Edison Schools CS on Econ. of Scale, Part II

http://csinvesting.org/2017/04/13/hedge-fund-quiz-economies-of-scale/ for the last post on this case study.  Note excellent comments by readers.

Readers provide excellent analysis

The twenty-minute time limit was to force you to concentrate on the key issue: Does this company have economies of scale?   Because of it doesn’t, then growth will NOT help profitability.  In fact, growth with losses financed by debt can be financially lethal.

Part of improving as an investor is avoiding the disasters as this company turned out to be. Bad Management_Has Avenues Mastermind Chris Whittle Learned His Lesson and Failure in For Profit Education are two articles that chronicle the investor and management failures in the For-Profit-Education Sector.

The goal of this case study is to practice:

Our 10-K reading skills and our analysis of competitive advantage.   Despite how CRITICAL it is for an investor/management to determine and distinguish competitive advantages, structural advantages are often confused with outcomes or efficiency.

Competitive advantage

Competitive advantage refers to something specific–a structural barrier that prevents competitors from simply replicating the results of a successful business.  It should not be surprising that the terms competitive advantage and barriers to entry are interchangeable.

Without barriers to entry, a business cannot long enjoy an advantage over competitors that will quickly do the obvious—enter. This process of new entry will hurt not only relative performance but also absolute performance, as competition for customers dampens revenues, and competition for resources raised costs.


First, it is NOT a competitive advantage.   But here is an example of having a first mover advantage.   You and I are in a duel.  We walk ten paces away from each other then turn and shoot the other.  After three paces, you turn around and shoot me in the back–now THAT is a first mover advantage.

Scale not size matters

It is industry structure determines which categories are most likely to manifest themselves and in what form.

Size doesn’t matter, but scale does. Scale is a relative concept, not an absolute one. The benefit it bestows are relative to peers within the relevant competitive set.

Look at WD 40_VL the company has a competitive advantage in PRODUCT SPACE.   WD-40 is the ubiquitous oil/lubricant that people keep in their tool-box/shelf/or under the sink.  They own 90% of the lubricant market.   However, they also di-worsify their free cash flow into hand soap and motor-cycle products.   Now the stock is over-priced in my opinion. If management could sell off its non-competitive products, and then become a tontine (use free-cash flow to buy in all shares)–investors would flourish.

Having 2% of a 10 billion dollar market or $100 million in sales is probably not as profitable as having sales of 40% of a 200 million dollar market or $80 million in sales.

Scale matters most when fixed costs matter most relative to the business’s overall cost structure. With large fixed costs, the operator serving the most customers will have a significant advantage due to its ability to spread those costs over more unit sales. If the costs of a business were entirely variable and increased proportionally as it grew, there would no advantage to scale.   The extent of the advantage is determined by how relatively important fixed costs are how relatively large the business is compared to the next competitor. Second, much of what is thought of as traditional fixed costs in school management—admin, school relations and lobbying, and even curriculum development—has a significant variable component.

Curriculum requires local customization. The two primary sources of fixed-cost scale in education generally are content development on the one hand and sales and marketing on the other.

Reading the 10-K

We jump to page 27: Selected financial data and see rising sales financed by issuing shares and debt.  Yet costs are not declining as a percentage of sales.  Ebitda is declining per student.  1999 revenues of $133 million almost triple to $376 million in 2001 yet operating cash flows decline from negative $17.6 to negative $29.3.

Remember the little red school house?   Edison Schools has to provide services in a regional area.   If they can develop density (or clustering as management mentions on page 16 under competitive strengths) in particular regions, then perhaps this company needs more time to show progress?  To determine their success in implementing a “clustering strategy, the next pages to peruse are pages 13-15 where you can see where Edison is operating schools.  Take a large state like Colorado. Edison has two schools in Denver and three in Colorado Springs.   Washington, DC, a huge metro area, only has eight schools and on and on.   Management will not be able to leverage their admin, curriculum and development cost over such a widely dispersed area.

Imagine running a carting/garbage pick-up service where you have 5 customers in Eastern Connecticut, seven in New Jersey, 4 in Texas, you would go broke just driving to the different customers. You would lack customer density in your routes, so your costs would be too high.

PASS!   Then if the analyst had more time, he/she could look at management.  He or she would uncover the ugly history of Chris Whittle.   No mention of that in the Credit Suisse analyst 50-page report.

Studying competitive advantages like economies of scale, customer captivity, network effects, low-cost producer will pay-off.   Practice reading case studies of success and failure will help you hone your skills.

Note companies in the educational sector with advantages: Bright Horizons_VL and Grand Canyon LOPE

One of the best books I have found on studying competitive analysis is

Strategic_Logic (Strategic Logic link will be down in 36 hours, so join the Deep-Value Group by following the links http://csinvesting.org/2015/01/14/deep-value-group-at-google/ and ask for a copy.

https://www.youtube.com/watch?v=zsvnvV3wDgc Greenwald of Columbia Business School discusses local advantages.

The trilogy of books, Competitive Demystified, The Curse of the Mogul, and Class Clowns will also provide more depth to your studies:




Indexing Madness or An Indexing Bubble

A must see discussion of today’s index investing distortions

http://horizonkinetics.com/market-commentary/4th-quarter-2016-commentary/   What will turn the tide for active investors. Or read commentary : Q4-2016-Commentary_Final

https://vimeo.com/209940152/f2154e4d3d Grant’s Conference Presentation


Q2 2016 Commentary FINAL (See section on ETFs vs. Individual Stocks)

Articles of interest:

Hedge Fund Quiz: Economies of Scale

Economies of scale.

If costs per unit decline as volume increases, because fixed costs make up a large share of total costs, then even with the same basic technology, an incumbent firm operating at large scale will enjoy lower costs than its competitors.

Edison Schools IPO’d at $18 per share and now it trades near $14.   Your boss runs in and throws the Edison School’s 2001 annual report on your desk and a top-rated analyst’s report on Edison.   “Get back to me in thirty minutes on what should we do: Buy a boat-load of stock, buy some, buy a little, short or stand aside?”  Your Boss says that management owns a lot of stock along with “smart” money.

You glance at the analyst report:

Greg Capelli, MBA, at Credit Suisse First Boston issued a $30 dollar price target in his fifty-page report.   Capelli says that Edison Schools is extremely undervalued because of “first-mover advantage” and “INCREASING OPERATING LEVERAGE THROUGH ECONOMIES OF SCALE.”

As a refresher you whip out Greenwald’s Competition Demystified:


In an increasingly global environment, with lower trade barriers, cheaper transportation, faster flow of information, and relentless competition from both established rivals and newly liberalized economies, it might appear that competitive advantages and barriers to entry will diminish. The fate of once powerful American firms in industries like machine tools (Cincinnati), textiles (Burlington Industries, J. P. Stevens), and even automobiles (Chrysler, GM, and Ford) seems to support this position. Either profits have shrunk or companies have disappeared entirely under the onslaught of imports. But this macro view misses  one essential feature of competitive advantages—that competitive advantages are almost always grounded in what are essentially “local” circumstances.

Consider the history of Wal-Mart, one of the greatest economic success stories of the late twentieth century. The retail business, especially discount retailing, is not an industry with many trade secrets or rare skills. The practices for which Wal-Mart is known, like “everyday low prices” and efficient distribution, are hardly proprietary technologies, impossible for other firms to duplicate. Yet Wal-Mart has successfully dominated many, although not all, of the markets in which it competes. The way in which it achieved this position is instructive.

Wal-Mart began as a small and regionally focused discounter in a part of the country where it had little competition. It expanded incrementally outward from this geographic base, adding new stores and distribution centers at the periphery of its existing territory. The market that it dominated and in which it first enjoyed competitive advantages was not discount retailing in the United States, but discount retailing within a clearly circumscribed region. As it pushed the boundaries of this region outward, it consolidated its position in the newly entered territory before continuing its expansion. As we shall see, when it moved too far beyond its base, its results deteriorated.


OK, now you dig in quickly to the Edison Schools AR_2001

What do you say to your boss?  Your comments should be no more than a sentence or two of explanation backed up by a few simple calculations.   Besides the financials, what do you point out in the annual report?   Take no more than twenty minutes.   You go immediately to the important data and disregard the rest.

Address Capelli’s “First Mover Advantage” comment.

Next week, I will post analysis.

AFTER you have answered, you can see the future for investors in Edison:  https://youtu.be/QUYKSWQmkrg

UPDATE 4/17/2017

ETF Insanity is destroying price discovery–opportunity will return.


Part 1 of this post: http://csinvesting.org/2017/04/20/edison-schools-cs-on-econ-of-scale-part-ii/

Buffett on Inflation, Gold, and Investor Choices


Buffett comments on the shiny metal in his discussion on investors’ choices: The Basic Choices for Investors and the One We Strongly Prefer

  • The second major category of investments involves assets that will never produce anything, but that are purchased in the buyer’s hope that someone else – who also knows that the assets will be forever unproductive – will pay more for them in the future. Tulips, of all things, briefly became a favorite of such buyers in the 17th century.

