Leithner Letter: The Power Of Stoic Thinking: Why Investors Welcome Panics, Crises And Bear Markets [Part II] by Chris Leithner
In short, if you’ve failed at investing this far, it’s not because you’re stupid. It’s because, like Sir Isaac Newton, you haven’t developed the emotional discipline that successful investing requires. In Chapter 8, Graham describes how to enhance your intelligence by harnessing your emotions and refusing to stoop to the market’s irrationality. There you can master his lesson that being an intelligent investor is more a matter of “character” than of “brain.”
“Commentary on the Introduction”
The Intelligent Investor: A Book of Practical Counsel
by Benjamin Graham (2006)
The overwhelming majority of people are comfortable with consensus, but successful investors tend to have a contrarian bent. Successful investors like stocks better when they’re going down. … In the stock market, people panic when stocks are going down, so they like them less when they should like them more. When prices go down, you shouldn’t panic, but it’s hard to control your emotions when you’re overextended, when you see your net worth drop in half and you worry that you won’t have enough money to pay for your kids’ college.”
Here’s how to know if you have the makeup to be an investor. How would you handle the following situation? Let’s say you own a Procter & Gamble in your portfolio and the stock price goes down by half. Do you like it better? … Do you reinvest dividends? Do you take cash out of savings to buy more? If you have the confidence to do that, then you’re an investor. If you don’t, you’re not an investor, you’re a speculator, and you shouldn’t be in the stock market in the first place.
Seth Klarman Resource Page
The Power of Stoic Thinking: Why Investors Welcome Panics, Crises and Bear Markets
Besides contemplating the loss of your life, it’s also sensible to consider the forfeiture of your possessions. Just as one day you and your nearest and dearest will part ways, so too will you and your assets, chattels and goods. Like your children, so too your portfolio, pension, house, etc.: whatever you might think and whatever secular law says, in a fundamental sense these things aren’t really yours – they’re merely temporary gifts that are here today and will be gone one day. Although they don’t explicitly use the term, Stoics imply that we should regard ourselves as stewards or trustees rather than owners of wealth.
Non-Stoics think often about what they want but don’t or can’t have. To Stoics, this makes no sense. Instead, counselled Marcus Aurelius, we should appreciate what we have now and consider how much we’d miss it when it – or he, she or they – disappear. If we do, then in the long-term we’ll not just appreciate these things more: we’ll also take steps to reduce the likelihood of short-term loss. In On the Happy Life, Seneca exhorts us to celebrate life. But he also cautions that we not develop “over much love” for the things we enjoy. In particular, take care that you’re “the user, but not the slave, of the gifts of Fortune.”
A variant of this thought experiment is to consider the lives of our forebears. Be-cause his thoughts usually outrun his circumstances, today’s positive thinker likely isn’t living his dream (which usually lies beyond his reach); but he’s certainly living a dream vastly beyond his ancestors’ imaginations. Not only did they somehow manage without Facebook, Netflix, smartphones and Twitter: like hundreds of millions of people elsewhere in the world today – they endured the risk of death during childbirth, high rates of infant mortality, relentless back-breaking labor, horrific accidents in the workplace, no antibiotics, periodic poor harvests and regular hunger. And most horribly, during the first half of the 20th century they endured almost continuous economic upheaval and war. For many of our forebears, simple acts which today we take for granted, such as eating an orange or a banana, were unimaginable luxuries.
What’s the point of such an exercise? People are often anxious and dissatisfied because their desires – particularly their material longings – are insatiable. Rather than enjoy their extraordinarily good (compared to their ancestors) fortune, positive thinkers constantly devise new and grander dreams; as a result, their aspirations always exceed their current circumstances; consequently and paradoxically, they may well be less satisfied with their lot in life than were their forebears – or people today in relatively impoverished lands, who’re much more thankful about far less.
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