Darius Foroux has been an investor since 2007. He is the author of eight books on the topics of productivity, Stoicism, and wealth building. His ideas and work have been featured in TIME, NBC, Fast Company, Observer, and many other publications. He also hosts a podcast, The Darius Foroux Show.
Below, Darius shares five key insights from his new book, The Stoic Path to Wealth: Ancient Wisdom for Enduring Prosperity. Listen to the audio version—read by Darius himself—in the Next Big Idea App.
1. Managing your emotions is the key to building wealth in the stock market.
In the long run, public markets are still the best wealth builders on the planet. The truth is that we can’t afford to not invest. While most assets have appreciated in value over the last century, our purchasing power hasn’t changed much. Sure, wages have increased. But so has inflation. If you don’t invest, it’s more likely that you will 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 number one challenge to wealth building and investing.
When I started investing and quickly lost money, my response was like almost any other human: I stopped investing altogether. That’s what happens to many investors who start investing without a strategy. They invest in something just because other people did. And when the market crashes, the pain of loss is so bad that they swear never to 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. In my experience, investing is 9 percent theory, 1 percent execution, and 90 percent managing your emotions. That’s why I’ve been applying the philosophy of Stoicism to my investing strategy—it helps me manage the most important, emotional component.
Stoicism is an Ancient Greek philosophy that originated in the third century BC. Its foundation is the principle of knowing what’s inside your control versus what’s outside your control. The beauty of this philosophy is that it can be explained in one sentence. At its core, Stoicism is a way of protecting your sanity by managing your emotions. Similarly, you can use Stoicism to manage your money so that you can become a consistent investor, which is how to build wealth.
2. Investing in your skills is the best way to protect yourself financially.
While you don’t have to be rich to start investing, you need to earn more than you spend. 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. In today’s economy, a person who can create value with their skills will never be without a job for long.
“When your skills become a reliable means of earning money, you will no longer fear being without a job.”
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. Another famous investor, George Soros, pursued multiple academic degrees between 1947 and 1954. Then, he took a job as a clerk at a small investment bank, which was his start in finance.
Earning money is the foundation of wealth building. When your skills become a reliable means of earning money, you will no longer fear being without a job. You will free up more mental energy to invest your money and let it compound. Because the truth is that while it’s possible to lose money, the skills you’ve acquired will always remain with you.
3. They key to staying invested is getting comfortable with short-term losses.
One critical aspect of wealth that mainstream books and articles don’t cover is the importance of dealing with loss. Most people can’t stand the thought of losing money. That’s because of the psychological concept of loss aversion, which refers to how outcomes are interpreted as gains and losses, where losses are subject to more sensitivity in people’s responses compared to equivalent gains acquired.
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 necks in debt. As I grew older and started earning my own money, I held 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. Look into the history of Warren Buffett, and you will see that his firm, Berkshire Hathaway, was a failed textile company. The famous hedge fund manager Bill Ackman lost hundreds of millions of dollars when he betted against a stock in 2012. George Soros took a 22 percent hit in 1981 when his bet on British government bonds didn’t play out. In all these examples, their biggest successes came after their biggest losses.
The key is never to lose big. When you have a solid long-term investment strategy, like investing in the S&P500 index, which consists of the 500 largest companies in the US, you can bet that your investment will not go to zero. Sure, the stock market might decline, but as long as the economy grows, the market will always rebound. It has done so for the past 100 years and is likely to keep going up over the next 100. When you experience losses in the market, they are only temporary.
4. For money to compound in the future, you must part with your money today.
When you’ve acquired some money, you can start turning it into a lot of money. You’ll rely on the power of compounding to grow what you have. You will no longer rely solely on exchanging your time for money, which should give you a sense of freedom. This is the true definition of wealth: to break free from the trap of earning money with your time. Instead, you will let your money do the work on its own.
“This is the true definition of wealth: to break free from the trap of earning money with your time.”
Small returns year after year lead to big results over time. When you’re consistently investing in the stock market, it’s only a matter of time before your wealth grows exponentially. This knowledge will give you satisfaction every time you invest. Just visualize that the money you invest today will be worth more in the future. Isn’t that a good feeling? The most Stoic thing you can do with your money is to say goodbye to it the moment you invest it in the market. Just say to yourself, “I won’t see this money back for a long time.” This mental shift will help you avoid forced selling. That’s the most important thing when it comes to compounding.
5. If you invest consistently today, you don’t have to worry about retirement.
Too many people worry about whether they will be financially okay when they retire. You can take this worry away by doing the right thing today. When you consistently live below your means, enjoy a simple life, and invest in the stock market every month, you will inevitably build wealth. It’s only a matter of time before you become financially robust. This means that you don’t have to worry about your retirement. Focus on the present. As one of the most famous Stoic philosophers, Seneca, once said: “True happiness is to enjoy the present, without anxious dependence upon the future, not to amuse ourselves with either hopes or fears but to rest satisfied.”
The key is taking action, but we tend to keep searching for that special piece of wisdom that makes the difference. So, we read more books, listen to more podcasts, and follow the different investing sages online. Until you take your money and put it on the line, you never know what it feels like to invest. I’ve made nearly all the investing mistakes one can make, but Stoicism has helped me 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. In the long term, markets move in one direction: Up. You either take the ride up or you stay where you are.
To listen to the audio version read by author Darius Foroux, download the Next Big Idea App today:
