How to Reduce Your Investing Anxiety Using A Stoic Approach With Darius Foroux (EP.161)

0:26We all need to make smart decisions with our money. author of The Stoic Path to Wealth, Ancient Wisdom for Enduring Prosperity. Darius is the author of eight books in total and regularly writes about productivity, stoicism, and wealth building on his website, which I'll link to in the show notes at the longterminvestor.com. But in this episode, we dive deep into how stoic philosophy can transform your investment strategy and help you achieve financial freedom. Stoicism, if you're not familiar with it, is an ancient Greek philosophy teaching us to focus on what we can control and let go of what we can't.

1:06It's about finding inner peace through managing our reactions and emotions. And in the realm of investing, these principles can be incredibly powerful. So if you've ever felt overwhelmed by market volatility or are ever unsure about your investment strategy, this episode is for you. Join us for a compelling discussion on how adopting a stoic mindset can help you navigate the complexities of investing with greater clarity and confidence. Without further ado, here is my conversation with Darius Farouk. Darius Farouk, welcome to The Long-Term Investor. Thanks for having me. I would love to just kick it off by having you tell the audience a little bit about yourself and how you got to where you are today.

1:52Yeah, so I've been a lifelong stock market enthusiast. So as far as I can remember from my teens, I've been obsessed with the stock market ever since I watched that movie Wall Street, like so many other folks who got interested in stocks. And the funny thing is everybody knows it's a cautionary tale, but in general, it works the opposite. So I wanted to become Gordon Gekko. and I bought my first stocks when I was 20. And at the time, this was in 2007, I was in college and I had a side gig at a bank and I was working as a mutual fund advisor because before 08, that was still possible after a four-week training program.

2:33And a year later, I got burned so bad that I just wanted to stop investing altogether and I didn't have the courage at the time to sell. So I thought to myself, well, I can get my act together. And then that didn't happen. And a few years later, I did end up selling. And ever since that moment, I've always been passionate about finding a consistent way to invest. So I went to grad school. I studied business and specialized in finance. And I started a business. But I always remained interested in investing and learned the craft, learned the skill, and I found that I still wasn't able to invest until I found Stoic philosophy, and that helped me to manage my emotions.

3:23And when I discovered the philosophy, I really realized that investing is mostly about managing your emotions. So yeah, that's my background. And I've been writing online and been writing books since 2015. Well, in your latest book, The Stoic Path to Wealth, really encompasses so much of what you're talking about. It's important, though, that everybody finds a way to invest. Investing is really, really important. Ultimately, if we could just put all of our savings in cash and have that be okay, taking no risk, that would be great. But ultimately, that just doesn't really work. There's inflation involved.

4:03You would probably have to work forever. You need to grow your money at a rate greater than inflation, hopefully without taking undue risk. How do you see it? Why do you feel like people need to invest? And what are some of the challenges you feel like people face? Yeah, so coming from an immigrant family, we always lived paycheck to paycheck and we had financial difficulties. So when I was young, I always dreamed of becoming financially independent, not just because I wanted to have a big house or buy fancy cars, but I just wanted to have freedom. And when it comes to investing, I think that's the most proven and solid path to acquire that freedom in your life.

4:52Because, as you said, we don't have the opportunity to work our entire lifetimes. And most of us don't even want to do that. We should profit from our capitalist society, I think. but the problem is that most folks don't know how to do that especially if you have normal job you don't work in finance and you're just trying to earn a living and you put some money aside and then you realize at some point well saving is not enough because as you said the rate of inflation my cash becomes worth less than a year ago what should i do and then the journey begins for most folks. And it's such a jungle out there, especially these days online with so much financial advice on social media.

