I had the chance to re-read one of my favourite books in recent weeks: Seneca’s Letters from a Stoic. Seneca was a Roman Stoic, philosopher, statesman, and advisor to Emperor Nero. He is a fascinating historical figure, known both for his views on stoicism—immortalized in a series of letters to his friend, Lucius—as well as his melodramatic fate: he was forced to commit suicide for his alleged complicity in the Pisonian conspiracy to assassinate Nero.
Two thousand years later, many of Seneca’s ideas still provide readers with relevant and practical life lessons. However, there is one lesson that is particularly relevant to investors in the current investment environment; namely, the danger of the crowd.
Seneca explains his concern in Letter VII. “You ask me to say what is particularly important to avoid. My answer is this: a mass crowd. It is something to which you cannot entrust yourself yet without risk.”
To Seneca, the individual who sought to live a pious life risked much by associating with the crowd. He believed that the contagious emotions of the crowd tempted individuals to be self-indulgent and self-serving. In fact, Seneca attributed such power to the influence of crowds that he believed anyone, even a great man, to be susceptible. “A Socrates, a Cato or a Laelius,” he wrote, “might have been shaken in his principles by a multitude of people different from himself.”
These reflections are relevant to investors. Not only must we cope with our own emotions, we need to avoid catching the emotions of others. This is hard given our biological hardwiring and the constant exposure we face, whether it’s reading news stories or talking with our zealous brother-in-law at the dinner table.
So how did Seneca advise dealing with the crowd? In his estimation, it was best to “neither hate nor imitate the world.” Instead he advised to “shun both courses: you should neither become like the bad because they are many, nor be the enemy of the many because they are unlike you.” Retire into yourself, he said. In other words, Seneca argued that while you can’t fully ignore the crowd, you can avoid unnecessary exposure to it. And doing so allows you to research and form your own view, first.
In practice, our team uses a number of strategies to block or detach from emotional exposure. These strategies include:
1. Avoid short-term noise as much as possible, while paying more attention to information sources that emphasize long-term perspectives. There is an immense array of information on investing out there…and you don’t need to read it all. Information that doesn’t benefit you is anything that doesn’t give you new insights while exposing you to the emotions of others.
2. Limit repeat exposure to the same signal. Once you’ve received a signal, it doesn’t make sense to keep exposing yourself to the same emotions that surround that signal. For example, it might make sense to read about the Greek crisis, but you don’t necessarily need to keep watching the same TV program about Greece over and over again.
3. Deliberately incorporate “pause time” into decision-making. When an event occurs, the first thing you want to do is pause. After that, it is critical not only to review the evidence, but to also become aware of your emotions in the situation. Awareness of how you feel is an important first step in detaching from the emotion of others.
4. About half of the members of the research team maintain a regular habit of meditation. Regular meditation has the potential to improve your awareness of your thoughts and emotions, while giving you some tools to regulate them.
All too often, when an event unfolds, we look to the masses for understanding without spending the necessary time to come to our own conclusions. Seneca would have us do the opposite; and more, he would have us keep the opinions and emotions of the crowd at arms’ length.
“When a mind is impressionable and has none too firm a hold on what is right, it must be rescued from the crowd; it is easy for it to go over to the majority.”