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Invest Like a Buddhist Monk

by Jonathan Herson, GuruFocus.com, April 29, 2008

New York, USA -- Invest like a Buddhist monk? Are you sure this is the right title? Maybe it’s the wrong GuruFocus.com.

Nope, this is definitely the right title, the right topic, and the right website. You may be wondering how I came up with such a concept.

The key word is latticework. As Charlie Munger likes to say, “To the man with a hammer every problems looks like the head of a nail.” For years I was that man with a hammer. I would be stuck with one lens for each subject, closed to any other points of view.

But after studying successful investors and Buddhism for many years my perspective began to change. I noticed that a lot of the characteristics that showed up in successful investors also showed up in Buddhist philosophy. By looking through the lens of Buddhism on stock investing, I was not only able to dramatically improve my investment results, but my life as well.

So lets get this latticework started with a brief background of Buddhism.

Brief Background on Buddhism

In 623 BC on the border between India and Nepal a prince named Siddhartha Guatama was born. Siddhartha’s father King Shuddodana consulted Asita, a well-known sooth-sayer, concerning the future of his newborn son.  Asita proclaimed that he would be one of two things:  He could become a great king, even an emperor.  Or he could become a great sage and savior of humanity.  The king, eager that his son should become a king like himself, was determined to shield the child from anything that might result in him taking up the religious life.  And so Siddhartha was kept in one or another of their three palaces, and was prevented from experiencing much of what ordinary folk might consider quite commonplace.  He was not permitted to see the elderly, the sickly, the dead, or anyone who had dedicated themselves to spiritual practices.  Only beauty and health surrounded Siddhartha.

As Siddhartha continued living in the luxury of his palaces, he grew increasing restless and curious about the world beyond the palace walls.  He finally demanded that he be permitted to see his people and his lands.  The king carefully arranged that Siddhartha should still not see the kind of suffering that he feared would lead him to a religious life, and decried that only young and healthy people should greet the prince.

As he was lead through the capital Kapilavatthu, he chanced to see a couple of old men who had accidentally wandered near the parade route.  Amazed and confused, he chased after them to find out what they were.  Then he came across some people who were severely ill.  Finally, he came across a funeral ceremony by the side of a river, and for the first time in his life, saw death.  He asked his friend and squire Chandaka the meaning of all these things, who informed him of the simple truths that Siddhartha should have known all along:  That all of us get old, sick, and eventually die.

At age 29, Siddhartha came to realize that he could not be happy living as he had been.  He had discovered suffering, and wanted more than anything to discover how one might overcome it.

After going from one guru to the next, and pushing his body to its absolute limits (self starvation), he decided that there had to be another way.

While sitting under the Bodhi tree and searching for the answers to human suffering, Siddhartha became the enlightened one. He had discovered the Middle Way, which is the Nirvana-bound path of moderation away from the extremes of sensual indulgence and self-mortification. He began to practice wisdom, morality and mental cultivation (Boeree 1).

So what does all of this have to do with being a successful investor?

Lets go through the four common themes of Buddhism and how they relate to successful investing.

Rationality

Thinking clearly

Empiricism

The Buddha found his way through his own direct experience

Pragmatism

“Strictly speaking in Buddhism scriptural authority cannot outweigh an understanding based on reason and experience” – Dalai Lama

Skepticism

  • The Buddha told his followers not to just believe him
  • They should test out his beliefs and see if they actually work

Successful Investing
              

Rationality

  • “Be fearful when others are greedy and greedy when others are fearful” - Warren Buffett
  • Do not let your emotions get control of you-invest with reason and logic

Empirical

  • Peter Lynch unlearning the theories he learned at Wharton, and relearning how to invest though his own direct experience
  • Most of the great investors (Buffett, Lynch, Soros) have borrowed their ideas from others, but before accepting them they tested them out. They learned how to invest mainly through their own direct experience

Pragmatism

“Ben's Mr. Market allegory may seem out-of-date in today's investment world, in which most professionals and academicians talk of efficient markets, dynamic hedging and betas. Their interest in such matters is understandable, since techniques shrouded in mystery clearly have value to the purveyor of investment advice. After all, what witch doctor has ever achieved fame and fortune by simply advising 'Take two aspirins?” – Warren Buffett

Skepticism

“Ships will sail around the world but the Flat Earth Society will flourish” – Warren Buffett

As you can see both Buddhism and successful investing have much in common.

My latticework really started to come together after I read the Kalama Sutra (a sermon given by the Buddha to his followers). After reading it, it seemed like I was reading a Berkshire Hathaway Annual Report!!! Whether he knows it or not, Mr. Buffett’s philosophy is very similar to that of a Buddhist monk (the bold wording comes from the Kalama Sutra):

Don't believe in anything simply because you heard.
“You have to think for yourself. It always amazes me how high- IQ people mindlessly imitate. I never get good ideas talking to other people.” – Warren Buffett

Do not believe in traditions because they have been handed down for many generations.
“After all, if you are in the shipping business, it’s helpful to have all your potential competitors be taught that the earth is flat,” comments Buffett about the current state of college financial training.

Do not believe in anything because it is spoken and rumored by many.
“ A public opinion poll is no substitute for thought” – Buffett

Do not believe in anything simply because it is found written in your religious books.
“If EMT were true I would be a bum on the street” – Buffett

Do not believe in anything merely on the authority of your teachers and elders.
“Forecasts usually tell us more of the forecaster than of the forecast.” –Buffett

But after observation and analysis, when you find that anything agrees with reason and is conducive to the good and benefit of one and all then accept it and live up to it.
“ When proper temperament joins up with the proper intellectual framework, then you get rational behavior.” – Buffett

To sum things up, don’t be afraid to combine topics which may seem unrelated. The man with a hammer syndrome is hard to overcome, but is entirely possible to conquer. In my continuing series, I am going to show you how thinking like a Buddhist monk will make you a better investor.



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