Why Managing Your Emotions Is the Key to Building Wealth
Stoicism is a philosophy that favors the long-term over the short-term. If we apply that philosophy to investing, it means that Stoic Investing is about putting your money to work today so that you don’t have to work later.
Edward O. Thorp, American mathematics professor, and former hedge fund manager, said it best in his biography A Man for All Markets:
“Properly managing investments would better prepare people for retirement and make them less dependent on society during their lifetimes.”
In this article, I’ll share the lessons I’ve learned from Stoic philosophers and from investors who favored the long-term. Stoicism can help you to become a more consistent investor, through the ups and downs of the market.
Long-term investing is straightforward
In 1976, John Bogle, the founder of The Vanguard Group, introduced the first index fund. After years of research, and looking at historical returns of more than 180 years (The New York stock exchange exists since 1792), he figured out that owning single stocks is too risky. You’re way better off holding a large basket of stocks as an average investor.
So he introduced the Vanguard S&P500 Index Fund. This index fund has an excellent track record, and even outperforms the majority of hedge funds since its inception.
Recent data shows that $10,000 Invested on January 1, 2011, in the S&P 500 Index vs. Average Hedge Fund, would result in the following:
- S&P 500: $36,468
- Average hedge fund: $15,998
You’d be twice as better off by putting your money in an index fund. This is obviously a massive generalization.
There are many hedge funds that outperformed the S&P 500. Edward O. Thorpe, who I quoted at the beginning, is actually one of the managers who achieved above-market returns for years. But that’s not the point.