5 Stoic Techniques to Remain Calm During Stock Market Volatility

Maintaining composure during volatility can be challenging in the unpredictable world of stock market investing. However, by applying timeless wisdom from Stoic philosophy, investors can develop mental resilience and make more rational decisions.

This article explores five Stoic techniques for remaining calm and focused on what matters when the markets are in turmoil.

1. Focus on What You Can Control

The cornerstone of Stoic philosophy is the principle of focusing on what’s within our control and accepting what isn’t. Epictetus wisely stated, “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 control.”

This principle is particularly relevant in the context of stock market investing. Market movements, economic cycles, and global events are largely beyond our influence. However, we fully control our investment strategy, research methods, and risk management approaches.

To apply this principle, create a checklist of factors you can control in your investing journey. This might include:

• Your asset allocation and diversification strategy
• The quality and depth of your research
• Your risk tolerance and position sizing
• Your decision to buy, hold, or sell based on your analysis

Concentrating your energy on these controllable aspects will make you feel more empowered and less anxious about market fluctuations. For example, instead of fretting over falling prices during a market downturn, focus on reviewing your portfolio allocation or researching potential buying opportunities.

2. Practice Emotional Detachment

Emotional detachment is crucial in stock market investing. The Stoics believed that our emotions arise not from events but from our judgments about those events. As Epictetus put it, “People are not disturbed by things, but by the views they take of them.”

In investing, this means separating your emotions from market movements. Price fluctuations are neither good nor bad in themselves; they’re simply changes in market value. You can make better, rational decisions by viewing these changes objectively without attaching personal meaning or allowing them to affect your self-worth.

To cultivate emotional detachment, try these techniques:

• Practice mindfulness meditation to observe your thoughts and emotions without judgment.
• Use objective analysis tools like financial ratios and economic indicators to evaluate investments.
• Avoid checking your portfolio constantly; set specific times for review to prevent emotional reactions.

Consider this scenario: The stock market drops 5% in a day. An emotionally driven investor might panic and sell their holdings, potentially realizing unnecessary losses. A detached investor, however, would calmly assess the situation, review their investment system, and potentially see the dip as a buying opportunity if nothing fundamental has changed.

3. Embrace a Long-Term Perspective

Stoicism emphasizes patience and long-term thinking, which aligns perfectly with successful investing strategies. Epictetus eloquently expressed this idea: “No great thing is created suddenly, any more than a bunch of grapes or a fig. If you tell me that you desire a fig, I answer you that there must be time. Let it first blossom, then bear fruit, then ripen.”

In investing, embracing a long-term perspective means focusing on your ultimate financial goals rather than getting caught up in short-term market noise. This approach can help you weather market volatility with greater ease and potentially achieve better investment outcomes.

To maintain a long-term focus:

• Define clear, long-term financial goals.
• Develop an investment strategy aligned with these goals.
• Regularly review and rebalance your portfolio based on your long-term plan, not short-term market movements.

For instance, short-term market volatility becomes less significant if you’re investing for retirement in 20 years. Instead of reacting to every market dip, you can view these fluctuations as part of the typical journey toward your long-term objective.

4. Premeditate Adversity

The Stoic practice of “premeditation Malorum” (premeditation of evils) involves mentally preparing for potential challenges and worst-case scenarios. Seneca advised, “He who fears death will never do anything worth of a man who is alive.” While he spoke of death, this principle applies equally to financial setbacks.

Anticipating potential market downturns and their impact on your portfolio can reduce anxiety when facing market turbulence. This practice also helps you develop contingency plans and build emotional resilience.

To implement this technique:

• Regularly conduct scenario planning for your investment portfolio.
• Stress-test your investments under various market conditions.
• Develop action plans for different market scenarios.

For example, an investor might ask, “What would I do if the market crashed by 30%?” By thinking through this scenario in advance, they can prepare emotionally and strategically, perhaps by setting aside cash for buying opportunities or adjusting their asset allocation to withstand volatility better.

5. Cultivate Rational Decision-Making

The Stoics placed great emphasis on reason and logic, principles that are crucial in investment decision-making. Marcus Aurelius wrote, “If you are distressed by anything external, the pain is not due to the thing itself, but to your estimate of it; and this you have the power to revoke at any moment.

In investing, cultivating rational decision-making means basing your choices on thorough analysis and logical reasoning rather than emotional impulses or market sentiment. This approach can help you navigate market volatility with greater clarity and confidence.

To enhance your rational decision-making:

• Create a structured analysis process for evaluating investments.
• Seek diverse perspectives and consider contrarian viewpoints.
• Use decision-making frameworks to guide your choices.
• Reflect before making significant investment decisions, especially during market turmoil.

Imagine you’re considering selling a stock that has dropped significantly. A rational approach would involve reviewing the company’s fundamentals, assessing whether your original investment thesis still holds, and considering the broader market context before deciding. This systematic process can help prevent impulsive actions driven by fear or panic.

Conclusion

By incorporating these five Stoic techniques into your investment approach, you can develop greater mental resilience and make more rational decisions during periods of stock market volatility. Focus on what you can control, practice emotional detachment, embrace a long-term perspective, premeditate adversity, and cultivate rational decision-making.

When applied to modern investing challenges, these timeless philosophical principles can help you navigate the market’s ups and downs with calm and clarity. As you face future market turbulence, let these Stoic teachings guide you toward more thoughtful and composed investment decisions.