Objective judgment, at this very moment.
Unselfish action, now at this very moment.
Willing acceptance – now at this very moment –of all external events.ValueWalk’s October 2022 Hedge Fund Update: Haidar Capital Surges 225%
Welcome to our latest issue of ValueWalk’s hedge fund update. Below subscribers can find an excerpt in text and the full issue in PDF format. Please send us your feedback! Featuring investors exit long-short hedge funds, the oil market is now "broken", and Haidar Capital surges 225%. Q2 2022 hedge fund letters, conferences and more
That’s all you need
— Marcus Aurelius
Successful Investing is half art half science and, “What’s needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding that framework.” Warren Buffett. And Stoicism provides the tools needed to help you keep your emotions in check and prevent them from corroding the intellectual framework.
What is Stoicism?
New York Times bestselling author Ryan Holiday refers to it as; “A tool in the pursuit of self-mastery, perseverance, and wisdom: something one uses to live a great life, rather than some esoteric field of academic inquiry”.
The well-known Stoics, Marcus Aurelius, Seneca, and Epictetus, would focus on a series of questions: “How do I handle my anger” “Why am I afraid of death?” “How can I deal with the difficult situations I face?” “What is the best way to live?” “How should I handle the success and power I hold?”
In their writings and teachings, the Stoics struggled to answer these questions in a practical way.
They framed their work in three critical disciplines:
The Discipline of Perception: how you see and perceive the world around us.
The Discipline of Action: The decisions and actions we take – and to what end.
The Discipline of Will: How we deal with the things we cannot change, attain clear and convincing judgment, and come to a true understanding of our place in the world.
“By controlling our perceptions, the Stoics tell us, we can find mental clarity. In directing our actions properly and justly, we’ll be effective. In utilizing and aligning our will, we will find the wisdom and perspective to deal with anything the world puts before us.” – Ryan Holiday
In Robert G. Hagstrom’s excellent book, INVESTING: The last liberal Art, he tells the story of how most investment analysts perceived Amazon back in 2002 to be a bricks and mortar book retailer; ‘Amazon appears to be massively overpriced relative to the brick and mortar bookstores’. ‘Conversely, the bulls looked at Amazon and saw something different. To them, Amazon didn’t look like a Barnes & Noble or Walmart but resembled Dell Computer’.
How can two people looking at the same thing see two different comparisons?
This is where things get interesting, at the intersections of philosophy, language, psychology and biology, Hagstrom explains how words give meaning, ‘[Ludwig Josef Johann] Wittgenstein….argued that the world we see it is defined and given meaning by the words we choose. In short, the world is what we make of it.’
Wittgenstein wrote “Take as an example the aspects of a triangle. This triangle can be seen as a triangular hole, as a solid, as a geometrical drawing, as standing on its base, as hanging from its apex; as a mountain, as a wedge, as an arrow or pointer, as an overturned object, which is meant to stand on the shorter side of the right angle, as a half parallelogram, and as various other things…You can think now of this now of this as you look at it, can regard it now as this now as this, and then you will see it now this way, now this.”
How two individuals can come to such a different conclusion analysing the same inputs is also influenced by our neural connections. Peter Bevelin, author of the book (a must read), Seeking Wisdom: From Darwin to Munger, explains that ‘the brain is composed of at least 100 billion nerve cells or neurons. Since it is the connections between the neurons that cause our mental capacities, it is not the number of cells that is important but the number of potential connections between them. Bevelin further concludes; the brain continually changes as a result of our experiences. Experiences produce physical changes in the brain either through new neuron connections or through the generation of new neurons….This means that the anatomy of the brain varies from individual to individual.
When American Express become embroiled in the soybean scandal in 1963, it caused $150 million dollars’ worth of losses (approx. $1.1 billion in 2008 dollars) to not only American Express but also to Bank of America and Bank Leumi. American Express was one of the biggest casualties. Its stock dropped more than 50% as a result of the scandal, which cost the company nearly $58 million and the general perception amongst investors including the media was that American Express would not recover from the scandal. But Buffett’s perception was more rational and he saw an opportunity.
“Our life is what our thoughts make it.” – Marcus Aurelius
“As a discipline, it’s not any kind of action that will do, but directed action….Action requires courage, not brashness. Our movements and decisions define us: We must be sure to act with deliberation, boldness and persistence”. – Ryan Holiday
Focus on the process
Ryan Holiday, in his book (another must read), The Obstacle is the Way, describes how head coach Nick Saban, of the University of Alabama football team, teaches his players to focus on the process.
“Don’t think about winning the SEC Championship. Don’t think about the national championships. Think about what you needed to do in this drill, on this play, in this moment. That’s the process: Let’s think about what we can do today, the task at hand.” (Bold Italics are mine)
In the chaos of investing, as in life, the process provides us a way. This process will resonate with the successful long-term investors.
“If you took our top fifteen decisions out, we’d have a pretty average record. It wasn’t hyperactivity, but a hell of a lot of patience.” — Charlie Munger
Warren Buffett encourages all investors to apply the 20-hole punch card metaphor into their investment checklist, to focus investors on the process, not activity.
“You stuck to your principles and when opportunities came along, you pounced on them with vigour.” -Charlie Munger
Here Charlie is speaking about directed action, an action requiring courage, not brashness. Consider Warren Buffett’s purchases of the Washington Post, Amex and Coca-Cola. Did he not act with deliberation, boldness and persistence when prices were below his evaluation of intrinsic value?
“The chief task in life is simply this: to identify and separate matters so that I can say clearly to myself which are externals not under my control, and which have to do with the choices I actually control. Where then do I look for good and evil? Not to uncontrollable externals, but within myself to the choices that are my own…” — EPICTETUS, DISCOURSES, 2.5.4– 5
Ryan Holiday describes will as; ‘If perception and action were disciplines of the mind, will is the discipline of the heart and the soul. The will is the only thing we control completely, always.’
Stoics believe in accepting events that occur to you which was outside of your control, whether positive or negative and that you have the power (applying perception, action and will) to control how you interpret that experience and your reaction to it.
When Buffett speaks to students he tells them to develop their own inner scorecard and not worry about their outer scorecard. The inner scorecard is the set of criteria and standards by which a person judges themselves. Whereas, the outer scorecard, which is a picture of self-worth predicated upon the judgments of others. Why? Because temperament is vital to not only being a successful investor but also to life itself.
Jason Zweig, author and writer of “Intelligent Investor” column in the Wall Street Journal, intelligently included this quote by Marcus Aurelius at the start of chapter 8 in the book Intelligent Investor by Benjamin Graham.
“The happiness of those want to be popular depends on others; the happiness of those who seek pleasure fluctuates with moods outside their control, but the happiness of the wise grows out of their own free acts.”– Marcus Aurelius
Article By Adam Parris
For the Value Investors……
Euthymia is a Greek word, Seneca defined it as; “believing in yourself and trusting that you are on the right path, and not being in doubt by following the myriad footpaths of those wandering in every direction.”
“Tranquility can’t be grasped except by those who have reached an unwavering and firm power of judgment— the rest constantly fall and rise in their decisions, wavering in a state of alternately rejecting and accepting things. What is the cause of this back and forth? It’s because nothing is clear and they rely on the most uncertain guide— common opinion.”
—SENECA, MORAL LETTERS,
This article originally appeared on Searching for Value website