This type of investment requires an expanding pool of buyers, who, in turn, are enticed because they believe the buying pool will expand still further. Owners are not inspired by what the asset itself can produce – it will remain lifeless forever – but rather by the belief that others will desire it even more avidly in the future.

The major asset in this category is gold, currently a huge favorite of investors who fear almost all other assets, especially paper money (of whose value, as noted, they are right to be fearful). Gold, however, has two significant shortcomings, being neither of much use nor procreative. True, gold has some industrial and decorative utility, but the demand for these purposes is both limited and incapable of soaking up new production. Meanwhile, if you own one ounce of gold for an eternity, you will still own one ounce at its end.

What motivates most gold purchasers is their belief that the ranks of the fearful will grow. During the past decade that belief has proved correct. Beyond that, the rising price has on its own generated additional buying enthusiasm, attracting purchasers who see the rise as validating an investment thesis. As “bandwagon” investors join any party, they create their own truth – for a while.

Over the past 15 years, both Internet stocks and houses have demonstrated the extraordinary excesses that can be created by combining an initially sensible thesis with well-publicized rising prices. In these bubbles, an army of originally skeptical investors succumbed to the “proof” delivered by the market, and the pool of buyers – for a time – expanded sufficiently to keep the bandwagon rolling. But bubbles blown large enough inevitably pop. And then the old proverb is confirmed once again: “What the wise man does in the beginning, the fool does in the end.”

Today the world’s gold stock is about 170,000 metric tons. If all of this gold were melded together, it would form a cube of about 68 feet per side. (Picture it fitting comfortably within a baseball infield.) At $1,750 per ounce – gold’s price as I write this – its value would be $9.6 trillion. Call this cube pile A.

Let’s now create a pile B costing an equal amount. For that, we could buy all U.S. cropland (400 million acres with output of about $200 billion annually), plus 16 Exxon Mobils (the world’s most profitable company, one earning more than $40 billion annually). After these purchases, we would have about $1 trillion left over for walking-around money (no sense feeling strapped after this buying binge). Can you imagine an investor with $9.6 trillion selecting pile A over pile B?

Beyond the staggering valuation given the existing stock of gold, current prices (In 2011, gold traded at an average price of $1,700 in $US) make today’s annual production of gold command about $160 billion. Buyers – whether jewelry and industrial users, frightened individuals, or speculators – must continually absorb this additional supply to merely maintain an equilibrium at present prices.

A century from now the 400 million acres of farmland will have produced staggering amounts of corn, wheat, cotton, and other crops – and will continue to produce that valuable bounty, whatever the currency may be. Exxon Mobil will probably have delivered trillions of dollars in dividends to its owners and will also hold assets worth many more trillions (and, remember, you get 16 Exxons). The 170,000 tons of gold will be unchanged in size and still incapable of producing anything. You can fondle the cube, but it will not respond.

Admittedly, when people a century from now are fearful, it’s likely many will still rush to gold. I’m confident, however, that the $9.6 trillion current valuation of pile A will compound over the century at a rate far inferior to that achieved by pile B.

  • Our first two categories enjoy maximum popularity at peaks of fear: Terror over economic collapse drives individuals to currency-based assets, most particularly U.S. obligations, and fear of currency collapse fosters movement to sterile assets such as gold. We heard “cash is king” in late 2008, just when cash should have been deployed rather than held. Similarly, we heard “cash is trash” in the early 1980s just when fixed-dollar investments were at their most attractive level in memory. On those occasions, investors who required a supportive crowd paid dearly for that comfort.

My own preference – and you knew this was coming – is our third category: investment in productive assets, whether businesses, farms, or real estate. Ideally, these assets should have the ability in inflationary times to deliver output that will retain its purchasing-power value while requiring a minimum of new capital investment. Farms, real estate, and many businesses such as Coca-Cola, IBM and our own See’s Candy meet that double-barreled test. Certain other companies – think of our regulated utilities, for example – fail it because inflation places heavy capital requirements on them. To earn more, their owners must invest more. Even so, these investments will remain superior to nonproductive or currency-based assets.

Whether the currency a century from now is based on gold, seashells, shark teeth, or a piece of paper (as today), people will be willing to exchange a couple of minutes of their daily labor for a Coca-Cola or some See’s peanut brittle. In the future the U.S. population will move more goods, consume more food, and require more living space than it does now. People will forever exchange what they produce for what others produce.

Our country’s businesses will continue to efficiently deliver goods and services wanted by our citizens. Metaphorically, these commercial “cows” will live for centuries and give ever greater quantities of “milk” to boot. Their value will be determined not by the medium of exchange but rather by their capacity to deliver milk. Proceeds from the sale of the milk will compound for the owners of the cows, just as they did during the 20th century when the Dow increased from 66 to 11,497 (and paid loads of dividends as well). Berkshire’s goal will be to increase its ownership of first-class businesses. Our first choice will be to own them in their entirety – but we will also be owners by way of holding sizable amounts of marketable stocks. I believe that over any extended period of time this category of investing will prove to be the runaway winner among the three we’ve examined. More important, it will be by far the safest.

CSInvesting: I agree with all the above except that comparing gold as an investment to productive companies is not comparing like-with-like.   Of course, owning a highly productive company or business that can compound over time will beat a sterile asset like cash or gold, but even Buffett will hold cash if he can’t buy great businesses at a good price.   Gold is “money” that can’t be created by governments—by fiat. 

An excellent article: Inflation Swindles the Equity Investor by Buffett.

Other views on the current gold market:

QUESTIONS? Gold as money has far out-performed currencies over the past decades


What are your alternatives?  Quality ain’t cheap………..(source: seekingalpha.com)

and….assets to fin assets


Ticker Industry Group Price/ Earnings Forward % Free Cash Flow/ Market Cap % Forward Dividend Yield Debt to Equity Latest Qtr Financial Health Grade Economic Moat Stewardship
3M Co MMM Industrial Products 21.6 4.7 2.51 1.04 A Wide E
BlackRock Inc BLK Asset Management 18.25 3.06 2.56 0.17 B Wide E
Coca-Cola Co KO Beverages – Non-Alcoholic 22.17 3.57 3.55 1.21 A Wide E
Colgate-Palmolive Co CL Consumer Packaged Goods 25.25 3.83 2.1 A Wide E
CSX Corp CSX Transportation & Logistics 23.7 1.45 1.5 0.94 B Wide S
CVS Health Corp CVS Health Care Plans 13.81 9.46 2.47 0.7 B Wide S
Emerson Electric Co EMR Industrial Products 23.98 5.65 3.17 0.49 A Wide S
Exxon Mobil Corp XOM Oil & Gas – Integrated 19.76 1.75 3.67 0.17 A Narrow E
General Dynamics Corp GD Aerospace & Defense 19.27 3.17 1.61 0.27 A Wide E
Honeywell International Inc HON Industrial Products 17.73 4.63 2.13 0.63 A Wide S
International Business Machines Corp IBM Application Software 13.14 8.38 3.08 2.09 A Narrow S
Johnson & Johnson JNJ Drug Manufacturers 17.15 4.05 2.63 0.32 A Wide S
McDonald’s Corp MCD Restaurants 20.7 4.65 2.93 A Wide S
Nike Inc B NKE Manufacturing – Apparel & Furniture 22.22 2.85 1.25 0.28 A Wide E
PepsiCo Inc PEP Beverages – Non-Alcoholic 21.41 4.71 2.75 2.67 A Wide S
Procter & Gamble Co PG Consumer Packaged Goods 23.81 4.26 2.94 0.32 A Wide S
The Hershey Co HSY Consumer Packaged Goods 22.88 3.09 2.28 2.99 A Wide S
The Home Depot Inc HD Retail – Apparel & Specialty 20.24 4.74 2.46 3.97 A Wide E
United Technologies Corp UTX Aerospace & Defense 17.15 1.98 2.36 0.79 A Wide S
Wal-Mart Stores Inc WMT Retail – Defensive 16.47 9.73 2.86 0.54 A Wide S
Walt Disney Co DIS Entertainment 18.45 4.39 1.42 0.34 A Wide S
19.38 4.48 2.48 1.08

Data source: Morningstar

A Resource Investor: Tom Kaplan












In all seriousness, whether you agree with his thoughts on gold and resource investing, he has the proper attitude for an investor.

See the letter to shareholders from Tom Kaplan: NG_AR_2016 (pages 5-7)

and NG_AR_2015 (pages 2-10)

NovaGold may not be the cheapest long-dated option on the market because of the partnerships that they have with Barrick and Teck.   Also, even if the grade of gold to tonnes of earth/rock is double the average resource, there are many other costs to consider when comparing projects.

Another long-term investor in a long-dated option (Seabridge might be sold for $0 to a major copper miner and then take back a gold royalty stream in return for the project to be developed) to read: SA_2015_Ann_Rep

What sets the gold price: A lesson in flawed logic.

What sets the Gold Price


What they don’t teach you in college; Michael Burry

Michael Burry, Real-Life Market Genius From The Big Short, Thinks Another Financial Crisis Is Looming


Real-life Michael Burry (left), and Christian Bale (right), who played Burry in the film The Big Short.

