Abridged Note Sent to Students on Epictetus

I have long been a lover of Sharon Lebell’s book (The Art Of Living : The Classical Manual On Virtue, Happiness And Effectiveness) on the philosophy of Epictetus.

Yesterday I sent some excerpts from this book to my BFBV students at MDI. Here is an abridged version of what I sent them:

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Dear Students,

This is an outstanding book. Get a copy and read it.

Some excerpts:

Epictetus’ prescription for the good life centered on three main themes: mastering your desires, performing your duties, and learning to think clearly…

Epictetus recognized that everyday life is fraught with difficulties of varying degree. He spent his life outlining the path to happiness, fulfillment, and tranquility, no matter what one’s circumstances happen to be.

Know What You Can Control and What You Can’t

Happiness and freedom begin with a clear understanding of one principle: Some things are within our control, and some things are not. It is only after you have faced up to this fundamental rule and learned to distinguish between what you can and can’t control that inner tranquility and outer effectiveness become possible.

Within our control are our own opinions, aspirations, desires, and the things that repel us. These areas are quite rightly our concern, because they are directly subject to our influence. We always have a choice about the contents and character of our inner lives. Outside our control, however, are such things as what kind of body we have, whether we’re born into wealth or strike it rich, how we are regarded by others, and our status in society. We must remember that those things are externals and are therefore not our concern. Trying to control or to change what we can’t only results in torment.

Remember: The things within our power are naturally at our disposal, free from any restraint or hindrance; but those things outside our power are weak, dependent, or determined by the whims and actions of others.

Recognize Appearances for What They Really Are

From now on, practice saying to everything that appears unpleasant: “You are just an appearance and by no means what you appear to be. ” And then thoroughly consider the matter according to the principles just discussed, primarily: Does this appearance concern the things that are within my own control or those that are not? If it concerns anything outside your control, train yourself not to worry about it.

See Things for What They Are

Circumstances do not rise to meet our expectations. Events happen as they do. People behave as they are. Embrace what you actually get. Open your eyes: See things for what they really are, thereby sparing yourself the pain of false attachments and avoidable devastation… Things and people are not what we wish them to be nor what they seem to be. They are what they are.

Accept Events As They Occur

Don’t demand or expect that events happen as you would wish them to. Accept events as they actually happen.

Disregard What Doesn’t Concern You

Spiritual progress requires us to highlight what is essential and to disregard everything else as trivial pursuits unworthy of our attention. Moreover, it is actually a good thing to be thought foolish and simple with regard to matters that don’t concern us. Don’t be concerned with other people’s impressions of you. They are dazzled and deluded by appearances. Stick with your purpose. This alone will strengthen your will and give your life coherence. Refrain from trying to win other people’s approval and admiration. You are taking a higher road. Don’t long for others to see you as sophisticated, unique, or wise. In fact, be suspicious if you appear to others as someone special. Be on your guard against a false sense of self-importance.

For good or for ill, life and nature are governed by laws that we can’t change. The quicker we accept this, the more tranquil we can be. You would be foolish to wish that your children or your spouse would live forever. They are mortal, just as you are, and the law of mortality is completely out of your hands. Similarly, it is foolish to wish that an employee, relative, or friend be without fault. This is wishing to control things that you can’t truly control. It is within our control not to be disappointed by our desires if we deal with them according to facts rather than by being swept away by them. We are ultimately controlled by that which bestows what we seek or removes what we don’t want. If it’s freedom you seek, then wish nothing and shun nothing that depends on others, or you will always be a helpless slave. Understand what freedom really is and how it is achieved. Freedom isn’t the right or ability to do whatever you please. Freedom comes from understanding the limits of our own power and the natural limits set in place by divine providence. By accepting life’s limits and inevitabilities and working with them rather than fighting them, we become free. If, on the other hand, we succumb to our passing desires for things that aren’t in our control, freedom is lost.

Approach Life As a Banquet

Think of your life as if it were a banquet where you would behave graciously. When dishes are passed to you, extend your hand and help yourself to a moderate portion. If a dish should pass you by, enjoy what is already on your plate. Or if the dish hasn’t been passed to you yet, patiently wait your turn. Carry over this same attitude of polite restraint and gratitude to your children, spouse, career, and finances. There is no need to yearn, envy, and grab. You will get your rightful portion when it is your time. Diogenes and Heraclitus were impeccable models of living by such principles rather than by raw impulses. Make it your quest to imitate their worthy example.

