April 16, 2021
Stoicism and Value-Investing
If you are practicing value-investing, then you are indirectly and in a large part, practicing Stoicism as well. Stoicism is the philosophy of living a virtuous life based on knowledge and in accordance with nature. Benjamin Graham, the father of value-investing, is himself a proclaimed stoic.
What I like about Stoicism and apply in value-investing is assessing impressions. These are situations that are either out of our control or within our control. The stock market, for example, is out of our control, but when to and what we invest in are impressions within our control.
The stock market is irrational and volatile. To recall, Ben Graham even personified this as Mr. Market in the Intelligent Investor. Mr. Market is a salesman of stocks who comes to our door everyday. He is bipolar to market swings and utilizes sensationalized market and stocks analysis.
Mr. Market entices us to sink into what stoics identified as the four passions of fear, distress, delight and cravings. They make investors inclined and prone to FOMO (Fear of Missing Out), herd-buying and the interpretation of charts to rationalize one’s own preference of stocks and outlook.
Stoics pursue apatheia or the freedom from these four passions. However, Mr. Market is very popular to the point that his methods are almost considered as the norms in participating in the stock market. This is the biggest misnomer in the Philippine stock market.
Now, this brings us to impressions that are within our control. It is a given that the stock market is out of our control and most of the time, irrational. However, to tilt the outcome to our favor if fate permits, we can control when to buy and what stocks to buy in the stock market.
If the PSEi is at a premium, we can choose not to buy and to position in stocks only when the market is oversold. Though dubious share prices of stocks with no history of earnings and with speculative earnings outlook rise, we can choose not to follow the herd and buy value stocks at the right time.
Most of the time in value-investing, doing nothing is actually doing something, and this is in contrast to what the stock market prefers, volatility. As value-investors, we preserve gains and select stocks with margin of safety and residual value. Through this, we can achieve Eudaimonia, a flourishing and happy life.
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