If The Big Short, Adam McKay’s adaptation of Michael Lewis’s book about the 2008 financial crisis and the subject of last month’s Vulture cover story, got you all worked up over the holidays, you’re probably wondering what Michael Burry, the economic soothsayer portrayed by Christian Bale who’s always just a few steps ahead of everyone else, is up to these days. In an email, which readers of the book will recognize as his preferred method of communication, the real-life head of Scion Asset Management answered some of our panicked questions about the state of the financial system, his ominous-sounding water trade, and what, if anything, we can feel hopeful about.

Were you surprised no one went to jail?
I am shocked that executives at some of the worst lenders were not punished for what they did. But this is the nature of these things. The ones running the machine did not get punished after the dot-com bubble either — all those VCs and dot-com executives still live in their mansions lining the 280 corridor on the San Francisco peninsula. The little guy will pay for it — the small investor, the borrower. Which is why the little guy needs to be warned to be more diligent and to be more suspicious of society’s sanctioned suits offering free money. It will always be seductive, but that’s the devil that wants your soul.

When I spoke to some of the other real-life characters from The Big Short, I was surprised to hear that they thought that financial reform was pretty effective and that the system was much safer. Michael Lewis disagreed. In your opinion, did the crash result in any positive changes?

Unfortunately, not many that I can see. The biggest hope I had was that we would enter a new era of personal responsibility. Instead, we doubled down on blaming others, and this is long-term tragic. Too, the crisis, incredibly, made the biggest banks bigger. And it made the Federal Reserve, an unelected body, even more powerful and therefore more relevant. The major reform legislation, Dodd-Frank, was named after two guys bought and sold by special interests, and one of them should be shouldering a good amount of blame for the crisis. Banks were forced, by the government, to save some of the worst lenders in the housing bubble, then the government turned around and pilloried the banks for the crimes of the companies they were forced to acquire. The zero interest-rate policy broke the social contract for generations of hardworking Americans who saved for retirement, only to find their savings are not nearly enough. And the interest the Federal Reserve pays on the excess reserves of lending institutions broke the money multiplier and handcuffed lending to small and midsized enterprises, where the majority of job creation and upward mobility in wages occurs. Government policies and regulations in the post crisis era have aided the hollowing-out of middle America far more than anything the private sector has done. These changes even expanded the wealth gap by making asset owners richer at the expense of renters. Maybe there are some positive changes in there, but it seems I fail to see beyond the absurdity.

How do you think all of this affected people’s perception of the System, in general? 

The post crisis perception, at least in the media, appears to be one of Americans being held down by Wall Street, by big companies in the private sector, and by the wealthy. Capitalism is on trial. I see it a little differently. If a lender offers me free money, I do not have to take it. And if I take it, I better understand all the terms, because there is no such thing as free money. That is just basic personal responsibility and common sense. The enablers for this crisis were varied, and it starts not with the bank but with decisions by individuals to borrow to finance a better life, and that is one very loaded decision. This crisis was such a bona fide 100-year flood that the entire world is still trying to dig out of the mud seven years later. Yet so few took responsibility for having any part in it, and the reason is simple: All these people found others to blame, and to that extent, an unhelpful narrative was created. Whether it’s the one percent or hedge funds or Wall Street, I do not think society is well served by failing to encourage every last American to look within. This crisis truly took a village, and most of the villagers themselves are not without some personal responsibility for the circumstances in which they found themselves. We should be teaching our kids to be better citizens through personal responsibility, not by the example of blame.

Where do we stand now, economically?
Well, we are right back at it: trying to stimulate growth through easy money. It hasn’t worked, but it’s the only tool the Fed’s got. Meanwhile, the Fed’s policies widen the wealth gap, which feeds political extremism, forcing gridlock in Washington. It seems the world is headed toward negative real interest rates on a global scale. This is toxic. Interest rates are used to price risk, and so in the current environment, the risk-pricing mechanism is broken. That is not healthy for an economy. We are building up terrific stresses in the system, and any fault lines there will certainly harm the outlook.

What makes you most nervous about the future?
Debt. The idea that growth will remedy our debts is so addictive for politicians, but the citizens end up paying the price. The public sector has really stepped up as a consumer of debt. The Federal Reserve’s balance sheet is leveraged 77:1. Like I said, the absurdity, it just befuddles me.

The last line of the movie, printed on a placard, is “Michael Burry is focusing all of his trading on one commodity: Water.” It sounds very ominous. Can you describe this position to me?
Fundamentally, I started looking at investments in water about 15 years ago. Fresh, clean water cannot be taken for granted. And it is not — water is political, and litigious. Transporting water is impractical for both political and physical reasons, so buying up water rights did not make a lot of sense to me, unless I was pursuing a greater fool theory of investment — which was not my intention. What became clear to me is that food is the way to invest in water. That is, grow food in water-rich areas and transport it for sale in water-poor areas. This is the method for redistributing water that is least contentious, and ultimately it can be profitable, which will ensure that this redistribution is sustainable. A bottle of wine takes over 400 bottles of water to produce — the water embedded in food is what I found interesting.

What, if anything, makes you hopeful about the future?
Innovation, especially in America, is continuing at a breakneck pace, even in areas facing substantial political or regulatory headwinds. The advances in health care in particular are breathtaking — so many selfless souls are working to advance science, and this is heartening. Long-term, this is good for humans in general. Americans have so much natural entrepreneurial drive. The caveat is that it is technology that should be a tool making lives better in the real world, and in line with the American spirit of getting better and better at something, whether it’s curing cancer or creating a better taxi service. I am less impressed with the market values assigned to technology that enhances distraction. We don’t want Orwell’s world, but we don’t want Huxley’s world either.


Michael Burry



Yachtman: Stocks as Bonds; Case Study on Death


More Great investors/profs on investing here:

https://www.youtube.com/user/GrahamAndDoddsville  and


Teach Yourself Stoicism Cover 2013

Get the book in paperback or Kindle format from Amazon.

The contemplation of death

In this chapter you will learn:

  • About the ancient concept of the “good death” and what it means to have a Stoic or philosophical attitude toward your own demise
  • How to practice the psychological exercise, common to different philosophical schools, which Socrates called the “meditation on death” (melete thanatou)
  • How facing death can transform life by helping us to value the “here and now”
  • What the Stoics meant by saying that life and death are “indifferent” to us and how they trained themselves to maintain this view

Reflect that no evils afflict one who has died, that the accounts which make the underworld a place of terror to us are mere tales, that no darkness threatens the dead, no prison, or rivers blazing with fire, no river of Forgetfulness, or seats of judgement, no sinners answering for their crimes, or tyrants a second time in that freedom which so lacks fetters: these are the imaginings of poets, who have tormented us with groundless fears. Death is a release from all pains, and a boundary beyond which our sufferings cannot go; it returns us to that state of peacefulness in which we lay before we were born. If someone pities those who have died, let him pity also those who have not been born. Death is neither a good nor an evil; for only that which is something can be a good or an evil but what is itself nothing and reduces everything to nothingness, delivers us to no category of fortune. (Seneca, Consolation to Marcia, 19)

Forget all else, Lucilius, and concentrate your thoughts on this one thing: not to fear the name of death. Through long reflection make death one of your close acquaintances, so that, if the situation arises, you are able even to go out and meet it. (Seneca, On Earthquakes)

Self-assessment: Stoic attitudes toward death

Before reading this chapter, rate how strongly you agree with the following statements, using the five-point (1-5) scale below, and then re-rate your attitudes once you’ve read and digested the contents.

(1. Strongly disagree, 2. Disagree, 3. Neither agree nor disagree, 4. Agree, 5. Strongly agree)

  1. “Dying doesn’t frighten me very much.” (    )
  2. “It’s more important to have lived a good life than a long life.” (    )
  3. “Life and death are not intrinsically good or bad; it depends how we use them.” (    )

Why is contemplating your death important?

How prepared are you to meet your own death? What does death mean to you and what role does it play in your life?

One day you will die: Nature has provided you with ample evidence of this from the example of others. The Stoics, like most ancient philosophers, believed it was important to meditate often on the prospect of your own death, questioning the fear most people have of dying. Epictetus mentions that Roman generals were followed during their “triumph”, the celebration of a great military victory, by slaves who repeatedly whispered memento mori (“remember thou must die”) to help them remain circumspect and avoid vanity (Discourses, 3.24). Stoics developed a wide variety of similar strategies because they considered this the most important fear (or “aversion”) to overcome, through the discipline of desire and aversion.

The phrase memento mori is familiar to many people as a description of works of art, from the Vanitas paintings of the Renaissance to Damien Hirst’s animals preserved in formaldehyde. These works evoke a contemplative or philosophical attitude toward our own mortality. For example, Nicolas Poussin’s painting The Arcadian Shepherds depicts a tomb with the inscription et in Arcadia ego, through which Death reminds us: “Even in paradise, I will find you.” Similar themes are familiar from literature. The character of Ebeneezer Scrooge in Charles Dickens’ A Christmas Carol (1843) is confronted with his own grave by the Ghost of Christmas Yet to Come, and the experience leads to an epiphany that transforms his moral character. This notion of contemplative meditation on the inevitability of death, and the transience of life, was common in philosophy until recent centuries. The iconic image of Shakespeare’s Hamlet, a young philosophy student, holding aloft the skull of his childhood friend Yorick would probably have been recognisable to Elizabethan audiences as an allusion to the ancient practice of contemplating images of death.

