom. These qualities can also be applied to investing.

Choose companies that align with our values and operate with good governance. Transparency and responsible business practices contribute to long-term success.

We should not set unrealistic return goals that might tempt ourselves to take unnecessary risks. Always understand that consistent, stable growth is usually more effective than chasing unsustainable gains.

Remember, stoicism is not about eliminating emotions entirely, but about recognizing and managing them effectively. By applying these principles, we can cultivate a calmer, more rational approach to investing, leading to better decision-making and potentially achieving our financial goals.

Thanks for reading. Happy Dragon Year!

With love & peace,

Qiongster

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