Practical Philosophy for Financial Markets
Stoic & Dharmic Principles for Investors
I. Introduction
You might think that in the high-stakes world of financial markets a role for ancient philosophic wisdom seems incongruous. Until a few years ago, I did too. Yet, I have come to believe that some principles from Stoic and Dharmic philosophies offer timeless guidance for investors seeking both success and peace of mind.
By examining just a few key concepts in particular, I believe that it is possible to forge an investment philosophy that marries rational analysis with ethical clarity. A basic grasp of some ideas, from the Stoics’ rational will or prohairesis to the Vedic understanding of dharma and the three gunas, yields a powerful philosophical anchor for an investor. This philosophy emphasizes dispassionate decision-making, adherence to core principles over short-term gains, and a balanced perspective on risk and reward.
In essence, it’s a framework for investing as a yogi or a sage might, guided by reason - the Stoic logos - and dutiful virtue or dharma, rather than by greed or fear.
Below, I articulate this philosophy with the help of a set of interrelated principles. I then draw parallels between financial formulas and philosophical tenets, and finally I articulate the idea of financial investing on the basis of a Dharmic Score for assets. The objective is to offer practical insights for investors and teams interested in the fusion of finance and philosophy.
II. The Rational Will of the Rational Investor
The Stoic idea of prohairesis, or our unique capacity for rational choice and the exertion of will, teaches that our true self is found when choice is informed by the judicious application of reason. Epictetus wrote that this faculty of choice is “by nature unimpeded” by external circumstances and constitutes our true inner self, whereas external outcomes (wealth, loss, etc.) are “merely contingent facts” outside our control.
In modern finance, this loosely maps to the concept of the rational investor as a member of Homo economicus, the theoretical “economic man” with “complete rationality, perfect information, and consistent self-interested goals”. While real humans are not perfectly rational, we can strive to emulate the Stoic sage. We can choose to focus on what can be controlled: our decisions, analyses, and, chiefly, our responses to external stimuli. We can attempt to remain indifferent to what cannot be controlled: the myriad of sources that give us external noise.
And so, the first principle is just this:
Principle 1: Focus on what you control
A Stoic or Dharmic investor directs effort toward sound research, asset allocation, cost management, risk control, and so forth. In other words, those elements that are within one’s power. External events, like economic shifts or market sentiment, ought to be acknowledged but are not obsessed over. A key message of the Bhagavad Gita is to “act without attachment to results”, or the concept of nishkama karma. This is, essentially, a Dharmic precursor to the Stoic maxim, “Do your best and let the rest go.” Both philosophies encourage a life of purposeful action guided by ethics or duty, coupled with an attitude of acceptance.
Epictetus says, “There are things which are within our power, and there are things which are beyond our power.” Knowing this, the objective, therefore, is not to actively try to avoid those things that are likely to be adverse and those that are pleasant if they belong in the category of things beyond our control. Divert your focus away from such futilities. To what exactly? In the Isha Upanishad we find the maxim, “Were a man to live a hundred years, the only option is to perform one’s duties unremittingly, and without attachment to results from action.” What sort of actions? A useful directive is those set of actions that yield an eternal good, or shreya, rather than the temporarily pleasant, or preya.
Focus on your duty.
Wise investors concentrate on actions within our control and those that yield lasting satisfaction. This rational will to stick to one’s strategy and process, even amid chaos, mirrors the Stoic ideal of maintaining inner autonomy. In practice, it means having an investment plan and making it your duty to abide by it, not straying from it due to panic or euphoria. The rational investor is organically contrarian when the data demands actions to become thus, because truth in analysis matters more than social validation.
Just as Stoics locate freedom in using reason well, successful investors find empowerment in disciplined decision-making, unencumbered by the crowd’s whims or “externals”. And so, the second principle:
Principle 2: Remain indifferent to externals
Stoics famously classify external outcomes as “indifferents.” Profit or loss, success or failure. These are not inherently good or bad, only our use of them can be good or bad. This hews closely to the idea of nishkama karma in Dharmic philosophy. One of my favorite verses from the Gita is possibly also one of its most famous, Chapter 2: Verse 47. The translation speaks for itself: “Thy right is to work only, but never to its fruits; let not the fruit-of-action be thy motive, nor let thy attachment be to inaction.”
Translating this to investing: making money is a goal but not an end in itself for the philosophically-minded investor. What matters is the work. The how. How the money is made and the character developed in the process. If one has followed a sound process, remaining honest and rational, then even an unfavorable outcome shouldn’t disturb one’s equilibrium.
We do our best in analysis and execution; the eventual results, we accept with equanimity as long as we acted with integrity and wisdom. This mindset prevents the attachment to short-term results that often leads to stress and bad behavior, like chasing returns or taking undue risks out of greed, haste or sentiment led wild by externals.