5:45So I was really like so many people throughout my career where I was thinking, what should I do? What should I invest in? Should I pick stocks? Maybe I should look into other assets, et cetera. And I just realized that all of that complexity just makes me want to just take a step back and say, yeah, like so many people say, investing is for rich people. Stocks is just for Wall Street insiders. I don't want to touch that stuff. It's too complex. I don't know what to do. I'm bad with money, all of these types of things. So I feel like if you think that way, you will never build wealth anyway. You will just continue to work, save, and maybe spend, and then see your net worth go up a little bit every single year.

6:36And in general, you just get frustrated after years. And you can avoid that frustration by just starting as early as you can. And of course, everybody has read that Warren Buffett started when he was 11. I wish I started when I was 11, but the best day to start is just today because that's all we have. I'm 100 % with you. That's how you get the most out of compounding is time. And I think the other thing that people face that challenges them once they do start investing is just the everyday volatility. You mentioned social media, news feeds, friends, family. there's so much, I want to say information, but it's closer to noise that is assigning a narrative to the ups and downs of the stock market.

7:27And I think when you know that the stock market is going to lose money on a very, very regular basis, sometimes a lot of money that can help. And something that is interesting that you point out pretty early on in the stoic path to wealth is just that managing your emotions during these times can sometimes be more important than being an investment expert. And there's a cynical quote that you used. I want to read real quickly. Every emotion is weak at first, then it rouses itself and gathers strength as it advances. It is more easily kept out than driven out. Who denies that all emotions originate in a natural beginning?

8:08Nature has entrusted us with care for ourselves, but when you indulge in it too much, it is a fault. So Darius, why do you feel like this managing of emotions is so important for investors? I think every investor who started and failed can relate to that quote because when you start investing and you lose money and then you sell and make that loss permanent, you you will be consumed by the pain of loss and you might start to doubt yourself. And from one negative thought, you go to another thought that's even worse. And that's what happened to me. I thought to myself, well, I'm smart. I should be able to figure this out.

8:57investing shouldn't be that complicated early on. And I just let my emotions grow over time. And I got carried away by them. And the funny thing is, the more I learned, the less secure I became and the less certain I became of investing. Because even if you stick to the best books on investing. It's very difficult to become a successful stock picker. We've all read the news reports every single year of how many mutual fund managers underperform the market. And then we might look at ourselves and think, well, I don't have a team. I should make those types of decisions myself. How can I beat the market?

9:45so there are a lot of limitations in our own minds and I feel like when you give those negative feelings too much power you really stop yourself from getting into the market and then you basically take a lot of future wealth away from yourself so that platitude of you can't afford to not invest I think is totally true. And it's something that I think should inspire people to find a strategy, find a way to deal with your emotions and realize that the most common challenges that folks have, like volatility, you realize, well, volatility doesn't necessarily mean there is more risk. There's just more volatility, more swings.

10:35It has no correlation with risk. You look at dealing with prior losses. Well, what you did in the past doesn't mean that it influences you today. Consistency. You can pick any type of investing strategy that you want, but if you're not consistent with it, how can you ever build wealth? So you must find a strategy and then stick to it. But if you just let your emotions get in the way, you can never do any of those things. I love that last point you make about consistency. So often, people that I'm working with or speaking to with even socially are so concerned about being in the right investment strategy at the right time, where it's not always so much.

11:23There is one investment strategy that's better than others. It's more just that discipline to stick with it and remain consistent. And I'll also add, I agree with you about all the emotion that comes in investing. And I think for viewers, for listeners, you have to know that's very normal. We're working with the same hardware as our ancient ancestors, our hunter-gatherer ancestors, where if you were in the woods and you heard a rustle in the bushes, you just ran. You didn't sit and calculate whether the probability of it being the wind versus a lion is more likely. That's how we ended up evolving.

12:01So these emotions are very real. They're very natural. They cause us to do a lot of things that aren't great for money. Good money behaviors are not very natural. And inner stoicism, we never actually defined stoicism. So maybe you could do that for us and explain why stoic path to wealth is so valuable. Yeah, I love what you said about our money behavior is never natural because it always goes against our instincts because we're more wired to survive today instead of saving and investing and building for the future. So when you're investing, you're automatically doing something that's against your nature.