The Stoics were particularly emphatic about the importance of constant training in overcoming our fear of death. Epictetus taught his students that they should contemplate the Stoic paradox that “the source of all human evils, and of mean-spiritedness and cowardice, is not death, but rather the fear of death.” It’s the most pernicious of all fears. If we want to make progress as Stoics, he says, we should try to dedicate all of our discussion, reading, and exercises to this fundamental goal of training ourselves to overcome the fear of death as this is the only way we can truly attain freedom and liberate ourselves from self-imposed slavery to the passions (Discourses, 3.25). According to Seneca, we should realise that, ironically, an excessive fear of dying often leads to an early death (On the Tranquillity of the Mind, 11). He actually goes so far as to say that the man who fears his own death will never do anything worthy of life. He who has learned to be unafraid of death has unlearned how to be a slave.

Near the start of the Discourses, Epictetus presents an exemplary role-model, the highly-regarded Stoic philosopher called Paconius Agrippinus who reacted with complete composure when informed of his own impending execution, sitting down to finish his lunch with friends. This is what it means to rehearse and assimilated the lessons taught by the Stoic discipline of desire and aversions, setting ourselves free from obstruction and the vicissitudes of external fortune.

I must die. If soon, then I die; whereas if a little later, I will take lunch now, since the hour for lunch has come, and afterwards I will die at the appointed time. How? As becomes the man who is giving back that which was another’s. (Discourses, 1.1)

In other words, to die is to return what belongs to Nature, and was merely “on loan” to us temporarily. Death is natural and inevitable, and so on the basis of natural philosophy, we should not view it as unexpected when the day finally comes, but death should find us long- prepared to let go of life magnanimously. This practice was common to most schools of philosophy and Seneca actually provides one of the most striking accounts of it while discussing the rival Epicurean school:

[Epicurus said:] ‘Practice death in advance,’ or if it is easier to convey his meaning, something like this: ‘It is a great thing to learn how to die.’ Perhaps you think it superfluous to learn something that can only be implemented once. This is the very reason we have to practise; we must always learn anything that we cannot test to see if we know it. ‘Practise death!’ The man who says this is bidding us practice liberty. The man who has learned to die has unlearned how to be a slave; he is above all power, or at least beyond its reach. What do prison and guards and locked doors mean to him? He has a free way out. There is only one chain that keeps us bound, the love of life, and even if this should not be rejected, it should be reduced so that if circumstances require nothing will hold us back or prevent us from being ready instantly for whatever action is needed. (Letters, 26)

This fundamental theme runs through the whole of Stoicism. In one of the most poignant passages of the Meditations, Marcus Aurelius asserts the Stoic and Socratic view that true philosophy consists above all in “waiting for death with good grace”, remembering that it is merely a natural and inevitable dispersal of atoms, and not to be feared as a catastrophe (Meditations, 2.17). Indeed, the meditation on death is the apex of all the Stoic exercises involving premeditation of adversity. By learning to adopt a philosophical attitude toward your own death, your way of acting may be fundamentally transformed, making this both a psychological and ethical training exercise. The Stoic ideal holds that the Sage, the man we should seek to emulate, “finds it a joy to live and in spite of that is not reluctant to die”, accepting his mortality and facing death with dignity when the time comes (Letters, 54). Marcus therefore advises contemplating death in each action, to focus our attention on its true worth: “During every one of your actions pause at each step and ask yourself: Is death deemed catastrophic because of the loss of this?” (Meditations, 10.29). Seneca likewise imagines that we should respond to those afraid to die by saying “So are you living now?” Paradoxically, we cannot be truly “alive” when we are enslaved by fears, especially the fear of death itself (Letters, 77). We make ourselves the puppets of fortune and, in particular, we become slaves to other men by valuing what is in their power. Stoic heroes like Cato were called “invulnerable” to tyrants like Caesar because they were not willing to sacrifice their values to save their own lives.

However, the theoretical notion that death is “indifferent” is not sufficient to bring about a personal transformation. The precepts of Stoicism are meant to be turned into a firmly-grasped certainty, which requires constant practice as part of a daily regime. Seneca therefore says the aspiring Stoic should practice first and foremost to look down upon death, with indifference, something that is “effective against all weapons and every kind of enemy” (Letters, 36). We naturally love our own lives from birth and death is understandably something terrifying; otherwise we would not need to train ourselves to view it differently. However, the Stoic aims to identify more fully with her nature as a rational being, which means rising above certain things we’re born fearing. Stoics therefore recommend picturing our own death regularly, perhaps even several times a day. We should think of it in slightly different ways, at different times.

Going to bed being grateful for our lives so far, for example, or awakening in the morning and planning our day as if it were our last chance to truly live. We can identify the following exercises in Stoic literature, for example:

  1. Mentally picturing one’s own death, in various ways, as if you were able to observe it happening
  2. Reading about, discussing, and contemplating the “stories” of Cato and Socrates, as examples of good deaths
  3. Telling ourselves “tomorrow I must die” and contemplating those words at certain times
  4. Contemplating the transience of all material things and human mortality in general, as in the various cosmological meditations The contemplation of death therefore overlaps with other Stoic exercises and along with the “view from above” it may lie at the very heart of the discipline of desire and Stoic therapy of the passions.

For example, the contemplation of death is obviously linked to the Stoic practice of dwelling in the “here and now”. Ironically, reminding ourselves of death can intensify our experience of living. The need to “seize the day” because death is certain, was an extremely common theme in classical poetry, especially where it was influenced by Stoic philosophy.

In a world torn by hope and worry, dread and anger, imagine every day that dawns is the last you’ll see; the hour you never hoped for will prove a happy surprise. (Horace, Letters, 1.4)

The Stoic Persius likewise wrote:

Soon enough you’ll turn into dust, ghost, and hearsay. Live with death in mind; time flies — my words reduce it. (Satires, 5)

Seneca writes: “Imagine this is your last day of life; or, if not, the next to last” (Letters, 15).
Musonius Rufus, likewise said: “It is not possible to live well today unless you treat it as your last day” (Fragments, 22). Marcus repeatedly dwells on this theme, continually reminding himself to live in the “here and now” as if certain death were looming on the horizon. We will make progress toward virtue and perfect our character, he says, if we can only carry out every action in life with a sense of purpose while passing through each day as if it were our last, and we could depart at any moment (Meditations, 2.11; 2.5; 7.69). As Hadot put it, the thought of our imminent death potentially “transforms our way of acting in a radical way, by forcing us to become aware of the infinite value of each instant” (2002, p. 137).

Case study: The death of Socrates

Xenophon wrote that his friend and teacher, Socrates, faced the death-sentence with absolute serenity and fortitude, and that it was “generally agreed that no one in the memory of man has ever met his death more nobly” (Memorabilia, 4.8). We’ve already mentioned the events surrounding the trial and execution of Socrates. The Stoics undoubtedly treat this as the example par excellence of a “good death”. In reading about Socrates’ preparing to meet his death, in a sense, we accompany him and prepare ourselves for our own deaths.

Plato wasn’t there himself but, in an eponymous dialogue, portrays Socrates’ friend Phaedo recounting his astonishment at the philosopher’s composure during his final hours.

“Although I was witnessing the death of one who was my friend, I had no feeling of pity, for the man appeared happy both in manner and words as he died nobly and without fear” (Phaedo, 58e).

So what did Socrates do? Well, he acted normally. He saw his persecutors, the men responsible for his death, as simply misguided rather than hateful. The Enchiridion of Epictetus makes a point of concluding with a remarkable quotation attributed to him: “Anytus and Meletus [who brought the charges] can kill me, but they cannot harm me.” (Obi-wan Kenobi echoes this in the movie Star Wars!)

In prison, awaiting execution, Socrates spent his final hours debating amiably with his friends about philosophy. Given the proximity of his own demise, he chose to explore the question of what happens to the soul after death, coolly examining several possibilities while keeping an open mind, tolerant of uncertainty. More importantly, he explains his view that philosophy is essentially a lifelong “meditation on death” (melete thanatou), as the reason for his surprising indifference. He says that those who practice philosophy in the right way are constantly training for death, and true philosophers fear dying least of all men (Phaedo, 67e).

The “contemplation of death” therefore emerged right at the most dramatic moment in the birth of Western philosophy, spoken at the heart of what Socrates called his philosophical swansong. When the time came, he calmly drank the poison and waited to die, something he’d clearly reconciled himself to, and faced with supreme equanimity and an attitude of philosophical curiosity.

Key idea: Life and death are indifferent

The Stoics did not generally believe in the immortality of the soul, which they saw as a subtle physical substance, composed of air or fire, extending through the body like the tentacles of an octopus. (Maybe a primitive precursor of our modern concept of neurological processes.)