It closely parallels an Eastern idea we’ll discuss next: Doing one’s duty without attachment to the fruits.
Principle 3: Emphasize Principles Over Profit
This statement, prima facie, seems entirely anti-capitalist, but it isn’t in the least.
In Stoicism, the idea of logos denotes the rational order of the universe and the spark of reason within us. Living in accordance with the logos means acting virtuously and in line with reason, regardless of external reward. And recall that that Dharmic principle of nishkama karma is espousing action without attachments to outcome. These ideas align perfectly: develop an ethos of focusing on action done well over any external result.
For an investment philosophy, logos and dharma translate to process over profit. Here’s Buffet: ““We enjoy the process far more than the proceeds.”
Define clear principles: for example, invest in businesses with strong fundamentals or in strategies you deeply understand, maintain ethical standards (viz. no profit by deception or harm), and stick to long-term strategies (develop a low time-preference). These guiding principles are our dharma as investors. We commit to them even when market conditions tempt us to stray.
A Stoic does the right thing because it is right, and an investor with a Dharmic orientation makes decisions based on analysis and ethical considerations rather than chasing a outcome. The moment you do the latter, you are compromised. You are prioritizing a “feeling” you get from a result, rather than honing your process, perfecting it for systematic and focused performance.
Crucially, this approach advises not being fixated on immediate rewards. When we invest in a sound company or short a bad one; when we invest in a broad index fund or dollar-cost average into a position as a long-term plan, we do so because the action aligns with a reasoned strategy. While we may target a return, we do not get attached to that expected return. We constantly obsess over process and let reason lead action.
In practice, embracing this logos/dharma mindset might mean writing an investment policy statement or maintaining a trading journal that outlines our strategy, our revisions to it and lessons we learn. It requires being honest with oneself ex ante about risk tolerance and gaps in our understanding. And it requires discipline in then rigorously following it. Practically, this may mean, for example, rebalancing when required by our plan, even if it feels counterintuitive (e.g., selling some stocks in a boom to buy bonds, or vice versa in a bust) because the guiding principle of asset allocation discipline outweighs the emotion of the moment.
A key message of the Gita is the sanctity of duty; you must not shy away from your duty because of fear or temptation. Similarly, an investor should not abandon a sound strategy due to short-term noise, be the source of that noise be internal or external.
Success is measured by how dutifully we adhered to a reasoned process. There is a genuine liberation to be found in this philosophy.
This perspective can improve decision-making: studies in behavioral finance have shown that over-trading and chasing performance (i.e. constantly reacting to outcomes) usually diminish returns. The logos-aligned investor, in contrast, sticks to process and cares deeply about refining it
Let go of a fixation on outcome. When you do that, you paradoxically set yourselves up for better outcomes because you will make calmer, principle-based decisions.
Principle 4: Master your emotions
One of the greatest challenges in investing is managing emotions. Fear, greed, overconfidence, and panic are some of the greatest internal enemies an investor can have.
Stoic philosophy regards uncontrolled emotions or pathe as disturbances based on false judgments. I remind myself often of this deceptively simple observation by Epictetus in the Enchiridion: “Men are disturbed not by things, but by the views which they take of things.” In other words, emotions like fear or euphoria arise from our judgment that something is very good or very bad for us.
The literature in neuroscience and behavioral finance is replete with evidence on the outsized role our executive control function plays, not just in our behavior but in our capacity to achieve desired outcomes. The ability to dispassionately assess a situation without judging it to be great or catastrophic is an immensely valuable mindset for an investor. It is worth every moment of your time to hone it. Take time to meditate seriously and cultivate the ability to distinguish your rational mind from the feelings that are constantly assaulting it.
Emotional reactions can be the downfall of investors. For example, an investor who panics during a market dip might sell at the worst time, or one who is swept up in greed during a bubble might ignore warning signs. Investors who, with deliberate practice, cultivate Stoic emotional resilience are less likely to make rash decisions based on panic or hype, instead approaching market swings with calm analysis.
In Dharmic philosophy, the concept of avidya (ignorance or misperception) plays a similar role: it is seen as the root of suffering and the other afflictions of mind. Avidya in this context means seeing the unreal as real. Mistaking temporary setbacks as permanent or seeing market volatility as a personal threat. When emotions run high, our perception gets distorted. We start seeing an obstacle as a personal affront rather than an opportunity for learning; for example, seeing a market correction only as a loss rather than an opportunity to reassess your assumptions and possibly buying at lower prices. Acting under emotional duress is akin to acting in ignorance. We have incomplete information because our innate prohairesis is clouded by fear or greed. We might focus on one scary headline and ignore the broader context, which is a form of avidya.