12:44So that's why it's so challenging. So I love that. And that's one of the reasons that I am so driven to talk more people into investing and not because I have a unique investing approach. I'm sure we'll get to that as well, because I have the most boring investing approach in the world, which is just the index. But to answer your question, so Stoicism is an ancient Greek philosophy that originated in the third century BC. And what I love about this philosophy is that you can explain it in one sentence, which is simply focus on what you control and ignore everything that you don't control. And the reason that it's so popular, especially in recent years, is that it's a philosophy of modern life.

13:37So it's quite hard to imagine that people had modern civilization 2 ,300 years ago, but they were going through the same challenges that we are going today. Just our pace is much higher. So we deal with emotional turmoil. We deal with people, whether people like us or not. We deal with our career and our ability to earn a living. So there are a lot of worries that we have. And I've learned that stoicism is the perfect mental model for that. Because if you are able to separate the things that you should focus on from the things that you should ignore, like what you were saying about noise, I feel like you will become a much more stable human being.

14:25And the more stable you are, the more you can enjoy your life. And I think that's ultimately what matters the most, because why do we even invest? It's because we want to have more financial freedom in the future. But at the same time, also, one of the things that I've learned from stoicism is that the moment that you start living like a stoic, or when you start focusing on what you control, you start saving, live below your means, you invest, you think about the future. I feel like you could already live like you have done the right thing. So it means that today you can stop worrying because you're taking the right actions.

15:06So it will inevitably lead to wealth and just a better life. Look at that. There's fireworks in your background. Is that on purpose? Yeah, I think those are the new Apple features. I don't know how I triggered those, but I thought it came at a good time regardless. So one of the things that you mentioned in that response was freedom and the freedom that money brings, but you also talk about the importance of education to achieving freedom. Can you share some of your thoughts on this topic? Yeah, I think the perfect place to start your journey towards financial freedom is to not focus on the money and the money that you are currently earning or that you have saved.

15:56Because I feel like you'll limit your mindset when you start thinking about what do I have and how can I protect it and potentially grow it. I feel like you'll become too attached to that money. And I think as a successful investor, you should find some detachment when it comes to your own money. And that's, I think, one of the hardest things in life because we spend almost our entire day at our work and we spend so much time and energy to earn money. So this is one of the things that I always struggled with growing up. and later on when I started my career was I always wanted to hold on to every penny that I made.

16:37So it was very difficult for me to let go and let that money ride or let it compound on its own because I wanted to have that control. So what I've learned from studying stoicism is that You can remove that emotion from your system by focusing on something else that is more important than money, which is your ability to generate money with your skills alone. And fortunately, we've created an economy where we are able to do that. We can earn a living through our mental skills, physical skills, and any other type of imaginable way that people are currently earning a living. The opportunities are almost endless in today's world.

17:31And if you simply focus on becoming better, because Stoicism is also a philosophy of challenging yourself to become the best version of yourself and also the best at what you do. So there's this quote from Epictetus, one of the famous Stoics, and he was a very stringent Stoic who favored kind of living a very simple life, bare necessities, etc. And he said, yes, stop wasting your time. Start demanding the best of yourself every single day. and when you do that you generally become better at what you do if you of course spend that time on the things that you control which is your education your skills building a network giving all of your time and energy to your job during the times that you are at work and winding down when you're not at work and in general when you do that you'll start to make steps in your career And then the more you learn and the better you get, the more rewards you generally will receive as well.

18:40And then you'll learn, wow, I can earn more over the years. I don't have to do that within one or two years, but I can do that over five to 10 years or maybe 15 years, have a long-term approach. But at least you're starting to see some of those early steps in your career. then you can think to yourself, well, I'm going to keep earning more if I maintain my current mindset. Now I can invest the additional money that I earn into the market and I can basically just let it go because I'm going to focus on my job and I'm going to focus on getting better. So I'll be able to earn more. And that kind of mindset really sets you up for building long-term wealth.