Some Stoics perhaps believed the soul survives temporarily after the body’s death, but they accepted that we are all ultimately destined to be destroyed. However, both life and death are explicitly classed as “indifferents”, neither good nor bad in themselves. They may be used either wisely or foolishly, for either virtue or vice. Nevertheless, life is classed among the “preferred” indifferents, death among the “dispreferred” ones. Stoics therefore considered it natural for adult humans to prefer survival, as do animals and infants. With the acquisition of language and reason, though, our chief good becomes wisdom and the rational virtues. The mere fact of living or dying does not make us any more wise or virtuous. Both living and dying, nevertheless, may be approached with wisdom and virtue and be called “good”, in that sense.

For the Stoics, we should live to achieve progress toward wisdom, rather than pursuing wisdom in order to somehow extend our lives. By contrast, it would potentially be better not to live than to live a life of folly and injustice toward others. Remember your death is certain As we saw earlier, Epictetus described a three-stage procedure, forming part of the discipline of desire (Discourses, 3.24). He advises us to rehearse saying “I knew that I was mortal” in preparation, premeditating our death. This threefold strategy can be applied to the contemplation of death as follows:

  1. We should remind ourselves of the inevitability of death, in preparation, so that we can never feel it is “unexpected” or be surprised when the day finally arrives
  2. We should recall that it is not “up to us” and therefore not an evil, but “indifferent” with regard to our ultimate Happiness and fulfilment
  3. Death is a natural process and we should accept it as determined by the string of causes that constitutes the whole of Nature, and our fate in life — the thought Epictetus considered “most decisive”

We’ll examine these aspects in turn, beginning with the prescription that we should be continually remember the inevitability of our own death. The poems of Horace return to this theme several times: “remember your death is certain” (Odes, 2.3).

How is it possible for us to forget our own mortality? And yet it seems that we so often do. Everyone perceives ample evidence that they must die eventually, at least in terms of physical life on Earth. Nevertheless, death still makes us anxious, and we react as if it came as a surprise. To firmly grasp the certainty of death is to remove the irrational sense of shock that contributes to emotional distress. Indeed, modern research on worry suggests that when we view something feared as certain it’s often less distressing than when we view it as uncertain or ambiguous.

We learn the certainty of death mainly by observing that all other people die. Hence, Marcus Aurelius several times reminds himself of the deaths of great historical figures (Meditations, 3.3; 4.48). Even great conquerors like Alexander the Great or Julius Caesar or great philosophers such as Socrates and Zeno – what has become of them?

Because death is inevitable and comes to all it was also widely referred to as the great leveller. Nobody can escape the fact that they will die eventually. Seneca says that it is a cardinal feature of nature that everyone arrives at death on an equal footing and the circumstances don’t essentially matter: “Death has the same force wherever it strikes” (On Earthquakes). As Marcus Aurelius put it, death reduced both Alexander the Great and his mule- driver to the same condition (Meditations, 6.24). Again, this theme recurs in the poems of Horace, death comes knocking at the poor man’s shack and the king’s palace alike (Odes, 1.5).

Whether rich or poor, “it’s all one; you and I are victims of never-relenting Orcus” or Death (Odes, 2.3). Shelley’s Ozymandias (1818) employs a related literary device, called ubi sunt (“Where are they now?”).

And on the pedestal these words appear:
“My name is Ozymandias, king of kings:
Look on my works, ye Mighty, and despair!”
Nothing beside remains. Round the decay
Of that colossal wreck, boundless and bare
The lone and level sands stretch far away.

Certain tombs and gravestones were designed to have this effect, reminding us not only of the deceased but of our own mortality. Seneca likewise observes that although many funeral processions went past the doors of his family and fellow Roman citizens they seldom reflected on their own mortality (Consolation to Marcia, 9). Yet we should learn from the fate that befalls others to prepare ourselves for the common lot of mankind, especially the day of our death. We can always reflect that around the world at any given time, thousands of humans and other living creatures are dying. We know that every journey has its end and should not be unprepared for the inevitability of our own demise.

In addition to the certainty of our ultimate demise, the Stoics very frequently reminded themselves that “The door is always open”. This was another Stoic slogan, which clearly meant that it’s always possible to voluntarily end your life.

The door stands open. Why grieve? (Discourses, 1.9)

Although there are some exceptional circumstances, perhaps, in which suicide is physically impossible, it is virtually always available as a way out. Whereas for many people this thought may seem morbid, for the Stoics it carried tremendous psychological and ethical force. We only remain here on Earth so long as we continue choosing to live — “the door is always open”, should we wish to depart. Like children playing a game, we can always say “I won’t play any longer” and take our leave, but if we choose to stay on in the “game” of life it’s hypocritical to keep complaining because we do so voluntarily (Discourses, 1.25).

The story goes that in old age, when he was frail and unable to continue lecturing, Zeno voluntarily committed suicide, after tripping upon the ground and then beating it with his hand as he joked: “I come of my own accord; why then call me?” (Lives, 7.1). Stoics go to their death willingly when the time comes.

Key idea: Remembering death is certain (memento mori)

Contemplating your own death and learning to adopt a courageous philosophical attitude toward it is undoubtedly one of the most fundamental exercises in Stoic practice. Epictetus told his students that day by day they should keep everything that seems catastrophic before their mind’s eye, but most of all death (Enchiridion, 21). This contemplative practice takes a variety of forms but permeates the whole Stoic tradition. Sometimes this may have involved written exercises, in a journal, such as we find in Marcus Aurelius’ Meditations. Often, it may have involved patiently visualising death. However, there are many references to the use of repeating verbal formulae to remind oneself of death.

Epictetus mentions that triumphant Roman generals would have the words memento mori (“Remember thou must die”) whispered in their ears. Somewhat notoriously, he then says that we should likewise whisper over our sleeping spouses and children: “Tomorrow you will die”. However, he also instructed Stoic students to repeatedly say to themselves the words: “I knew that I was mortal” (Discourses, 3.24). In a similar vein, Seneca suggests we should tell ourselves “You may not wake up”, when going to sleep, and “You may not ever sleep again”, when waking in the morning, to remind us of our own mortality (Letters, 49). Elsewhere, he also says that as we go to sleep each night we should practice saying: “I have lived my life and run the course that Fortune gave” (Letters, 12). He claims that by doing so we may learn to be grateful for each new day that fate gives us.

Try it now: Contemplate the “good death” of a wise man

Read the account of Socrates’ last days in Plato’s Apology and Crito. Alternatively, read the account of Seneca’s death from the Annals of Tacitus, Cato’s death in Plutarch’s Parallel Lives, or any other praiseworthy examples you can find.

  1. Imagine yourself in the shoes of Socrates, Cato, Seneca, or whoever you’ve chosen, sharing their thoughts, actions, and feelings, in the face of death.
  2. What might you do, in their place, if you were acting with wisdom and courage? What would you do if sentenced to drink hemlock, for example, like Socrates?
  3. Would you handle things in the same way or differently? Compare your actions to theirs. How would it feel?

Try to contemplate several different examples, and compare them to each other. What lessons can you draw from this thought experiment that might apply to life in general?

Key idea: “The good death”

Death is “indifferent”, in itself, but we can die well by meeting our fate with wisdom and virtue so philosophers sometimes speak of the “good death”. For most Stoics, undoubtedly, Socrates provided the supreme example of a philosophical attitude in the face of death. For later Stoics, Cato was also treated as an important role-model in this respect. Stoic literature is full, however, of many different examples of “good deaths”.

Boethius wrote: “Some men at the price of a glorious death have won a fame that generations will venerate; some indomitable in the face of punishment have given others an example that evil cannot defeat virtue” (Consolation of Philosophy, 4.6). However, the most important aspect of the good death is the fact that it’s approached with wisdom and virtuous intentions, rather than the actual consequences for other people, which are largely in the hands of fate. Even someone who dies in obscurity can have a “good death”, if she can meet her fate with dignity and courage.

Try it now: Picture your own death

Take a few minutes to contemplate your own death as if it were happening now. Draw on what you’ve read in this chapter but also recall some of the exercises you learned in the chapter on premeditation of adversity. As you do so, recall the Stoic teaching that although it’s natural to prefer to live, death is not an “evil” but rather an opportunity for virtue.

  1. Tell yourself that death is inevitable and necessary, ordained as your fate by Nature.
  2. Take time to contemplate things as objectively as possible, without any value-judgements, as if you’re considering your death from a detached scientific perspective, as an inevitable natural event, stripping away the “mask” of catastrophic thinking.
  3. Next, try to imagine what is under your control, and the extent to which you would be able to exercise wisdom and virtue in the face of death.
  4. If it helps, return to the contemplation of wise men, especially the “good deaths” of philosophers such as Socrates, and imagine how the ideal Stoic Sage would respond to the same death you imagine facing. What would it be like to emulate their praiseworthy example?

An alternative approach would be to imagine witnessing your own funeral service, like Scrooge does in A Christmas Carol. Again, think about what lessons can be taken from this that might apply to life in general.

Remember this: The Stoic view of suicide or euthanasia

In the ancient world, people were more often faced with situations where suicide was considered a reasonable response, such as the threat of enslavement or torture. However, even today, many people face an old age in which the continuation of their life, through worsening physical frailty and illness, becomes a very serious moral dilemma. The Stoic position is highly relevant to the modern debate on the ethics of euthanasia (literally, a “good death”). Stoic Ethics, unlike some religions, does not consider suicide to be inherently wrong.

