There are so many financial opportunities in the world. And it seems like millions of people are getting rich without much effort by simply buying Bitcoin, Gamestop stocks, or you name it. Every week, there’s another story about how some asset shot up triple digits in a short amount of time.
Those are outliers, and the truth is that most of us will never ride one of those waves that turn a few grand into a million dollars in less than a year. But that doesn’t mean you can’t get rich over a longer period.
In the long run, public markets are still the best wealth builder on the planet. In fact, you can’t afford to not invest.
While most assets have appreciated in value over the last century, our purchasing power hasn’t changed. Sure, wages have increased. But so has inflation. End result? If you don’t invest, it’s more likely that you lose money over the long-term.
But investing is difficult because it goes against human nature. we need to make choices today, that pay off in the future. This is the #1 challenge to wealth building and investing.
Investing is about managing your emotions
I started investing in the stock market in 2007 and within a year, I lost 60% of the money I invested. My response was like almost any other human: I stopped investing altogether.
That’s what happens to most people who start investing at the height of a bubble. They invest in something when everyone else does. And when everything comes crashing down, the pain of loss is so bad that they swear to never invest again.
While I missed out on huge returns in the years that followed the financial crisis, I spent my time figuring out how successful investors stayed in the game. I learned that the key to wealth building is managing your emotions.
In my experience, investing is 9% theory, 1% execution, and 90% managing your emotions. That’s why I’ve been applying the philosophy of Stoicism to my investing strategy—it helps me to manage the most important part: Emotions.
In this article, I share how you can use Stoicism to become a better investor so you can start building wealth. When you apply this strategy, investing becomes easy. And if you’re already a good investor? You can use Stoicism to become less emotional when it comes to your investing decisions.
How did the Stoics view money?
At its core, Stoicism is a survival strategy. It’s a way of protecting your sanity. But you can also apply Stoicism to protect your money.
The foundation of Stoicism is based on the principle of knowing what’s inside your control vs what’s outside your control. The beauty of this philosophy is that it can be explained in one sentence.
But contrary to what most people think, the Stoics embraced money and wealth. After all, it’s something we have no control over, right? Here’s what one of the most hardcore Stoics, Epictetus, said about money:
“If you can make money remaining honest, trustworthy, and dignified, by all means do it. But you don’t have to make money if you have to compromise your integrity.”
I love this mindset because it doesn’t judge money. Want to get rich? Do it. And if you don’t get rich? No problem.
That’s the essence of a Stoic mindset when it comes to money. There are more important things than wealth. Things like honor, integrity, and living according to your values are the most important thing. But that doesn’t mean wealth is not important.
The question is: Can you become wealthy and live like a Stoic?
The Stoic path to wealth explained
So let me give you a quick background in case you’re new to my blog. I’ve been a life-long student of philosophy, and I started investing when I was 20.
My key influences are Seneca, Epictetus, William James, and Ralph Waldo Emerson. While I’ve applied the philosophy of Stoicism to my life and investing strategy, I’m a pragmatist at heart.
My investing influences are more wide-ranging. I’ve studied the work of value investors like Warren Buffett, Charlie Munger, Peter Lynch, Bill Ackman, Joel Greenblatt, and the indexing legend Jon Bogle.
But to expand my range of investing knowledge, I’ve also studied traders and growth investors like Jesse Livermore, George Soros, and Paul Tudor Jones.
After spending years studying a wide range of philosophers and investors, I’ve learned that there are three key milestones for building wealth. I call this the Stoic path to wealth because I can see Stoic qualities in every single successful investor. Here’s the roadmap in short:
1. Earn money
While you don’t have to be rich to get started with investing, you need to earn more than you spend on necessities. To earn more in our economy, we need income-generating skills like writing, coding, speaking, leading, etc.
Acquiring skills is the most Stoic thing you can do because you start by focusing on what you control. And in today’s economy, a person who can create value with their skills will never be without a job for a long time.
Every investor that I’ve studied, started earning a living by putting in the work. Most of them had jobs, working for someone else. Warren Buffett worked as a securities analyst at Graham-Newman from 1954 to 1956.
He started his own partnership after that. George Soros pursued multiple academic degrees between 1947 and 1954. Then, he took a job as a clerk at a small investment bank.
I can go on for a while but you get the point. We all need to get started with earning money as the foundation of wealth building. It means you can create value from nothing but your skills.
2. Lose money
There’s one critical aspect of wealth that mainstream books and articles don’t cover. And that is the importance of dealing with loss. The majority of people hate to lose money. I can relate to this concept of loss aversion a lot.