Realize that investing is a microcosm of life itself. The world is full of illusions or maya. Maya is a deeper concept than merely “ illusion”. It is better seen as a veil over reailty, called an avarana, much like the world we see in the movie, Matrix. You lose yourself in it at your own peril, committing errors of perception of reality, called vikshepa, that keep you trapped.
To counter this, your investment philosophy should:
a. Emphasize self-awareness and emotional discipline: In practical terms, this could involve steps like: having a predetermined checklist before any buy/sell decision (to force rational evaluation), setting limit orders or using systematic investment plans (to remove hasty timing decisions), and incorporating deliberate mindfulness techniques in your daily routine.
b. Emphasize the premeditation of adversity: This is something both philosophies suggest. The Stoic practice of premeditatio malorum (pre-meditation of evils) involves mentally rehearsing possible losses or bad scenarios for which to prepare. In investing, this could mean scenario analysis: imagine the market drops 30%. How will your portfolio hold up? What will you do? By considering it calmly in advance, we reduce the shock if it happens. This is similar to acknowledging impermanence in Buddhism or the Gita. Knowing that ups and downs are natural, we don’t get overly emotional about them.
Principle 5: Prioritize Virtue over feelings
I leave Virtue with a capital-V quite on purpose to emphasize both its outsized relevance to our lives in general and to us as investors. And to recognize the fact that it comprises a set of characteristics devoutly to be desired. Both Stoic philosophy and Dharmic teachings elevate Virtue and Duty above what might seem immediately self-serving.
Stoics believed that virtue, or arete, is the only true good, and everything else, be it wealth or status, is secondary. Perhaps the most important theme in the Bhagavad Gita is that upholding dharma is the highest calling, even if it comes at great personal cost.
While this perspective may appear alien in the world of financial markets at first brush, I actually think it is deeply useful: it encourages us to be honest to ourselves in defining the enduring purpose and abiding ethics of our investing process, not just some abitrary near-term profit target.
a. Remember that integrity is the ultimate asset. We accumulate virtue by committing to honesty, fairness, and perhaps a greater good in our investment choices. Dismissing this as being nonsensical for a capitalist investor is the easiest falsehood you can afflict on yourself. I’ve seen it often. Cultivating integrity is hard, and the self-assured and young investor invariably thinks that checking his ethics at the door before stepping onto the trading room floor gives him some ruthless edge he’s seen glorified in movies and read about in novels. It’s a myth.
This is not just moralizing, at the very least because a serious investing process has to begin with honesty to yourself. Define the common good the way you want to, but sit down and think hard about this. There are a million interpretations. You may choose to invest in companies that yield more sustainable returns and ethical practices. Or you may choose to invest in companies that seek to provide value to their customers and solve difficult problems with ingenuity. Or you may be attracted to companies that are serving hard to reach markets with innovative delivery solutions, market access strategies, niche accumulators or new products entirely. Whatever your thesis, articulate it to yourself. Work on it. Accept corrections. Refine it. And then, and this may be hard, be true to it. Regardless the cost.
b. Stick to your principles, especially when it’s hard. Sometimes, doing the rational thing in investing feels counterintuitive or even painful, like selling an overhyped stock before a crash, or conversely buying during peak fear. Emotionally everything might scream not to do it, but principled investing requires acting on one’s analysis.
Courage and temperance are Stoic virtues that should be foundations to your principles as an investor. The Gita tells us that Arjuna did not want to fight a war that felt personally heartbreaking, yet Krishna reminded him that his duty was to uphold justice and protect his kingdom. When sentiment is clouding your judgment, let duty guide your actions. Let duty be your peak principle, especially when life feels unfair, unjust, hard or even insurmountable.
In investing, our higher duty could be our fiduciary responsibility to clients or our commitment to our own long-term strategy. Even if our heart flutters from the fear of loss or the fear of missing out, we do what our rational plan suggests. For instance, rebalancing a portfolio in a crash means buying assets that just fell in price, always emotionally tough, but rationally sound if one’s asset allocation calls for it. Adhering to that strategy in the face of fear is a form of courageous virtue in investing.
c. Harden your virtues of patience and persistence. The Stoics counseled patience, and the Gita extols titiksha, or forbearance. In investing, this means not yielding to the vice of impatience, like jumping from strategy to strategy or chasing the “next hot thing.”
Sticking with a good strategy through lean periods is much like a spiritual practice of faith and patience. Ultimately, virtuous investing builds trust: trust in oneself, that we won’t self-sabotage, and potentially trust from others, if you manage a team or clients, who see you as standing firm on principles, earning their confidence.
To summarize this section, treat Virtue as an asset class of its own. Sure it won’t show up in quarterly reports, but over a lifetime of investing it yields compound benefits. My investing philosophy thus explicitly values honesty, diligence, courage, and fairness and I view shortcuts as emotional knee-jerks as risks to my strategy, just like a poorly structured trade would be.