19:30There's something that you said in particular, the stoic idea of focusing on becoming better, on being the best version of yourself that I think is just so powerful, fully within your control, unlike investing, unlike some of the obstacles that you face, either in the market, in your career, you can focus on becoming better. And education is such a positive thing to focus on. And when you're earlier in your career, it has never been easier to gain a new skill. And it also has never been easier to monetize or maximize that new skill in this economy that you reference. As you get later in your career, there's some fulfillment angle to education.

20:14And even people who are in retirement, there is so much research that shows that as you are learning, you are reinforcing and creating new connections in the brain. And And that leads to brain health. It's so holistic. I think it definitely helps you focus on the right thing. But I see the benefits being so wide ranging. And so why don't we transition a little bit? Let's do a little education. Why don't we talk about the stock market? Just some of the underlying principles. How do you think about these things, Darius? Yeah, so one of the things that is very important as an investor is to understand the mechanics of the stock market.

20:53because it's very simple to look at the real estate business and understand how it works. Properties that have a very good location generally have a higher worth than properties that don't have a good location. And everybody understands that. So people are willing to pay top dollar for top locations. How does the stock market work for the beginner investor, or even for people who have 401k or have these plans at work, a lot of folks don't know what they are investing in or how the stock market really works. And if you really just break things down, you'll see that the stock market is just driven by earnings.

21:43The sole reason that the S &P 500 has been going up for 100 years is that our economy has kept growing and these companies kept growing and they've made more money and hence they become more valuable. So if you just look at these underlying principles of, and particularly the foundation, which I think is the earnings of a company. And if you just simply look at that fact, you'll realize, hmm, okay, that makes sense. Here are 500 largest companies of the US and they have global reach and they keep growing every year. I buy their products. Everybody loves these companies. Of course, not everybody, but at least they are the biggest and they have great revenue growth, et cetera.

22:40Now it starts to make sense why the stock market just keeps going up on the long term. Then you think to yourself, why is it that the stock market goes up and down a lot? It's not like real estate where you only get a price when someone decides to sell. Why do we get these real-time prices? Well, because there are so many people involved in the stock market, we realize that there's this collective psychology because the stock market is just basically a collection of human beings, even though there are also a lot of automated investments and automated trades and quants and whatnot. But behind all of the models and the equations are human beings.

23:29So the stock market is made of human beings. What are human beings prone to? Emotions. So I love the analogy of Howard Marks when it comes to the stock market psychology. He compares it to a pendulum swing. And he says it goes between fear and greed, and it's never in the middle. So as an investor, you should count on the fact that the market is never in balance at any given time. In hindsight, we can say that the efficient market hypothesis works where the market generally corrects over time. And we have this kind of annualized 10 % return because the economy and the companies generally grow by that amount.

24:17as I'm triggering the fireworks again for the people who are watching. But I think just understanding those principles as an investor makes you feel like you understand a little bit more of what's going on when you see the stock market in action, and not necessarily on a day-to-day basis. But when you see that it goes up over time and it has a lot of these fluctuations on a day-to-day basis, you realize that we are generally swinging between fear and greed. And then finally, there are all these narratives going on in the media and the market that also have an influence on the pace of the stock market.

25:08So for example, whether there's a recession going to happen or not, there are a lot of predictions related to the economy, related to interest rates. And these types of predictions generally determine how fast the market goes up or down. So if there's a lot of fear, like in 2020 with COVID, the rate of decline was extremely fast. When there is a lot of optimism, the rate of increase is also quite fast in 2020. So those types of things tell you a little bit more about the story of the stock market as a whole, I think, as an investor. And if you just understand those basic principles, I feel like you're much more at ease with your money in the market because you understand there is a system behind all the madness.