What matter are the judgments and intentions on which it’s based. It would be wrong for someone to take their own life because of unhealthy or irrational “passions”, meaning suicide caused by pathological depression would be wrong. However, in some cases suicide may be rational, if the decision is made “in sound mind” and wisely. The founders of Stoicism said that suicide was appropriate for wise, temperate, and courageous men, in many cases, but for the foolish, impulsive, or cowardly it is better to remain alive, rather than to take their own life for the wrong reasons. The Stoics believed it was rational for Socrates and Cato to take their own lives, under the exceptional circumstances facing them. According to one account, Zeno, the founder of Stoicism, “endured many hardships by reason of old age”, and eventually took his own life when he was in his seventies (Lives, 7.1).

Remember death is no evil

The Stoics also argued that it is irrational to judge something “evil” once we accept that it is inevitable, because calling something evil is tantamount to saying that it must be avoided at all costs.

When death appears to be an evil, we must have ready at hand the argument that it is our duty to avoid evils, and that death is an inevitable thing. (Discourses, 1.27)

The challenging concept that “death is not an evil” was fundamental to the whole genre of “consolation” letters in the ancient world, which are found across different philosophical traditions, but were particularly associated with the Stoics. For example, in his letter to Marcia who had been grieving the death of her son Metilius for over three years, Seneca puts the argument very forcefully that death is ultimately “indifferent” with regard to having a good life (Consolation to Marcia, 19). Only what is under our direct control can be truly “good” or “bad”, and our own life and death are classed as “indifferent”, being not entirely under our control. The Stoics also argued that life can be used badly, so it is not life itself that is good or bad but the use we make of it. In themselves, living and dying are “indifferent”; we make them “good” or “honourable” only insofar as we approach them with wisdom and virtue. Seneca quotes the words of another Stoic who explains that “it is no great thing to live” because slaves and cattle also live, but rather it is great to live and die honourably, wisely, and courageously (Letters, 77).

Stoic philosophy, like the magic wand of Hermes, can turn anything that befalls us into gold, and even death becomes an opportunity for exercising virtue:

“What will you make of death?” Why, what else but make it your glory, or an opportunity for you to show in deed thereby what sort of person a man is who follows the will of nature. (Discourses, 3.20)

Nevertheless, the Stoics would say that it is natural and rational for humans, like all other animals, to “prefer” their own life and not their own death, as long, as this accords with virtue.

“Preference” is only possible because the future is uncertain, though. Once our death, from a particular cause, becomes certain and unavoidable, it turns to something completely “indifferent”, which we have no choice but to accept. Death in general, the fact that we must ultimately die somehow, is always certain of course, and something we should accept unreservedly.

Plato’s Republic, written over three centuries before the New Testament, portrays Socrates saying that myths about the underworld should be completely expunged from literature to avoid planting irrational superstitions and fears about death in the minds of children (3.386). In the Phaedo, Socrates is then asked by his friends to speak to them as though a little child remains within their minds, who is afraid of death as if it were a bogeyman, and to reassure them there is nothing to fear. He replies: “You should sing a charm over him every day until you have charmed away his fears” (Phaedo, 77e). Stoics likewise compared death to a bogeyman and to scary masks that frighten small children by their appearance. We should strip away the myths and value-judgements that make death appear like a bogeyman: “Turn it about and learn what it is; see, it does not bite” (Discourses, 2.1). Seneca uses the same analogy to describe premeditation on adversity, like removing a scary mask that frightens children, ignorant that the person wearing it is actually harmless (Letters, 24).

The Stoics therefore rejected mythological accounts of the afterlife as superstitious tales designed to frighten small children. However, they also used many philosophical arguments, which they rehearsed repeatedly in different forms and memorised to help them develop a “firm grasp” of their moral principle that death is fundamentally indifferent. One of the simplest Stoic arguments was that “death is not intrinsically bad or catastrophic, otherwise it would seem so to everyone”. In other words, not everyone sees it the same way. The list below summarises various examples of this argument found in the Stoic literature.

Not everyone judges death to be bad:

  • Acrobats are willing to risk death for applause
  • Soldiers choose to face death for the sake of glory
  • Parents will sacrifice their own lives to protect their children
  • Lovers will often risk death for their loved ones
  • The elderly or infirm sometimes seek death (“euthanasia”) to avoid suffering
  • Many people commit suicide, for various (good or bad) reasons preferring death to life
  • More importantly: wise men, such as Socrates and Cato, did not see their own deaths as fearful or catastrophic

All these examples illustrate the point that people will sometimes judge other things to be more important than preserving their own life. Even the unwise will accept the risk of death in order to gain wealth, glory, or the affection of others. Marcus therefore says that a powerful way to train oneself to look down on death is remember how many foolish and vicious people have nevertheless managed risked death without fear (Meditations, 12.34). However, the wise will face death when it is necessary to do so in the service of virtue and eudaimonia, the supreme good in life. Can death be intrinsically bad, therefore, if so many people are willing to risk their lives for something they prize more highly?

This leads to the famous Stoic view that it is not actually death itself that is distressing or even harmful but rather our faulty value-judgement. The fear of death is worse than death itself because it is an irrational passion that does real harm to our mind, and prevents us flourishing.

In fact, this argument is central to Epictetus’ Handbook:

It is not the things themselves that disturb men, but their judgements about these things. For example, death is nothing catastrophic, or else Socrates too would have thought so, but the judgement that death is catastrophic, this is the catastrophic thing. (Enchiridion, 5)

When facing death we must primarily have ready-to-hand in our minds a firm grasp of what is ours and what is not: “I must die: must I, then, die groaning too?” (Discourses, 1.1). These are the arguments that aspiring Stoics should exercise themselves in every single day, rehearsing them mentally and in writing, “from dawn to dusk”, until they become second nature. Seneca says that the Stoic ideal is to look upon one’s own death with the same expression, the same detachment and objectivity, as when one hears of a stranger’s death (On the Happy Life, 20). Our own death is as “external” to our volition as the death of someone on the other side of the world, or someone’s death in the distant past or distant future.

The fear of death is therefore regarded as one of the most fundamental and insidious of the irrational passions. The Stoics argue that we simply cannot imagine the ideal Sage would judge his own death to be an evil, otherwise he would potentially condemn himself to a life of cowardice and slavery. His death may be in the hands of a tyrant, and to avoid it he would then be forced to obey the demands of a wicked man. Whereas if he prizes virtue above preserving his own life, no tyrant has the power to coerce him anymore. Consider whose lives are more praiseworthy: those who fear death the most, and seek to preserve their lives at any cost, or those who “prefer” to live but are unafraid to die in the service of honour?

The Stoics also frequently mention arguments for the indifference of death based on the notion that it is merely a form of non-existence. For example, Seneca says the man who wishes to live another thousand years is as foolish as one who wishes he was born a thousand years earlier because we are returning to the same state of non-existence we were in before we were born (Letters, 77). Elsewhere he says: “Death brings no discomfort, for there would have to be someone whose discomfort it was” (Letters, 36).

No suffering is great if it has an end. Death is coming to you: it would have been worth fearing if it could coexist with you. But it must either not reach you, or pass you by. (Letters, 4)

Non-existence cannot be good or bad:

  • There is no person remaining to be either helped or harmed by the “experience” of being dead
  • In fact, although we may be conscious of dying, being dead is not even an experience, let alone a good or bad one
  • If non-existence were truly bad then the aeons of time before we were even born would be just as awful as the ones that follow death

In addition to these arguments, the Stoics use an interesting paradox to challenge the fear of death. In his essay On Earthquakes, Seneca emphasises the folly of fearing death by earthquakes or any other specific thing, when death surrounds us and can strike in an infinite number of ways. We can as easily be killed by a single stone as an entire city collapsing on our heads. He writes: “If you wish to fear nothing, consider that all things are to be feared.”

Elsewhere he says: “It is not clear where death is waiting for you, so you should wait for it everywhere” (Letters, 26). Epictetus makes the same point: “Do you want me, then, to respect and do obeisance to all these things, and to go about as the slave of them all?” (Discourses, 4.7). Death can come from any quarter, at any time. According to legend, the Greek playwright Aeschylus was killed by a tortoise dropped on him by an eagle flying overhead. You could be hit by a bus tomorrow. Our fears tend to be irrationally selective and when confronted with the stark logic of “If you worry about that you might as well worry about everything”, people are often forced to concede that becoming preoccupied with hypothetical catastrophes in general is a waste of time and energy. To be everywhere is to be nowhere, and to fear everything is to fear nothing.

Remember this: Fear of death is worse than death itself

The Stoics believed that the fear of death is one of the most insidious and toxic of the irrational passions. Paradoxically, therefore, the fear of death is worse than death itself. “Death you’ll think of as the worst of all bad things, though in fact there’s nothing bad about it at all except the thing which comes before it – the fear of it” (Seneca, Letters, 104). The Stoics actually believed that the fear of death lies at the root of most irrational fears, and the cardinal vice of cowardice.

