One of the blogs I like to follow is Burgundy Asset Management’s. Burgundy’s investment philosophy derives from Graham and Buffett, just like mine does, and I find they often have insightful things to say about investing or about finding value.

They recently posted a blog on some stoic virtues for investors. You can see the original post here. This is a topic that really resonates with me so I thought I would reproduce the 5 lessons that Burgundy identified as I think they are great lessons for all investors, but especially those who pursue a value style of investing.

Practice Misfortune

The Stoic exercise of imagining things that could go wrong or be taken away from us is a very instructive exercise. Seneca, who enjoyed great wealth as the adviser of the emperor Nero, suggested that we ought to set aside a number of days each month to practice poverty. Put yourself face to face with want, and you’ll ask yourself… “Is this what I used to dread?”

Anyone who invests money will eventually have to deal with losses. Though we endeavor to limit them and make them as temporary as possible, losses are inevitable. If losses are something you fear, then this exercise can help you cope with the potential for losses. It can also be instructive as to how much volatility you should be willing to take on with your investments.

If your portfolio loses 10 or 20% of its value, will your lifestyle be affected? What if the losses are more significant? If the impact of a significant decline is unbearable for you then you should construct your portfolio (with your advisor’s help) to limit the possibility of these unbearable losses. There are many strategies which can limit the impact of temporary losses on your lifestyle and this may allow you to address fears of loss.

If a decline has no real impact on your lifestyle, either because you and your advisor have planned for such an instance, or because you have significant enough resources that it doesn’t affect your lifestyle, then you should not be overly concerned, and there is certainly no cause for “dread”.

Turn the Obstacle Upside Down

If you can properly turn a problem upside down, every “bad” becomes a new source of good.

(There is a fantastic video done by Jocko Willink, a Navy Seal, best selling author, and business consultant on this topic. You can find it here. I’d highly recommend you go and watch it. It’s not long and is very cool.)

What might be perceived as a negative or a bad thing, may actually be a great opportunity. For value investors this takes on a special meaning because the periods where the markets appear to be at their worst, when there is a stock market crash or bear market or recession, is actually when the value investors will shine the most. Those are the times when the greatest opportunities arise and strong companies or investors can take advantage of those.

Two companies that we own, TD Bank and Power Corporation, both took advantage of the financial crises in 2008 to expand their businesses at the expense of their competitors. They’ve continued to maintain fortress balance sheets which will keep them prepared for the next inevitable crises. Just like TD and Power Corp, we don’t see market crashes as disasters, we see them as huge opportunities.

Follow your Own Path

Seneca instructed that you should believe in yourself and trust that you are on the right path, and you should avoid casting doubt on yourself because of the myriad of paths others around you are taking.

The fear of missing out is a huge problem with investing. The famous quote by Charles Kindleberger is instructive, “There is nothing more disturbing to one’s well being and judgment then to see a friend become rich.”

Popular investments are like fashion trends. Today’s “in style” stock or investment often find themselves on the garbage pile in short order. Investments like cryptocurrencies were can’t miss opportunities only 9 months ago, but they have had huge declines since then. How many people bought cryptocurrencies because their friends were making tons of money on their own cryptocurrencies they bought? How many of those people bought a cryptocurrency with very minimal research into the investment?

It can sometimes take a lot of courage to stand apart from the crowd and chart your own path. As value investors it’s something we take pride in.

Pay your Taxes

“Nothing will ever befall me that I will receive with gloom or a bad disposition. I will pay my taxes gladly”

This is a tough one for me as I hate paying taxes even more than most. It sometimes can be very enticing to pursue an investment strategy that can allow investors to legitimately deduct or defer taxes. In fact there are many strategies which will not only reduce your tax burden but I believe will also improve your investment returns. For example, we exercise a long term buy and hold strategy which minimizes turnover in our client’s portfolios. This not only leads to better investment returns but has the added bonus of deferring capital gains for long periods of time, and possibly indefinitely.

However, far too often I see investors being penny-wise and pound-foolish when it comes to taxes. Here are some common mistakes/risks I see where tax-planning overrides investment decisions:

1. Postponing the sale of an investment that has become too large in your portfolio, or that has become largely overvalued, in order to defer capital gains.

2. Overweighting high-dividend Canadian stocks in your portfolio because they are receive a favourable tax treatment, and by doing so missing out on the plentiful investment opportunities that exist outside of Canada.

3. Investing in vehicles associated with tax credits (flow-through shares or labour sponsored funds) without assessing their potential as an investment, independent of the tax benefits.

If I can choose to have more money and pay more tax, I will always take that choice over having less money and paying less tax.

Keep it Simple

“Do nothing but what is necessary”

The investment industry attracts a lot of smart people to it. Unfortunately smart people have a bad habit of often over-complicating things. For clients, complexity is often impressive even if it adds no value, so complexity, while detrimental, is often useful in selling the investment. What’s more, complexity is also helpful in justifying high management fees to the clients. Unfortunately high complexity does not help investment returns and is often detrimental to investment returns.

The problem lies in owning complex investments that you do not really understand. Even though you don’t understand them, the complexity gives you a false sense of comfort. When you combine that with the smart people who sell them to you, you have a real recipe for getting yourself into trouble.

If you buy something you don’t understand, you won’t have the conviction to stick with it when the market causes it to go down. Is it a buying opportunity or is it simply a bad investment? If you don’t understand it, you won’t know the difference. One of the dangers that I see in the increased usage of ETFs is that these seemingly simple investments can actually be quite complicated. When amateur investors are dabbling in investments they don’t really understand, they are setting themselves up for failure.

Simplicity facilitates decision making. I’m a firm believer in having a concentrated portfolio that you understand very well. That way you can approach times of market panic with the calm level head of someone who knows they have value in their portfolio and can act accordingly.

These are just some simple lessons from the Stoic philosophers which I think apply particularly well to investing, but also to life in general. I hope you will find them useful!