26:07And you realize it's not just something that rich people do. It's not an insider thing. It's not like they're evil people on Wall Street who are determining what's going to happen. And I think a lot of average folks still have that view. If I look at my environment, if I look at people who are not investing, and I talk to them about the stock market, I hear that quite often, where a lot of folks have misconceptions about the stock market. And when I tell them about these principles, they start to see some patterns. And it doesn't mean that you can't predict the market if you understand it, but it just gives you a little bit more background and you can explain a little bit more what's happening.

26:58And I think that's really a priceless feeling as an investor. I'm with you. And I think that something as simple as understanding, like you were saying, that earnings basically drives all the long-term gains and losses, both individual companies and the broad market. When you know that and you understand it, it does help you compartmentalize some of the twists and turns things take. And when we look back, there are three drivers of stock returns. I can run a regression and tell you any given month or quarter or year on the S &P 500, and they're driven by changes in earnings per share, the cash return to shareholders, whether that's dividends or share buybacks, and changes in valuation, which is largely that collective market psychology you're talking about.

27:49Valuations are this complex mix of calculus and psychology that is ever-changing. It's not like a static proportion. And so ultimately, when a return can be explained by something beyond that, it signals that you don't really understand what's going on. Investing is not gambling. It is not a way to get rich quick. It is giving your capital to companies who are going to earn more money with it over time. And I think that piece of information breaks down when, as you talk about, the fear and greed pendulum swing to its extremes. I think the fear one in particular, I mean, it's natural to fear loss.

28:28But as you point out, actually, in your book, we really need to overcome our tendency to avoid losses, these avoidance behaviors. And you have some ways that the Stoics, who view loss a little bit differently, can build resilience to overcome the discomfort of losses. Can you walk us through some of those? So when it comes to losses, I think you can look at it in two ways. You can look at trading stocks where losses generally are permanent. You buy a stock and then you sell it. And what happens in between is permanent. It's what happens until the next trade. But when you're a long-term investor, you have this long-term approach where you have a strategy and you are investing almost as a way of life.

29:17It's a lifestyle. Whether you are investing in an S &P 500 index fund or you have a stock picking strategy, it's something that you just do. Your strategy is the way that you go through life and it's a habit. Now, the Stoic said, if you have a way of life, you should stick to that and Anything that comes with it, you should see as natural. As a long-term investor, I think that dealing with losses is only temporary. If you look at it that way, it doesn't hurt so much because you always know that you will come back. It's not like you are trading and losing or winning. You are investing. You're an investor.

30:10So this is what I love about stoicism because it really reminds you that life comes with a lot of dynamics and you should accept anything. What matters is how you respond. And as an investor, the way that you respond to losses can be different. You could invest more, but in general, it's just to stay the course. I feel like Stoics have so much to offer within this broader space. And a bigger topic these days in finance is finding contentment and enough in life. There is an idea that you highlight in the book called the golden mean. Do you mind sharing what the golden mean is and maybe some exercises people can think through to perhaps achieve that mean?

31:04Yeah, so the golden mean or the middle way is really the key strategy behind Stoicism because Stoicism started in an age when there were two main philosophies in ancient Greece. So there were the cynics and the Epicureanists. and the cynics as the word says were cynical about life they believed that life was simply about enduring pain and that life was just going from one bad event to the other so it's they had this very negative view on life but they taught people to endure the pain which was the positive thing then there was epicureanism which was the philosophy of pleasure and to numb the pain by seeking pleasure the stoics came and said well life should be balanced you should be able to enjoy good things but you should also be able to endure the bad things and they call it the middle way or the golden mean.

32:26And I think that is a perfect lifestyle for today because remember, ancient Rome started to decline when there was a big focus and emphasis on pleasure and decadence. So people lost their discipline. And when we lose our discipline, we generally just go through life without thinking about the future. So what I love about the golden mean is that it really captures both sides of life, which is to say, life is hard. You should train yourself, but you should also reap the rewards of your training and of your investments in yourself and in your finances. So if you live in that golden mean, it just means that you are always balanced.