By keeping virtue and long-term duty at the center, aim to not only achieve strong returns but to do so in a way that gives you pride in your process.
III. Philosophical Insights Within Financial Equations
It is fascinating to me that many cornerstone financial equations inherently encode some of the philosophical principles just outlined. Their endurance and relevance in analysis suggests that they too capture some essential philosophical truths, much like the principles do themselves.
Let’s explore a few foundational financial concepts to see how they reflect ideas analogous to Stoic and Dharmic wisdom.
1. Beta: Measuring Volatility and Attachment
Recall that beta or β is a measure of an asset’s volatility relative to the overall market. A beta of 1 means the stock moves in line with the benchmark; >1 means amplified swings and more volatility than the benchmark; <1 means dampened swings or more stability than the benchmark. Philosophically, we can liken beta to emotional reactivity. A high-beta stock is like a person who is highly reactive to every external stimulus. When the market is euphoric, their mood is buoyant; when the market panics, their mood plunges dark depths. By contrast, a low-beta stock is more self-contained, less perturbed by the outside world, much like the Stoic archetype.
You might imagine that a Stoic investor might prefer lower-beta holdings for core positions, because they are aligned with the idea of not being at the mercy of external tempests. After all, a company with a low and stable beta exhibits the ideal kind of Stoic steadiness amid market storms. It doesn’t overreact to every bit of news , which often reflects underlying qualities like consistent earnings or defensive business models. In human terms, that would be analogous to an individual practicing apatheia, someone who doesn’t get carried away by either greed or fear due to external events.
However, a well-rounded portfolio, with a predefined purpose and duty to its investors, may organically induce you to include and manage exposure to high-beta assets. The key, though, is awareness and control. Awareness of your own limitations in managing your emotions and your ability to control your internals in your performance of your duty.
Generally, though, we use beta as a tool to size positions and manage risk. For instance, if an investor finds their overall portfolio beta is 1.2 (which is to say, 20% more volatile than the market), and they realize that this volatility is causing them mental anguish, they might shift some funds to lower-beta assets to lower the portfolio beta closer to 1 or even below.
In essence, beta quantifies not just how attached an investment is to the market’s ups and downs, but it is a gut-check of your own convictions. I hold assets with very high beta when my conviction, developed through my duty to research, permits me to remain unperturbed by dramatic drawdowns and upturns. Yes, a high-beta stock is highly attached to externals from the market or the economy, but your process, which includes your research and your mastery of the philosophical principles should help guide your actions. If volatility in the asset causes you to suffer emotionally, clearly your mastery of either research or the principles needs work.
Perhaps one of the most important lessons in my life has been to work on developing a low-beta mindset. When you are overly concerned with public opinion, you feel every rise and fall of others’ approval. Even people who have no bearing on your commitment to your duty. When you recognize your own worth in earnest and stick to your principles, you begin to regard their approval or their scorn as irrelevant to your mental wellbeing.
By managing beta in proportion to our journey as philosophically mature investors, we practice the Stoic principle of moderation and the Buddhist “middle path”, which is to say that we are not over-leveraging ourselves to market volatility, but also not avoiding the market entirely.
Beta teaches investors to know thyself, and to remain indifferently rational about market swings: expect them, size for them, and don’t be mentally perturbed when they occur.
2. Compound Interest: The Power of Patient Growth
It’s hard to exaggerate the transformative value of compound interest, and yet it’s nothing short of a crime that we do not ensure that every child, by the middle-school level, understands its value completely.
In simple terms, compound interest is interest added to the initial principal, which then earns interest on the new total, effectively generating ‘interest on interest’. Over time, this compounding can lead to exponential growth. A tiny investment today, given enough time, can snowball into a fortune, not by luck, but by the mathematical power of consistent growth.
The philosophy this concept embodies is titiksha, the sublime Virtue of patience and consistency. Compound interest rewards those who delay gratification. It captures the spirit of the proverb “slow and steady wins the race”. It requires developing a low time-preference, exercising executive control over our emotions and examining our endless desires for consuming in the present with a critical eye.
Compound interest is the financial embodiment of karma yoga; every small action builds upon the last, creating a cumulative effect, propelling you ever closer towards an objective that enables flourishing. No single year’s growth may seem dramatic, but persist over decades and the results are astonishing.
Time is your ally, especially when your duty is anchored to your principles.
Consider the difference between an impulsive, reactive approach and a patient one. An impulsive investor might constantly jump in and out of investments, interrupting compounding and incurring costs. A patient investor, however, lets the investment grow, reinvests dividends, and waits. The latter is practicing a form of steadfast Stoic patience. He or she is aligning their actions with the Gita’s advice to do one’s work without attachment. You invest and then you let it be, checking in periodically but not needing constant action. Every investor worth their salt knows that practiced and dutiful inaction is often far harder than resisting the desire for engaging in action.
Let compound interest become your touchstone as you teach yourself the Virtue of delayed gratification.
3. Black–Scholes Model: Rationalizing Uncertainty
The Black–Scholes model is a famous formula in finance for pricing options. It might seem purely mathematical, but it is rooted in a profound principle: By applying rational hedging and assuming a certain statistical behavior of markets, one can eliminate uncertainty in pricing. The main principle behind the model is to hedge the option by trading the underlying asset in a specific way to eliminate risk. This continuous hedging (known as delta-hedging) allows the model to derive a theoretical fair value for an option, under assumptions of an efficient market.
Where is the philosophy in this though? Well, Black–Scholes exemplifies the idea of knowledge overcoming fear. Options are all about uncertainty, they’re bets on future prices, which could induce anxiety. But Black–Scholes says that, if we approach uncertainty with a clear head and the right tools, we can absolutely manage it. This resonates with the Stoic idea that what scares is ignorance, or at least the incomplete understanding of something; or, from the Dharmic perspective, it is avidya. Once we rationally dissect a fear (in this case, the fear of “what if the market crashes and my options expire worthless?”), we often find a strategy to handle it. The model literally provides a strategy: dynamically hedge the position, and you neutralize the risk.
In a more abstract sense, Black–Scholes reflects Logos in the market, or the idea that even the chaos of price movements can be described by a rational process, in this case a random walk with drift and volatility. It imposes order on randomness. Similarly, an investor guided by philosophy seeks to impose order on their decision-making in a random market. We can’t control the randomness, but through models like this, we understand it and find our bearings. You can not control fate, but you can understand its nature and prepare your mind accordingly.
Of course, Black–Scholes relies on assumptions (continuous markets, lognormal price distributions, etc.) and reality can and does deviate. There is a lesson there too: all models have limits, just as our plans must be held with some humility. Here’s Epictetus: “Make the best use of what is in your power, and take the rest as it happens.” And, Black–Scholes is a concrete way of doing exactly that with options.
4. Gordon Growth Model: Perpetuity and Perspective
The Gordon Growth Model (GGM) is a simple yet profound formula used in stock valuation. It calculates the intrinsic value of a stock as the present value of an infinite series of future dividends growing at a constant rate. In essence, it assumes the company will exist forever, steadily growing and rewarding shareholders indefinitely. The formula is Value = D₁/(r — g), where D₁ is next year’s dividend, r is the required return or the cost of equity, and g is the perpetual growth rate.
Philosophically, the GGM forces an “eternal” perspective. Thinking in perpetuity is a useful mental exercise in zooming out to the longer term. Stoicism often asks us to view things sub specie aeternitatis or “under the aspect of eternity”. For instance, Marcus Aurelius meditated on how each person’s life is a small part of the vast timeline, helping him not get overly agitated about temporary troubles. Likewise, the GGM frames a company not as this quarter’s earnings, but as a potentially immortal entity whose value comes from decades of contributions. This framing helps counter the short-termism that plagues so many market participants. It’s a model that, at its heart, says value lies in the long run, not in momentary pricing quirks.
The requirement that r > g (the model only works if the required return exceeds the growth rate) has its own insight: a company cannot grow forever at a rate higher than what investors require, otherwise its value would mathematically be infinite. This is a nice reminder of keeping realism as the mooring for your expectations.
In nature and in markets, infinite exponential growth is not sustainable beyond certain limits. Recognizing this keeps us from irrational exuberance. When people say “this company will keep growing at 20% forever,” the GGM’s logic gently refutes that. No, either it will slow down or investors will demand more return. Incidentally, this also aligns with the grounded, Dharmic view of anitya: everything in the world has natural limits and equilibria, impermanence is inevitable.
Using GGM also implicitly promotes quality investing. The model is ideally applied to stable, dividend-paying companies — those with steady growth rates in dividends per share and a long-term outlook. These tend to be mature, often more sattvic companies. This is an idea we will return to in Section IV below, but it essentially refers to those companies that are characterized by harmony and stability. By valuing such companies on the basis of enduring dividends, we focus on real cash flows rather than speculative stories. In a way, we’re focusing on the atman (the soul or inner essence) of the company rather than the fleeting maya of daily stock price fluctuations.
The Gordon Growth Model instills a “think long-term” mentality. It’s the opposite of gambling on meme stocks or quarterly earnings beats. It resonates with the idea of dharma-yielding action. For our philosophy, it underlines the importance of asking, for every investment: “Would I be comfortable holding this forever?” If yes, it likely has intrinsic value to justify itself. If not, maybe we’re chasing something transient.
