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Domesticating your emotions: How Stoic principles could make you a better investor

Domesticating your emotions: How Stoic principles could make you a better investor

July 15, 2021
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Tony Dungy, who is remarkable for winning a Super Bowl as a player and then doing it again as a head coach, has a simple philosophy for dealing with tough situations.


"You can't always control circumstances," says Dungy. "However, you can always control your attitude, approach, and response."1


This way of thinking is what allowed him to stay calm and think clearly in times when it was tempting to respond emotionally. And it's also a mental discipline practiced by a group of ancient Greek philosophers known as the Stoics.


Many people think that the goal of Stoicism was the complete suppression of all emotions, so that the individual ends up with the coldly logical demeanor of Mr. Spock from Star Trek.


But the truth is that the Stoics didn't try to eliminate their emotions. This would be almost impossible. Instead they sought to keep from being ruled by them.


Or, you could say, they learned to domesticate their emotions. A war horse is just as powerful as a wild stallion. The difference between the two is that one is under control.


While the Stoics of two millennia ago probably never dreamed of anything as complex as our global stock markets, their mindset is perfectly suited to the smart investor. Reacting emotionally to short-term losses or chasing the thrill of short-term gains can not only hurt overall returns and generate needless costs, it can also cause unnecessary fear and anxiety.


Arvind Ven, an independent advisor, says that while market downturns are inevitable, an investor's reaction doesn't have to be.


"We can't control what happens," he says. "What we can control are our reactions."2


Pamela Sams, an advisor who specializes in helping women, uses Stoic principles to help her clients frame their perspective with three disciplines:

  1. Discipline of Perception - how they choose to see the world
  2. Discipline of Will - how they deal with the things they cannot change
  3. Discipline of Action - what they do in response to a situation

When the market turns against them, Sams has taught her clients to take a "freeze moment."


"Whatever you are doing," she says, "take a moment to pause, digest what's going on—emotionally and physiologically—take stock and then decide how to react."


And finally, Stoicism seeks to express gratitude for everything, not just the good things. As John Kadar puts it, whatever has happened is a sunk cost. You can't change it, but you can learn from it.


The prudent investor can emulate this ancient way of thinking in the pursuit of better long-term gains and less anxiety along the way.

Sources:

1. http://go.efficientadvisors.com/e/91522/author-4205-Tony-Dungy/6zffny/1234789964?h=5YbXGNkOccUV7RnwYfuldZ_e0bi5VU4gRMWsSTCE9WE

2. http://go.efficientadvisors.com/e/91522/print-134811/6zffp1/1234789964?h=5YbXGNkOccUV7RnwYfuldZ_e0bi5VU4gRMWsSTCE9WE


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