2. Why mindfulness for investing?

 

Article 1 discusses how mindfulness makes you more calm and focused.  This mindset obviously supports better investment, financial, and life decisions.  Beyond being calm and focused, examining the Buddhist origins of mindfulness reveals that mindfulness supports good decisions in other ways as well.  You don’t have to be a Buddhist or even pay much attention to Buddhist philosophy to use mindfulness to make better decisions.  In fact, I would argue that the essence of mindfulness (facilitated through meditation) likely created the Buddhist philosophical precepts discussed here, rather than the other way around.  Nonetheless, some discussion of these Buddhist origins helps answer our question: Why mindfulness for investing?

To start, there are many more aspects to Buddhist philosophy than I cover in this short article.  Thus, I won’t discuss most of the central tenants of Buddhism, such as the four noble truths of Buddhism, which address suffering in life, its causes, and liberation from that suffering.  (If you are looking for more comprehensive information on Buddhism, I recommend this website.)  My main purpose here is to parse out those aspects of the philosophy that are most relevant to making better decisions including:

  • Rationality
  • Empiricism
  • Patience
  • Humility

Rationality – Mindfulness is about thinking clearly and knowing what you are thinking about.  As a result, we can make rational decisions as opposed to emotional or visceral decisions (e.g., we can avoid the so called “animal spirits” often discussed in investing circles).  Although there are various translations, the Buddha said something along these lines:

  • Do not accept anything on mere hearsay…Do not accept anything by mere tradition…Do not accept anything on account of mere rumors…Do not accept anything just because it accords with your scriptures…Do not accept anything by mere suppositions…Do not accept anything by mere inference…Do not accept anything by merely considering the reasons…Do not accept anything merely because it agrees with your pre-conceived notions…Do not accept anything merely because it seems acceptable…Do not accept anything thinking that the ascetic [the disciplined religious person] is respected by us.

Some contend that the Buddha suggested we should avoid using logic altogether.  However, my personal view is that the above translation reasonably represents a mindful approach.  This approach is also sometimes termed “skepticism”, which is one aspect of being rational.  In summary, mindfulness means that you don’t take things on face value or as received wisdom.  Use your own mind to figure out what is correct and incorrect.

Empiricism – Buddhism supports using direct experience or direct knowledge as the best way to decide what is true and false.  A modern scientist would call this being informed by observational data or empiricism.  The conclusion to the quote above is:

  • But when you know for yourselves — these things are immoral, these things are blameworthy, these things are censured by the wise, these things, when performed and undertaken cause ruin and sorrow — then indeed do you reject them.

The opening phrase “when you know for yourselves” in this context means to understand through your own direct experience.  The Buddha suggested that the truths he described could only be completely verified through our own meditation and mindfulness.  From an investing perspective, an extreme interpretation of this concept would be to invest by trial and error to have “direct knowledge” of good investing principles.  However, for our purposes, direct knowledge includes critically analyzing for ourselves the actual results of others’ investments.  To be mindful, we should conduct this critical analysis rationally and only when we have good reason to believe the results are not fabricated or unreasonably manipulated.  In summary, a mindful approach is empirical or informed by solid data.

Patience Some forms of Buddhism describe the six (or ten) perfections, which are the qualities of an enlightened or mindful person.  One of these qualities is patience or endurance.  Patience is also one of the 38 “blessings”, which describe those things that are most valuable in life.  In Buddhism, patience refers to both patience with ourselves and with others in all human activities and interactions.  This grand sense of patience is consistent with, and generated by, the meticulous fine-grained patience needed to meditate in the first place.  As mentioned in Article 1.1, because our minds become easily distracted and must be constantly drawn back to the subject of the meditation (e.g., the breath), patience is also the key to skillful meditation.  In summary, one must have patience to achieve mindfulness, and patience is also a key quality of being truly mindful.

Humility – Humility is another of the 38 “blessings” that are most valuable in life.  Humility is often praised in Buddhism, and its opposite, pride, is often and reasonably denigrated.  A humble attitude allows us recognize our own faults and avoid prideful delusions.  Thus, humility supports a more objective perspective.  In summary, mindfulness means approaching all decisions humbly and with a firm understanding of our own competencies and limitations.

Better decisions

Hopefully, it’s becoming apparent how these four aspects of mindfulness support better decisions.  Clearly, a rational approach to decisions is better than gut instinct or emotional reactions.  Decisions based on sound data that are comparable to our own situation will be better than decisions based on conjecture or attempted pure reason.  Patience gives us greater capacity to avoid poorly conceived or hasty decisions.  And given that investing is sometimes about timing, patience helps us wait until the time is right.  Humility gives a better viewpoint from which to identify potentially delusional decisions.  I will talk more about humility in Article 5, but there are many examples of investment disasters caused by people’s firm belief that they were somehow more insightful than most of the other market participants.

Science and mindfulness

You may have noticed that many of the qualities of mindfulness supporting good decisions are consistent with the principles of scientific investigation and discovery.  This gives us yet another way to understand a mindful approach to investing.  If you don’t like to think about mindfulness in terms of Buddhist philosophy you can reach mostly the same conclusions by simply thinking of mindfulness as a scientific tool of inquiry.  The internet credits, whether correctly or not, the 14th Dali Lama as saying “If science proves some belief of Buddhism wrong, then Buddhism will have to change.”  Thus, a modern view of mindfulness and science share a common foundation in that they both attempt to find fundamental truths, or reality, if you prefer.

Clearly, there are many aspects of Buddhist mindfulness as practiced in the world today that are primarily mystical or ritual and cannot be clearly related to science.  And just as clearly, there are many scientific endeavors that fail to describe any fundamental truth as Buddhism likely does.  For example, more than one study has shown that very few scientific experiments in certain technical areas are actually consistently repeatable.  Nonetheless, mindfulness originating from Buddhism and science both at least make concerted efforts to find the truth (or reality).

Further, it is perhaps more useful to turn this question on its head.  The day-to-day skillful practice of mindfulness attained through diligent meditation can be mostly divorced from its Buddhist origins.  In this modern context, mindfulness has the prospect to improve both Buddhism and science as it is actually practiced.  On the Buddhist side, there is a long and varied history of the most skillful and proper ways to apply mindfulness to a “pure” path, and I won’t attempt to summarize all those philosophical arguments here.  But on the science side, I would say that a skillful practice of mindfulness would vastly improve science as it is actually conducted today.  And so, I would say the same benefits from mindfulness are potentially available to the art and “science” of investing.

 

Leave a Reply

Your email address will not be published.