Happiness Can Only Be Found Within

Freedom is the only worthy goal in life. It is won by disregarding things that lie beyond our control. We cannot have a light heart if our minds are a woeful cauldron of fear and ambition. Do you wish to be invincible? Then don’t enter into combat with what you have no real control over. Your happiness depends on three things, all of which are within your power: your will, your ideas concerning the events in which you are involved, and the use you make of your ideas. Authentic happiness is always independent of external conditions. Vigilantly practice indifference to external conditions. Your happiness can only be found within. How easily dazzled and deceived we are by eloquence, job title, degrees, high honors, fancy possessions, expensive clothing, or a suave demeanor. Don’t make the mistake of assuming that celebrities, public figures, political leaders, the wealthy, or people with great intellectual or artistic gifts are necessarily happy. To do so is to be bewildered by appearances and will only make you doubt yourself. Remember: The real essence of good is found only within things under your own control. If you keep this in mind, you won’t find yourself feeling falsely envious or forlorn, pitifully comparing yourself and your accomplishments to others. Stop aspiring to be anyone other than your own best self: for that does fall within your control.

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There’s an unbelievable amount of wisdom that I found in this book. And I am not just referring to how to lead a good life though there is plenty of that in this masterpiece. I am also referring to the immensely practical lessons for my investing profession contained in it. I am citing just one of those lessons here.

Take this passage:


Know What You Can Control and What You Can’t: Happiness and freedom begin with a clear understanding of one principle: Some things are within our control, and some things are not. It is only after you have faced up to this fundamental rule and learned to distinguish between what you can and can’t control that inner tranquility and outer effectiveness become possible…

Remember: The things within our power are naturally at our disposal, free from any restraint or hindrance; but those things outside our power are weak, dependent, or determined by the whims and actions of others.


What’s the practical lesson I found? Well, let me tell you. When value investors make decisions about which stocks to buy they need a framework to help them figure out just how attractive a given investment is as compared to other opportunities which may also be available at the time. Now how does one go about doing that? There are many approaches and of course we will discuss them in this course but in the end what we are trying to do is to estimate the expected return on an investment over an investment horizon of five or ten years. Now, let us say, that using one of the many methods we come to the conclusion that a given investment is expected to deliver a return of say, 18% a year over the next ten years.

Now, picking a leaf from Epictetus, here is what I do (which I earlier did not do before I read up on him): I take the total expected return and break it into three components:

1. Expected dividend return;
2. Expected earnings growth; and
3. Change in earnings multiple

Why is this useful? Read the Epictetus extract again and think about what’s in your control and what’s not in your control.

Determining dividend return is up to you. So is the second factor which is earnings growth rate. Both these things are your estimates. They are in your control in the sense that you can exercise restraint while making projections about them. For example, even if you feel profit margin will expand from 12% to 15% in 5 years, you can always control your enthusiasm and limit it to say, 13% by the end of year 5. I mean this is totally up to YOU.

Now think about that last factor – change in earnings multiple. How do you figure it out? Well you simply reverse engineer from 18% expected return and remove the contribution from the first two factors.

Now think about that factor – change in earnings multiple. That’s the one factor which is TOTALLY OUT OF YOUR CONTROL because it depends on the behavior of OTHER PEOPLE.

Epictetus says, don’t get into situation where your happiness is dependent upon the “whims and actions of others.”

Now, how cool is that?

My interpretation is that if a large part of total expected return must come from earnings multiple re-rating, then if I invest in such a situation, I will be DEPENDENT ON THE WHIMS AND ACTIONS OF OTHERS. That’s because multiple re-ratings happen because a business or an industry or a market segment (for example small caps) become relatively glamorous or when the entire market is in an optimistic mood. And I have ZERO control over that.

I have SOME control over ME (in the sense that hopefully I have the means to control my emotions like overconfidence etc) but I have NO control over OTHER PEOPLE. And predicting the behavior of other people is hard and is not likely to result in good outcomes.

Now think of a situation where the expected return is the same but the STRUCTURE of the return is different in the sense that most of it will come from the first two factors – dividends and earnings growth – which are far more in your control than multiple re-rating.

Conceptually, these two situations look the same. Philosophically, and even on a very practical level, they are not the same. One is preferable to the other. And if you agree with Epictetus, you will know which one…


3 thoughts on “Abridged Note Sent to Students on Epictetus”

  1. As it is said in Jainism, most things happening around you, to remain happy, you need to observe only I.e. be Drashta and Ghanta and not Karta.

  2. Just saw your tweet on Covid… Hope you recover fast and take care…..Hats off to your dedication to teaching that even now you are posting lecture videos rather than taking rest…….

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