A Stoic Approach to Austrian Investing

After total costs and your behavior, the nature of your strategy is the most important factor to win the investment war:

  1. Costs: If you don’t want to lose half of the wealth you could build in the long way, you have to take care of total costs. It’s common sense, but most investors underestimate it due to their unreal expectations and markets’ short-term volatility.
  2. Your behavior: Markets are already challenging enough. You don’t want to become your own worst enemy jeopardizing reaching your goals with bad behavior. I propose the teachings of the Ancient Stoicism as a way to tame the negative side effects of our emotions on our investments.
  3. The strategy: You have to invest in a way that is consistent with the nature of markets. The Austrian School of Economics and millenary wisdom has helped me to find a way to develop a simple and effective strategy.

Here you will find —following the few and easy steps of the monthly Newsletter— a simple yet robust long-only no-leveraged global multi-asset strategy that aims to generate equity and gold-like returns over the long-term, but with half their volatility and drawdowns.

A quiet, profitable, sensible and transparent investment strategy —based on the principles of the Austrian School of Economics and Ancient Stoicism— that takes advantage of the inevitable and perennial properties of economics and human nature.

Welcome to the Stoic way of Austrian Investing

Why an Austrian Economics Strategy?

Any investment strategy that aims to be profitable into an unknown future should be based on timeless principles that stand the test of time and respect the fundamental nature of markets —like those provided by the Austrian School of Economics—, so the strategy would be equally effective for an investor centuries ago than for a today’s investor.

So I asked myself: How would Hayek, Mises, Menger and other Founding Fathers of the Austrian School of Economics invest today?

In other words, how we can answer the three essential investment portfolio questions from an Austrian Economics point of view?:

  1. What assets to invest in?
  2. What asset allocation to implement?
  3. What risk control to run?

These were the central questions I asked myself during the Financial Crisis of 2008, when the Keynesian principles in which I was instructed and the paradigms of mainstream investment strategies fell apart.

Economists have long used quantitative methods to provide us with theories and explanations of why and how certain things happen in the markets. Paradoxically, none of these theories and explanations have been able to consistently predict past, current and future crises, neither to forecast the markets. They stubbornly continue to rely on models of explanation that are essentially quantitative, ignoring the fact that individual human behavior cannot be aggregated to collective behavior —as if we were a gas or fluid.

This realization led me to focus on the Austrian School of Economics, as I became aware that the Austrian point of view is much more coherent and adjusted to the ultimate reality of economics and markets, than that of the mainstream economic orthodoxy. This gives us a competitive edge usually despised by the investment industry: a philosophical advantage.

The Austrian solution I deduced to these questions crystallized into the simple yet robust strategy I propose, that you can easily implement through my newsletter.

More about the investment process of the strategy here.

More about the strategy resultshere.

Why Stoicism?

“The knowledge of how little you can know about the future, coupled with the acceptance of your ignorance, is the defensive investor’s most powerful weapon.”

—Benjamin Graham, 1949

There is one essential and dangerous element when investing that cannot be eliminated from the process: the investor himself. Even with a winning strategy, bad behavior along the long road can spoil the best of strategies. And the journey is long, very long.

In other words, not only will our strategy condition our success in investing, but how we behave during the long march as well. Finding the right attitude towards investing is a precondition to successful investing, as the long term is full of traps that come from both the outside and especially from ourselves.

After 20 years working in financial markets and learning financial history, I have come to the conclusion that the best way to approach discipline and consistency when investing is from a Stoic perspective: Stoicism directs us to focus only on what is within our power —costs, behavior, and strategy—, and not let ourselves to be influenced by everything that is beyond our control —such as the news and the future evolution of prices. Therefore Stoicism is the attitude that best suits the unpredictable and uncontrollable nature of financial markets in order to successfully complete the journey and not become our worst enemy.

More about Stoicism on investinghere.

Subscribe to the Austrian Investor Newsletter here.