Marcus says that in addition to the arguments concerning the “indifference” of death there’s a powerful “unphilosophical” argument, which is simply to ask ourselves: “Do we really want to emulate the sort of people who most fear their own death?” Go over the names of people who have tenaciously clung onto life and ask yourself whether they came any closer to genuine Happiness as a result (Meditations, 4.50). Epictetus had taught that the greatest harm that can befall man is “not death but rather the fear of death” and we should exert ourselves in particular to overcome this fear as doing so “is the only way in which men achieve freedom” (Discourses, 3.26).

Remember death is ordained by Nature

Epictetus said the most decisive step in the discipline of desire, regarding death, is to view it as ordained by Nature as a whole or by the divine will of Zeus. For ancient Stoics, accepting one’s fate as the divine will of Zeus was the essence of piety. Modern readers may struggle with this idea, especially if they are atheists or agnostic. However, Zeus was synonymous with Nature in Stoicism and there may still be ways in which we can learn to accept seemingly aversive events, even our own death, with equanimity, by viewing them within a larger context and as being ultimately determined by Nature as a whole. Indeed, the chief doctrine of Stoicism is that we should “live in agreement with Nature”, which means the same thing as accepting our fate, insofar as it is outside our control. Once we’ve accepted that death is the inevitable fate of all living things, the Stoics argue that it ultimately matters little whether our lives are long or short.

Not even death can bring terror to him who regards that alone as good which comes in due season, and to whom it is all one whether his acts in obedience to right reason are few or many, and a matter of indifference whether he look upon the world for a longer or a shorter time. (Meditations, 12.35)

Marcus elsewhere says that it’s of no consequence whether one lives three days or three centuries, these are as one from the perspective of eternity, when you “look at the yawning gulf of time behind you, and before you at another infinity to come” (Meditations, 4.50). To put it another way, we praise others for the quality of their lives, not their duration. It would be hypocritical to judge our own lives by a different standard. It is better to die honourably than to live a long life, foolishly and enslaved to fear and desire. Epictetus uses the ancient metaphor of a “festival” to illustrate the Stoic notion that we should constantly remember that our life is on “loan” from Nature. True piety consists, not in singing hymns in a church or temple, but in maintaining a heartfelt sense of gratitude for the opportunity to live, while accepting that it is temporary, and being willing to depart when the time comes without grumbling.

Indeed, death is a law of Nature, part of the very fabric of existence. Some of the Stoics even argued that we die a little every day. Death is seen as a lengthy gradual process that begins at birth and continues throughout our entire life. Seneca therefore says that if we want to replace fear of death with philosophical calm we should contemplate the thought very deeply in our hearts that we have been travelling along the road to death since the day we were born (Letters, 4).

Just as it is not the last drop that stops the water-clock but every drop that has previously fallen, so the last hour when we cease to exist is not the only one to cause death but the only one to complete it: we reach death then but we have been coming to it for a long time. (Letters, 24)

Marcus Aurelius suggests we should contemplate our lives in terms of distinct stages, and the transition from each to the next (“each step in the ladder of change”) as a kind of death. As we’ve grown from infants, into children, adolescents, and gone through various stages of adult life, many things have ceased or changed for us. The child dies when the man is born. We should ask ourselves: “Is there anything catastrophic here?” (Meditations, 9.21). Neither is there any catastrophe in the end of the whole process, our final demise. Viewing death as a daily event, a gradual process, rather than a single blow, grants us a lifetime of practice in coming to terms with our own mortality. Each day we take one step closer to death and we should willingly sacrifice a drop of our life to Nature, letting go of the day that has now gone, before retiring to sleep each night in preparation for letting go completely at the end of life.

Seneca advises that we should literally say such “I have lived my life and run the course that Fortune gave” each night as we go to sleep, accepting that everything happened exactly as Nature ordained, the past is behind us, and we may die tomorrow (Letters, 12). We will then meet each new day with a sense of gratitude, as a gift from Nature.

The Stoics also argue that as death is a natural and inevitable process it cannot be an evil as nothing of this kind is feared by the wise man. Marcus wrote that from the perspective of Stoic Physics, the duration of life is miniscule, the body continually prone to deterioration, and our future uncertain. He reminds himself that from the perspective of natural philosophy, death is merely a dispersal of atoms and that there is nothing terrible in the notion of one material substance being transformed into another, through a natural process. We should not be perturbed by our own inevitable death and the body’s putrefaction: “For it is in the way of Nature, and in the way of Nature there can be no evil” (Meditations, 2.17). Contemplating the decay of the body objectively, in a detached “scientific” manner, as a natural philosopher would, seems to have been an important form of the Stoic exercise we’ve called “physical definition”.

Death, like birth, is just a natural process, material elements combining, growing, decaying, and finally separating and completely dispersing (Meditations, 4.5).

“But now it is time to die.” Why say “die”? Make no tragic parade of the matter, but speak of it as it is: “It is now time for the material of which you are constituted to be restored to those elements from which it came.” And what is there catastrophic about that? What one of the things that make up the universe will be lost, what novel or unreasonable thing will have taken place? Is it for this that the tyrant inspires fear? (Discourses, 4.7)

In other words, if you look at “what it is to die” rationally and objectively, stripping away its phantom terrors, you will see it as merely a function of Nature, which it is childish to fear (Meditations 2.12). These natural processes of change are not entirely under our control, but ultimately in the hands of fate and external force. However, once again, what is “external” to our will is fundamentally indifferent to us according to Stoic Ethics. The Stoics forward several additional arguments about death as a natural process.

Death is a natural process, beyond our control:

  • Death is simply physical decay and no physical process is intrinsically good or bad
  • Our body is subject to external influences beyond our control, and so our death is ultimately in the hands of fate
  • All material things are transient (“everything flows”) and human mortality is just the most intimate example of this
  • What is composite can always be separated, human beings are composite, therefore dissolution and death is inevitable
  • You are already in the process of dying, it is not a single event but starts at birth, and occurs in stages, and so it’s too late to avoid it
  • Death is ordained by the whole of Nature as our fate, it’s the will of Zeus and it would be “impious” to resent it

From this perspective, the contemplation of death is particularly closely-related to Stoic Physics and overlaps with the contemplation of Nature as a whole, particularly the impermanence of all material things.

Try it now: Contemplate the transience of life

Take a few minutes, if you don’t mind, to really contemplate the transience of all human life and the fact that death is the common lot of all mankind.

  1. Name three historic individuals who achieved great “external” power or influence and contemplate that they are long dead despite their success. Consider briefly how they would have viewed their own death. For example, Marcus names Alexander the Great, Pompey, and Julius Caesar.
  2. Name three historic individuals you admire as having great wisdom and virtue and contemplate the fact that they are long dead despite their understanding. How would these individuals have viewed their own death? Marcus names Socrates, Diogenes, and Heraclitus.
  3. Contemplate how many people have died in the past, and how many will die in the future.
  4. Think of the demise of whole empires and civilisations, such as the Roman Empire, and that in the future your own civilisation will inevitably change and ultimately become extinct.
  5. Think about the demise of the planet Earth in the distant future, and perhaps even the possible end of the universe, such as the Stoics imagined in the “Great Conflagration” at the end of time.
  6. Contemplate the vast amount of time before you were born, during which you were non- existent, and the vast time after your death during which you will, once again, be no more.

How much difference it makes, from this perspective, whether your life is long or short? What seems most important about the way you now live your life? What other conclusions can you draw that might inform your general attitude toward life and death?

Remember this: Death is neither “good” nor “evil”

The Stoic view isn’t that death is “good”, that would be just as false as the view that it’s “bad”. Death itself is neither good nor bad, but the way we use it and our attitude toward it can be good or bad. “Life is what we make of it”, and the same proverb applies to death. Some people may nevertheless feel this aspect of Stoicism is morbid. Even the 17th century philosopher Spinoza, who has been called “more Stoic than the Stoics”, objected: “A free man thinks of nothing less than of death, and his wisdom is a meditation not on death but on life” (Ethica, 4.17). Others may say that it’s both natural and rational to be afraid of one’s own death. Life is precious, isn’t it? Don’t we risk valuing our own life too cheaply if we exercise ourselves in eliminating our fear of dying?

However, you don’t need to actually fear death to know not to walk off the edge of a cliff any more than you need to quake in fear at the prospect of getting wet to know not to stand outside in the rain. Neither is the contemplation of one’s own mortality meant as indulgence in a morbid or melancholic state. On the contrary, the purpose is precisely to confront and overcome fear or sadness caused by what is inevitable rather than to perpetuate distress or wallow in it. The ideal of the Stoic Sage, exemplified by Socrates, was both to love life and yet be unafraid of death. The Stoic’s love of life is conditional, she wishes to enjoy life and health, fate permitting. However, she is also willing to face death philosophically.

