The Stoic Path to Wealth

1. Invest in yourself: Skills are your greatest asset

Everyone who leaves their birth country out of necessity needs to start from nothing.

Build valuable skills. The foundation for building wealth from nothing is to acquire skills that increase your value in society. Any skill that gives you the opportunity to generate income is valuable. Think of writing, coding, public speaking, designing, or leading. When you're able to acquire any skill, you can adapt to what the world needs.

Adopt the Skill Springboard framework:

• Work with your natural abilities
• Learn from the best
• Break free from your mentors
• Do your best, but don't overexert yourself

By investing in yourself, you create a reliable means of earning money, regardless of market fluctuations. Your skills become your greatest asset, always ready to be utilized for generating income.

2. Understand market principles: Earnings, macro factors, and psychology

Earnings, earnings, earnings.

Three underlying principles drive the stock market:

1. Earnings: The most important factor in long-term stock performance
2. Macro factors: Recessions, geopolitics, wars, natural disasters, interest rates, and systemic problems
3. Collective psychology: The pendulum of market sentiment swinging between fear and greed

Understanding these principles helps investors navigate market fluctuations with confidence and make more informed choices. While the stock market behaves rationally over the long term, it can be highly irrational in the short term due to these factors.

3. Consistency is key: Make investing a habit

Investing is a habit, not a one-time task or activity.

Automate your investments. Set up rules for yourself, such as investing a fixed amount monthly in an S&P 500 index fund. Avoid changing the amount based on market fluctuations. Look at your own situation and decide how much money you can invest.

Start small and build up. Even if you have a large amount of money saved, start with small investments to get used to market fluctuations. Gradually increase your investments as you become more comfortable with the process.

• Invest as much as you won't miss every month
• Focus on being consistent rather than achieving the highest returns
• Remember that investing small sums consistently is better than investing large sums occasionally

4. Accept short-term losses for long-term gains

Never is there a better time to buy a stock than when a basically sound company, for whatever reason, temporarily falls out of favor with the investment community.

Embrace temporary setbacks. Short-term losses are a natural part of investing. By accepting them, you can ensure long-term success by staying committed to your investment strategy.

Three steps to become better at dealing with financial loss:

1. Never let them see you sweat: Maintain composure in public and private
2. Do nothing when the market crashes: Avoid making rash decisions based on fear
3. Invest more if you can: Take advantage of market downturns to buy at lower prices

Remember that losses are only permanent when you sell. By staying invested through market fluctuations, you position yourself to benefit from long-term growth.

5. Avoid permanent losses through disciplined investing

Success on Wall Street was getting the most money. Success for us was having the best life.

Follow the Three Stoic Rules for Sound Investing:

1. Invest in what you know: Understand the assets you're investing in
2. Don't invest with borrowed money: Avoid excessive risk and potential financial ruin
3. Invest with money you can do without for a long time: Give your investments time to grow

By adhering to these rules, you minimize the risk of permanent losses and set yourself up for long-term success. Remember that wealth builds faster when you focus on avoiding losses rather than chasing higher returns.

6. Greed is not good: Aim for the golden mean

The proper measure of wealth? The best measure is to have what is necessary, and next best, to have enough.

Find balance in your approach to wealth. The Stoics chose the middle path between renouncing wealth and pursuing it excessively. This balanced approach helps you avoid the pitfalls of both poverty and excessive greed.

Two Stoic exercises for neutralizing greed:

1. Desire only what's within your control
2. Moderate your habits, starting with your diet

By practicing moderation and focusing on what you can control, you cultivate a healthier relationship with money and wealth. This approach leads to greater satisfaction and financial stability in the long run.

7. Let compound interest work its magic

Everyone approaches with more courage a hazard for which he has long squared himself, and resists even harsh circumstances by contemplating them in advance.

Optimize for return on time (ROT). Focus on getting the most out of your time rather than obsessing over financial returns. Let your money compound on its own without constant interference.

Tips for compounding money in the market:

1. Start investing now, not tomorrow
2. Avoid high fees that eat into your returns
3. Stay invested for the long term to benefit from exponential growth

Remember that compound interest is often called the "eighth wonder of the world" for a reason. By allowing your investments to grow over time, you can build substantial wealth without constant active management.

8. Trust your judgment and stick to your strategy

Even being coached by the world's greatest investor is a hindrance rather than a help if he's engaging you actively enough to break your trading rhythm.

Develop independent thinking. As you gain knowledge and experience in investing, learn to trust your own judgment rather than constantly deferring to others, even experts.

Strategies for improving your judgment:

1. Aim for pure judgment: Make decisions based on facts, not emotions
2. Detach from outcomes: Focus on making good decisions, not on results you can't control
3. Recognize what you don't know: Be honest about your limitations and focus on your strengths

By trusting your judgment and sticking to your chosen strategy, you can avoid being swayed by market noise and maintain consistency in your investing approach.

9. The Stoic Edge: Emotional control in investing

If you accomplish something good with hard work, the labor passes quickly, but the good endures; if you do something shameful in pursuit of pleasure, the pleasure passes quickly, but the shame endures.

Cultivate emotional discipline. The Stoic Edge is the ability to manage your emotions and avoid making common mistakes in investing. This edge is attainable for every investor and easily grasped.

Key aspects of the Stoic Edge:

• Maintaining composure during market volatility
• Making decisions based on logic rather than emotion
• Focusing on long-term goals instead of short-term fluctuations

By developing this emotional control, you gain a significant advantage in the world of investing, allowing you to stay the course and build wealth over time.

10. Implement the 90/10 rule for responsible speculation

Money cannot consistently be made trading every day or every week during the year.

Balance stability and opportunity. Allocate 90% of your portfolio to stable, long-term investments like an S&P 500 index fund, and use the remaining 10% for higher-risk, potentially higher-reward speculative investments.

Five pillars of successful stock market trading:

1. Trade infrequently
2. Cap your losses at 10%
3. Never average down
4. Don't buy popular assets
5. 20% profit is enough

This approach allows you to pursue potentially higher returns with a portion of your portfolio while maintaining a solid foundation for long-term wealth building.

11. Retire like a Stoic: Stay invested in stocks

We should also make ourselves flexible, so that we do not pin our hopes too much on our set plans.

Maintain stock exposure in retirement. Contrary to conventional wisdom, staying invested in stocks during retirement can provide better long-term returns and help preserve wealth.

Key considerations for Stoic retirement:

• Consider a 60/40 portfolio (60% stocks, 40% bonds) if you want less volatility
• Withdraw money monthly rather than annually to avoid selling during market dips
• Stay flexible with your withdrawal rate based on market conditions and personal needs

Remember that retirement is not the end of your investing journey. By maintaining a balanced approach and staying invested in stocks, you can continue to grow your wealth and ensure financial security throughout your retirement years.

Last updated: October 5, 2024