Growing up, our family lived paycheck to paycheck, and we were up to our neck in debt. As I grew older and started earning my own money, I started holding on to it for dear life. This is a problem if you’re serious about investing.
I can’t think of a single successful investor who did not lose money. In fact, the strategies of the majority of investors I mentioned are shaped by their losses. I can’t cover all of this in this article.
But look into the history of Warren Buffett (Berkshire Hathaway was a failed textile company), Bill Ackman (who lost big on his short against Herbalife), George Soros (lost 22% in 1981 on British government-bonds), etc.
Their biggest successes often came after their losses. This is a critical concept in building wealth. You must be okay with losing. Otherwise, you will never take a risk with your money. And what is investing? Taking risks.
The best investors look at wealth-building as a game. It’s just like sports—even the most successful teams in the history of the NBA, NFL, MLB, will lose multiple games on their paths to a championship.
The key is to never lose big. When you invest, do everything you can to never lose more than 10% of your investment. You can always come back from that.
Just because there are different investment philosophies, it doesn’t mean you need to religiously follow a particular style. Use your common sense, protect the downside, and most importantly, build up your investments slowly.
3. Grow money
Stoic investors make smart bets that have a huge upside. And if those bets don’t pay off, they don’t go bust.
To grow your money, put your money in assets that appreciate in value or generate cash—and ideally have both. That’s all there is to investing.
The difficulty is picking assets. I personally started with investing in high-quality property because it’s relatively low risk, but it’s also low return. I’m currently earning a net return of 6%, after costs. That’s not uncommon when it comes to real estate.
If you go to YouTube or Reddit, there are thousands of salesmen who want to make you believe that stocks are the best way to wealth. I don’t agree with that. It’s just one way to invest.
When it comes to the stock market, most investors agree that index funds are the way to go for most people. If you have more money, you could hire a financial planner or wealth management firm. But that pays off when you’ve acquired substantial wealth, not when you’re starting.
But what if you want to start investing by yourself without risking getting wiped out? I have a rule for that.
The 90/10 rule of investing
Most of us don’t have the desire to become full-time investors who want to beat the market. In the long-term, you’re better off putting your money in something like an S&P 500 or a Total Stock Market index fund. It’s the best way to get market returns without any effort.
But what about those individuals who want a little bit more upside? The people who are interested in the markets and want to take some risk, but don’t want to lose a lot of money.
I’m like that as well. While I’ve been investing since 2007, my career is in writing and teaching. I enjoy my work and I don’t want to be a full-time trader. But I still like to take a little bit of risk and potentially have a higher upside. We call that speculation.
All the short-term success you see about Bitcoin, trending stocks, currencies, or commodities, are all about speculation. You buy an asset and hope to sell it at a higher price. Nothing wrong with that. I know that a lot of index fund enthusiasts are not a fan of speculation, but I don’t mind it. I just don’t want to put all my money on the line.
So I created the 90/10 rule of investing, which states that you put 90% of the money you allocate to stock investing in an index fund. And you use 10% to speculate.
I take 90% of the money I want to invest in the market and put it in an index fund like Vanguard S&P 500 ETF. And I use 10% to make a few bets on things I think will take off.
But since I’m taking risks with a small percentage of my money that’s meant for the stock market, I’m not taking a big hit if my riskier bets don’t pay off. And if they do? I’ll take the extra return.
Start investing: Don’t look for more answers
At some point, you must take action. But we tend to keep searching for that special piece of wisdom that makes the difference. So we keep reading more books, listening to more podcasts, and following the different investing sages.
As a result, we never take action, and we become our own worst enemy. No one said it better than Epictetus:
“Your relentless pursuit of wisdom postpones your actually possessing it. Quit chasing after tonics and new teachers. The latest fashionable sage or book or diet or belief doesn’t move you in the direction of a flourishing life. You do.”
Until you take your own money and put it on the line, you never know what it feels like to invest. I can say that I’ve made nearly all the investing mistakes one can make.
I betted on popular assets that got cut in half within 24 hours. I’ve bought high and sold low dozens of times. I’ve bought low, sold a bit higher, and missed the biggest rise in price because I got out early. I’ve pulled out my money from an index fund, only to get back in when it recovered.
But Stoicism has helped me to become a better investor because it made me more level-headed.
Every time you invest in something, you’re taking a risk with your hard-earned money, which will always remain scary. But no matter what happens, don’t talk yourself out of investing. You can’t afford it.
In the long term, markets still move in one direction: Up. You either take the ride up, or you stay where you are.
Note: I’m currently working on a full-length book about this topic. Learn more here.