5. Sharpe Ratio: Balancing Risk and Reward
The Sharpe Ratio is a staple of modern portfolio theory. Defined as the ratio of excess return to volatility, it’s essentially measuring risk-adjusted return. In other words, it’s showing whether a portfolio’s excess returns are due to smart decisions or simply taking on more risk. A higher Sharpe ratio means you’re getting more return per unit of risk assumed, which is desirable.
Philosophically, the Sharpe Ratio is elegantly related to the idea of the Golden Mean, the Aristotelian and Buddhist ideal of the middle path or even optimal balance. In investing, one extreme is to chase only return and possibly take imprudent risks and the other extreme is to avoid risk entirely. The Sharpe Ratio effectively encourages a balance: maximize return relative to risk, not in absolute terms. This is very much in line with prudence, one of my favorite cardinal virtues. It’s not virtuous, or wise, to swing for the fences without regard for downside, nor is it virtuous to hide money in the mattresses out of fear. The Sharpe ratio rewards the prudent optimizer who finds the strategy that delivers sufficient reward for the risk endured.
You can stretch the logic of the Sharpe Ratio to yield a heuristic for living, if you interpet it as essentially measuring achievement relative to effort or stress. An investment might be very high-return, but if after all the honest research you have done to understand the nature of the asset, it’s volatility is still causing you to lose sleep, its subjective Sharpe ratio might be low. Maybe it is not worth the stress to you. Another investment might have moderate returns but lower volatility, yielding a high Sharpe. A sign of efficiency and peace. Assess the effect your assets carry on the quality of life: Stoicism would say the “good life” isn’t about having the most of something, but about having the right balance, such that Virtue and tranquility are achieved. An investment with a high Sharpe is analogous to a life that’s high in fulfillment per unit of challenge, not necessarily the flashiest life, but a good one.
From a Dharmic perspective, one could even anthropomorphize: a portfolio with an excellent Sharpe is functioning in harmony. A generator of an almost Sattvic calm with good results, whereas a low-Sharpe approach might be very Rajasic, with lots of frenetic activity and excitement but not much to show after adjusting for the chaos. Indeed, many speculative strategies have low or even negative Sharpe (e.g., huge gains but also huge crashes). A calm balanced strategy, which is highly subjective, often has a higher Sharpe: decent return with moderate risk, delivering a smoother experience.
6. CAPM: Equilibrium and the Cost of Risk
The Capital Asset Pricing Model (CAPM) is a, perhaps the, foundational model that connects expected return to risk. It states: Expected Return = Risk-Free Rate + Beta * (Market Return — Risk-Free Rate). In plain English, investors demand a baseline return for waiting (the time value of money via the risk-free rate) plus a premium for taking on risk, proportional to the amount of systematic risk an asset carries. CAPM elegantly encapsulates the idea that risk has a price.
Through our philosophic lens CAPM can be seen as the financial manifestation of karma. It posits a tenet for fairness in the market: if you take higher risk, you should get higher reward, on average; if you want safety, expect a lower return. There’s no free lunch. Actions have consequences, a rather universal idea. In the moral realm, bad actions lead to bad outcomes, eventually, and good actions to good outcomes. In finance, taking risks leads to potentially higher returns but only by forging oneself through the consequences of higher volatility. CAPM’s equilibrium is almost like a law of nature in markets, even though, empirically, it’s an approximation. It’s the market’s way of saying “you get what you sign up for.”
For an investor with a Stoic/Dharmic mindset, CAPM encourages both realism and humility. It reminds us that to achieve higher returns, we must bear higher risk, which means accepting the possibility of losses and turbulence. If someone promises high returns with low risk, that’s against the natural order, and likely a deception or a rare anomaly. Knowing CAPM, one would be skeptical of anything that seems too good to be true. This aligns with being intellectually rigorous and virtuous, exercising skepticism, due diligence, and understanding the natural laws of markets.
CAPM assumes efficient markets, where everyone rationally prices risk. While reality is messier, the concept nevertheless pushes us to consider whether we are being adequately compensated for the risks we take. In practice, a Dharmic investor might ask: “Is the dharma of this investment such that the potential reward justifies the inherent risk?” For example, investing in a startup is very risky, and CAPM logic says you’d do well to assess the processes it has put in place to articulate and act upon its dharma, and its capacity to follow through. Only then are you in a position to adjudge whether the potential return is justifiably high.
CAPM also introduces the idea of the market portfolio, the theoretically optimal diversified portfolio of all assets. It suggests that individual assets’ merit lies in how they contribute to this portfolio’s risk/return profile. A n asset isn’t good or bad in isolation, but in context of the whole. This resonates with the Stoic notion of sympatheia, or the interconnectedness of all things. We’re nudged by this concept to view our portfolio as an integrated system, not just a collection of individual bets.