Focus Points (Summary)

The main points to remember from this chapter are:

  • Regular training in the contemplation of one’s own death (melete thanatou) is one of the most fundamental Stoic psychological exercises, which aims to replace fear with a more calm and philosophical attitude.
  • For Stoics, death is neither good nor bad, but “indifferent” with regard to eudaimonia and the good life.
  • However, health and life are “preferred” to their opposites, insofar as that is compatible with virtue — we don’t need to irrationally fear death to choose rational self-preservation.
  • Suicide or euthanasia are morally acceptable to Stoics but only when chosen soberly and courageously and not out of confusion, fear or emotional distress.
  • Seneca’s Letters (4, 24, 70 and 82)
  • Seneca’s Consolations to Marcia, Helvia and Polybius, and On Earthquakes

Copyright (c) Donald Robertson, 2013. All rights reserved.

This is a sample chapter. You can find out more about Teach Yourself Stoicism via this link.

Teach Yourself Stoicism on Google Books

Cargo Cults


The first principle is that you must not fool yourself–and you are the easiest person to fool.

A Real Cargo Cult

An example of cargo cult analysis would be expecting to predict future market returns from P/E Ratios or believing you can pick money managers who can overcome a 2% and 20% hurdle vs. a low-cost index fund. See pages 21-24:Berkshire Hathaway AR 2016. Why Buffett is winning his $1 million dollar bet against fund of funds manager, Ted Seides.


The cargo cult mindset — mindlessly aping something without understanding *how* it works — is rampant. E.g. young people who “go to college” and end up unemployed or making minimum wage. They’re not much different than the islanders who made fake airplanes and control towers based on simple observations.

“So I wish to you—I have no more time, so I have just one wish for you—the good luck to be somewhere where you are free to maintain the kind of integrity I have described, and where you do not feel forced by a need to maintain your position in the organization, or financial support, or so on, to lose your integrity. May you have that freedom.”

If we look at the active management world, we see many (most?) asset managers don’t have such freedom. It’s for that reason that Jeremy Grantham believes career risk is what dominates investing. Better to be wrong collectively and focus on relative returns, right?

Fast-forwarding some years, we see Feynman having such freedom during the investigation of the cause of the Space Shuttle Challenger disaster; he was an effective investigator precisely because he wasn’t beholden to NASA and was motivated by the pursuit of truth. His “Appendix F” in the Rogers Commission Report is another must-read: https://science.ksc.nasa.gov/shuttle/missions/51-l/docs/rogers-commission/Appendix-F.txt

Feynman eschewed the “standard” investigative approach and instead wandered around and talked to engineers and technicians, to the consternation of Rogers and others. (Didn’t W.E. Buffett and/or one of his associates do something similar after the Salad Oil Swindle hit AMEX in the ’60s? He saw that actual AMEX customers didn’t much care, so decided to go ahead with his investment.)

In Appendix F, Feynman uses basic engineering concepts and “numbersense” to expose NASA’s defective management culture. The disparity between the engineers’ estimate of flight risk and NASA management’s is astounding. The lesson here is that you oftentimes don’t need very much to sense-check, or falsify your hypothesis — the whole being generally right instead of precisely wrong concept. Going back to the Salad Oil Swindle, the whole thing would’ve never happened if anyone involved decided to reconcile the deposit receipts (known) to the USDA report on national salad oil production (known) to see how the receipts were inflated to the point of absurdity. Looking back at various case studies of failed investments, how often were the warning signs staring us right in the face if only we thought to look?

Since this is an investing website, we might modify Feynman’s closing sentence to something like, “For a successful investment, economic reality must take precedence over public relations, for you cannot fool everyone forever.”

Risk Disclosure in Plain Language; Go LT Fundamental

Written in 1998 during the Internet Riot (from Cove Capital Blog)

Risks of Investing in IPS Millennium Fund
Plain Language Risk Disclosure (Funny)

First of all, stock prices are volatile. Well, duh. If you buy shares in a stock mutual fund, any stock mutual fund, your investment value will change every day. In a recession it will go down, day after day, week after week, month after month, until you are ready to tear your hair out, unless you’ve already gone bald from worry. It will insist on this even if Ghandi, Jefferson, John Lennon, Jesus and the Apostles, Einstein, Merlin and Golda Maier all manage the thing. Stock markets show remarkably little respect for people or their reputations. Furthermore, if the fund has really been successful, you might be buying someone else’s whopping gains when you invest, on which you may have to pay taxes for returns you didn’t earn. Just try and find somewhere you don’t, though. Dismal.

While the long-term bias in stock prices is upward, stocks enter a bear market with amazing regularity, about every 3 – 4 years. It goes with the territory. Expect it. Live with it. If you can’t do that, go bury your money in a jar or put it in the bank and don’t bother us about why your investment goes south sometimes or why water runs downhill. It’s physics, man.

Aside from the mandatory boilerplate terrorizing above, there are risks that are specific to the IPS Millennium Fund you should understand better. Since most people don’t read the Prospectus (this isn’t aimed at you, of course, just all those other investors), we thought we’d try a more innovative way to scare you.

We buy scary stuff. You know, Internet stocks, small companies. These things go up and down like Pogo Sticks on steroids. We aren’t a sector tech fund, we are a growth & income fund, but right now the Internet is where we think most of the value is. While we try to moderate the consequent volatility by buying electric utility companies, Real Estate Investment Trusts, banks and other widows-and-orphans stuff with big dividend yields, it doesn’t always work. Even if we buy a lot of them. Sometimes we get killed anyway when Internet and other tech stocks take a particularly big hit. The “we” is actually a euphemism for you, got it?

We also get killed if interest rates go up, because that affects high dividend companies badly. Since rising interest rates affect everything badly, we could get killed even worse if the Fed raises rates, or the economy in general experiences higher interest rates beyond the control of those in control, or gets out of control. Whatever.

Many of the companies we buy are growing really fast. Like, 50% – 100% per year sales growth. Many of them also don’t make any money, although they may be relatively large companies. That means they have silly valuations by traditional valuation techniques. We don’t know what that means any more than you do, because we have never seen anything like the Internet before. So we might overpay for these companies, thinking we are really smart and can get away with it because they are growing so fast. It doesn’t take a whole lot for these companies to drop 50% or more, because nobody else knows what they are worth either. Received Wisdom can turn on a dime in this business, and when that happens prices fall off a cliff.

Even if we were really smart and stole these companies, if their prices run way up we are still as vulnerable as if we were really dumb and paid that high a price for them to start with. If we sell them, you will get pretty irritated with us come tax time, so we try not to do any more of that than we have to. The pole of that strategy, though, is that if we are really successful, you will have a lot of downside risk in a recession or a bear market. Bummer.

Finally, if you haven’t already grabbed the phone and started yelling at your broker to sell our fund as fast as possible, you should understand the shifting sands of technology. It doesn’t take billions of dollars to start a high tech company, like it did U.S. Steel or Ford Motor. Anybody can do it, and everybody does. Many of our companies are small, even though they dominate their market niche. It’s much easier for a new technology to blow one of our companies out of the water than it was in the old days of canal, mining, railroad and steel companies.

Just so you know. Don’t come crying to us if we lose all your money, and you wind up a Dumpster Dude or a Basket Lady rooting for aluminum cans in your old age.

Please e-mail us if we haven’t scared you enough, and we’ll try something else.
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Note: The Value Vault will be down for a few months for reorganization.   For new readers just use the search box or start at the beginning of the blog and go through the 1,200 posts.   By the end you can run Berkshire of Blackrock.

An Example of the Analyst Course

It is 2006, and you want to know the true sustainable free cash flow of Mohawk because you love sleepy, mundane industries that are slowly growing. Why? Because people love to buy lottery tickets and glamour so you “go where they ain’t.”

So what is the difference between Mohawk’s GAAP earnings per share and your estimate of FREE CASH FLOW per share?    Use cash flow from operations and maintenance capex (which you need to roughly estimate). Be roughly right, not precisely wrong.

Can you explain the difference?   What is going on with Mohawk and the industry?   Note the ten-bagger or 25% CAGR for almost ten years (move over Buffett) from the 2009 lows.  Surprising or not?    MHK-2006 AR FCF Analysis.   Can you use this as a way to find other ten-baggers?

Of course, the above question is not hard for you since you have already read this 412 page book several times: Wiley Creative Cash Flow Reporting.  You do not have needed to read that book to answer the question. Use common sense and a small bit of accounting knowledge like (amortization of goodwill-hint!)

This an example of how the analyst course would teach. You have to do many case studies to practice learning concepts like free cash flow.  Like flying and sex, you have to practice.

Update: April 11, 2017: The price you pay

If you pay too much even for a great business, then you will have poor returns.

Take the three Value-Lines of Coke (KO).   VL KO and note the $80 + plus price, then track its free cash flow (as calculated by Value-Line which is After-tax earnings plus depreciation + amortization then minus capital expenditures), then earnings.   Track the price and those metrics: KO_VL_Jan 2013 and Ko_VL 2017.   You will see that on average cash flows and earnings and dividends rise from 1998 until 2017, yet returns have been just OK.   Paying too high a price hurts your total returns even with a strong, stable business like Coke. Investors were extremely optimistic over Coke’s growth prospects.  If you held Coke for a long time, your return would equal the company’s long-term return on equity.

Also, Buffett’s non-controlled public investments have generally lagged the S&P 500 Berkshire Hathaway AR 2016.

Good luck.    Those who do not provide the correct answer will have to spend time with my ex-wife: