Lucius Annaeus Seneca the Younger (3 BC - 65 AD) was one of those particularly Roman multi-talents. He was his era’s most renowned stoic philosopher as well as a distinguished playwright. He was also an advisor to Nero, who forced him to commit suicide when Seneca picked the wrong side in a plot to assassinate the emperor. In addition, Seneca was evidently an astute and very successful investor, amassing a considerable fortune.
Unfortunately, we know nothing about his investment philosophy. Back then, the wise and the wealthy were not writing airport bestsellers on how to get rich. They were focusing on more important moral issues. But we can find some hints in Seneca’s writings about how he saw the world and, hence, what might have been his investment strategy.
And we can also look to stoic philosophy for insights into Seneca’s investment philosophy. In his pamphlet, On the happy life, Seneca states “argumentum pessimi turba est,” which means, essentially, the mob’s favor is proof of the worst. This definitely sounds like the great thinker did not hold the view of the masses in high regard. Today, this would make Seneca a true contrarian.
Whether he was the first of his kind or merely pursuing a known investment strategy remains an open question. Nevertheless, it requires the considerable moral strength of a stoic to be a true contrarian. This stance does not conform; rather it rejects broadly held opinions. This can lead to painful social exclusion.
For some investors, being called a contrarian is high praise. Many aspire to the status but, in fact, fail to really achieve it, given that their investment behavior is actually rather conformist.
So what is a contrarian? A superficial definition would state that a contrarian investor always acts opposite to the crowd. However, this would imply that the crowd is always wrong and that might be too harsh a statement. In 1841 Scottish journalist Charles Mackay published his classic, Extraordinary Popular Delusions and the Madness of Crowds. But American journalist James Surowiecki ably countered in 2004 with his book The Wisdom of Crowds, where he makes a forceful argument in favor collective intelligence.
In our view, crowds can sometimes be right and sometimes be wrong. So if we accept this superficial definition of contrarian investing, it will sometimes be successful and sometimes not. We need a better definition and stoicism can help us here.
While it is commonly understood that stoicism calls for the repression of feelings and the endurance of pain without blinking, this is not what stoic philosophers like Seneca emphasized. For them, reason, discipline and clear judgment as well as inner calm was the way to conquer passion and emotionalism. Successful contemporary investors like Warren Buffet or Jeremy Grantham are commonly labeled contrarians. In fact, they surely are disciplined and resist following the latest investment fads or stories.
Hence, true contrarian investors do not merely resist the favor of the crowd. Nor are they so-called “perma-bears,” who always see the world through a pessimistic lens. Contrarian investors, like modern stoics, are simply dispassionate. They follow a line of reason when investing. Or, borrowing from another Stoic sage, Marcus Aurelius, successful investing is nothing other than “following right reason seriously, vigorously, calmly, without allowing anything else to distract you.”
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