IV. The Three Gunas in Investing
In Chapter 14 of the Gita, Krishna explains that all of nature, and ipso facto our own intellect and character, is composed of three fundamental qualities or gunas: Sattva (goodness, harmony), Rajas (passion, activity), and Tamas (darkness, inertia). The propensities for all three are present in everyone and everything, but their proportions differ and can alter markedly. None of the gunas ought to be seen as entirely “good” or “bad”. They represent forces or tendencies. Sattva is illuminating and buoyant, but too much can lead to complacency or pride, Rajas is energizing, but can lead to restlessness or greed, and while Tamas is stabilizing in the short term an excess causes stagnation or ignorance. I have found this triadic lens to help me become less judgmental and more rigorous in my deliberative thought processes. Or, to be completely honest, it has provided me with a vital mental heuristic for that elusive purpose.
And the framework of the three gunas is surprisingly insightful in the analysis of investments and market behavior.
Gunas in assets
We can evaluate a stock or asset in terms of these qualities. For instance, a well-established utility company with steady dividends, transparent operations, and modest growth might be predominantly Sattvic. Its relative price behavior in the market might assume the characteristics of being calm, stabile, and predictable. A high-flying technology startup with rapid growth, high volatility, and a charismatic visionary CEO is high in Rajas: it’s full of passion, motion, and potential, but also instability. A distressed company in a declining industry, with opaque financials or heavy debt might display overt Tamasic tendencies in the sense that it seems sluggish, possibly riddled by inertial thinking and murky objectives.
But here’s the thing. The guna framework urges you to examine these impressions carefully for the simple reason that in each of the examples above might be glossing over potentials for other gunas. For example, a mature tech giant could have Sattva in its cash-cow businesses, Rajas in its innovation projects, and some Tamas in bureaucratic inefficiencies that come with size. Yet, all that the casual observe may be seeing is the excitement of Rajasic output.
Portfolio guna balance
Since the potential for all three gunas exist in all things, it stands to reason that it serves our wellbeing poorly to perseverate on circumstances, letting our emotions being led one way then another. Your ambition to be Sattvic of mind should not be derailed by your perception of some external influence that is Tamasic. A cloudy day that portends rain may seem Tamasic to an outdoorsman, Rajasic to an artist and Sattvic to a farmer. It’s neither bad or good nor is it sad or happy. It is your subjective emphasis on the gunas that matters to your perspective. This subjectivity, you may note, is very similar to Epictetus’ principal message in the Enchiridion as well.
Similarly, it must be your ability as an investor to see the asset for its propensities for all its gunas, and not how it resonated with some feeling within you at first brush alone.
A healthy mind maintains the capacity for recognizing all gunas without judgment, a task that commences with an ability to honestly assess where your own biases pull your thoughts.
This is immensely important when the objective is to evaluate an asset for an investment portfolio. The goal in portfolio construction need not always or even merely be to “seek a balance of all gunas”. The goal might be to build a collection of largely Sattvic groups of companies that are all ultra-stable, value assets. You might want to build a Rajasic portfolio of “moonshots” — all high-growth, high-risk bets. Or you may want a Tamasic portfolio, possibly comprising not much beyond the money market or belonging to sectors that display extremely long cycles of development. Possibly you are actively seeking managerially compromised companies that can be revitalized. Or the objective may be some precise admixture: a core of Sattva for stability and reliable returns, a dose of Rajas for growth and dynamism, and even a touch of Tamas when opportunistic, for example, buying a beaten-down “fallen angel” stock that others shun.
It’s insightful to map financial instruments to gunas. Cash or Treasury bonds are very Sattvic (virtually no volatility, but low return and pure stability). Blue-chip stocks or broad index funds might be mostly Sattva with a bit of Rajas (they grow with the economy but aren’t too chaotic). Growth stocks, venture capital, a some cryptocurrencies projects are Rajasic: lots of action, potential and peril. Out-of-favor assets, turnaround plays, deeply cyclical stocks can be Tamasic: they’re in the darkness now, but could either languish or, if the inertia is overcome, metamorphose with a does of Rajas re-entering the picture.
Towards a Dharmic Score
As a hard-nosed investor, permitting yourself to think about a spiritual dimension to portfolio management can feel alien. And, yet, it is not just useful and will permit you to become more effective, it would also be accretive to your wellbeing and to the wellbeing of anyone’s funds you might be managing.
A Dharmic score for equities is simply an attempt to get yourself to into a habit to take the task seriously as an indispensable part of your analysis. You can begin by simply developing your own metric to quantify how aligned you think a company or investment is with certain Virtues, potentially linked to each of the three gunas.
Journal the rationale for the score you give. Be explicit. The idea isn’t to just label one guna score as outright good or bad, but to understand the guna profile of the asset and to keep track of changes in this profile as the company makes moves in the markets.
For example, one might score a company on transparency, stakeholder fairness, and dedication to purpose (Sattva traits); on R&D, innovation and competitive drive (Rajas traits); and on resilience or asset base (Tamas traits, in a positive sense of having staying power).
The uses of a Dharma score are myriad and largely dependent on your own philosophical journey. If you are an investment manager, remember the process begins with you. Your task is more than to “manage” your client’s money. Your task is to offer your client a pathway for genuine spiritual wellbeing as well, and sharing your process with your clients is essential to that objective. You cannot construct a portfolio with a guna composition that matches your client’s dharma or values if you aren’t able to restrain yourself from interposing your own guna propensities. The Dharmic score you are giving an asset is a tool to help keep you detached and objective.
Remember that the strategies we routinely employ as a matter of course in investing serve to adjust the baseline guna characteristic of an underlying asset. You might choose to hedge with leverage or with options, for example. Be mindful that this alter the inherent gunas of the underlying. Say you have a very Rajasic asset, perhaps a high volatility stock. By buying a protective put option on it, priced via Black–Scholes, you inject some Sattva, which is to say that you limit the downside. You bring some peace of mind at the cost of some premium. Understanding your guna proclivities or those of your client’s may lead you to sacrifice a bit of upside here. Conversely, say you have a very Tamasic holding, perhaps a Swiss bond. Should you perceive that more Rajas is needed, you could apply leverage by buying on margin or using bond futures , increases its volatility and return potential. These aren’t tricks, of course. The real trick is knowing whether you should be stirring in some hot sauce into a soothing cup of soup. Leverage done imprudently can alter a predominantly Sattvic setup significantly towards Tamas. The Sharpe ratio can guide these moves; if adding a bit of Rajas via leverage still keeps the risk-adjusted return high, it might be worth it, but beyond a point it’s not. Which is why you must journal the impact of your moves on the Dharmic Score of the asset.
More generally, the guna framework applies to rebalancing because it is a simple taxonomy for market sentiment. Market phases often have guna analogies. A roaring bull market is saturated with Rajas, replete with activity, greed and speculation; a crash brings Tamasic fear and paralysis to the forefront, and a recovery or steady expansion phase is more Sattvic in nature. A savvy investor might adjust strategy in tune with these cycles — adding Sattva with quality, defensive stocks when Rajas is extreme to prepare for a correction, or adding Rajas by buying promising stocks when Tamas has peaked. This is analogous to ayurvedic prescriptions that are predicated on the ide of increasing the requisite guna to balance the excess of another.
In our team’s philosophy, we openly discuss these qualities. It adds color to our risk assessments: “This portfolio is a bit too Rajasic right now, let’s introduce some Sattvic assets to calm it,” or “Our strategy has gotten Tamasic (stuck in old thinking); let’s invigorate it with some Rajasic innovation.”
It might sound metaphorical, but it often leads to concrete adjustments (rebalancing, researching new opportunities, etc.). Keeping the gunas in mind ensures we never chase one dimension of performance to the extreme; we remember that, even when an asset emphasizes one guna the other two all three have their place,. The key is our duty to our process; they keep us grounded to our long-term goals and, above all else, to our principles and values.
Conclusion
Finance and philosophy, though seemingly unrelated, enrich each other in our approach. By applying Stoic and Dharmic principles, we aspire to be investors who are wise and not merely smart, calm and not just rational, and principled as well as being effective. This means being rational like Homo economicus yet not a slave to mindless greed. Being dutiful like the warrior Arjun of the Gita, yet compassionate and just in our actions. Being disciplined like a Stoic sage, yet adaptive to reality as it is.
We align with the natural laws of risk and return (which means respecting models like CAPM and the power of compounding) as a form of humility before the market’s logos.
We bring a holistic view, examining not just balance sheets and charts, but the character of investments, their gunas, and a critical evaluation of our own inner state as we engage with markets.
The ultimate goal of this philosophy is two-fold: performance and peace. We seek strong financial results for ourselves and our stakeholders and we seek the inner peace that comes from doing things the right way.
We believe a large and growing group of investors are looking for this kind of integrated approach. It resonates with people who sense that investing can be more than a mercenary activity. It can, and indeed should, be a path for personal growth, service, and thoughtful engagement with the world. To them, and to ourselves, we offer this philosophy not as a rigid doctrine but as a living guide. We will refine it as we learn, but its core values are timeless. In adopting this philosophy, we commit to being stoic in discipline, yogi-like in focus, and prudent in action.
Finance, ultimately, is conducted by humans and for human ends. By infusing it with humanity’s hard-won wisdom from philosophy of the ages, we aim to elevate our practice above the fray of speculation and towards something lasting.
Investing by the light of Stoicism and Dharma means striving to do well while also doing good, and finding balance amid market extremes. It is an endeavor in which both our portfolios and our characters are expected to grow. And that, we believe, is an investment thesis worth pursuing.
-Prateek
