Virtues and vices list aquinas
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“Prudence is the virtue that disposes practical reason to discern our true good in every circumstance and to choose the right means of achieving it.” However, fortitude can become temerity without the first of Plato’s virtues – prudence, which sets limits.
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Low volatility investing and the virtue of prudence Even if its performance is weaker, it has the advantage of looking towards the future. Investors tend to underestimate the importance of an activity’s profitability in its ability to develop. Thus, the 'quality' style corresponds to fortitude. In equities, this involves trusting forecasts of future returns and investing on the basis of these expected returns (RoE). It strengthens the resolve to resist temptations and to overcome obstacles in the moral life.” The other pair of complementary Platonic virtues and styles is much less known.įortitude “is the moral virtue that ensures firmness in difficulties and constancy in the pursuit of the good. Investing in quality and the virtue of fortitude However, moderation can also turn into indecision (manifesting itself in heavy portfolio turnover) or frivolousness, when one allows oneself to be led by fads (and bubbles) until the trend shifts. The 'momentum' style shares with its corresponding virtue a reassuring 'flexible' aspect. As a result, fads, including in investments, feed on themselves up to a point. The main justification for this style’s outperformance is derived from the observation that when humans make decisions, we take time to decide, but do not easily change our minds subsequently. It acknowledges that 'others' may have seen something that we overlooked and that is therefore worth 'doing like everyone else' even without a clear, explicit reason. This style appears to correspond to Plato’s virtue of moderation (or temperance), given that it is a form of humility. Taken alone, this 'momentum' investment style produces positive average returns as long as trends are not followed too rapidly or for too long. An inexpensive stock that is already beginning to rally is probably not going to vanish from the scene. One good way of avoiding this trap is to invest in equities with momentum, i.e., with strong recent medium-term performance. Momentum investing and the virtue of moderation Continuing to blindly overweight such shares leads to a so-called value trap. Some companies are indeed cheaply valued for a reason (a structural change, for example, in the business environment). However, justice also has a fault: it is blind. This style does well in the aftermath of a crisis, when investors return to the fundamentals. The value style has in common with its corresponding virtue, justice, an absolute aspect that makes it insensitive to fashions (and bubbles). The premium placed on 'value' may be due to the behavioural bias of certain investors, who allow themselves to be dazzled by a company’s talk of growth and neglect the importance of financial data in valuing companies. So this is a form of justice, in the Platonic sense of “morally providing to each person what is universally due to him”.
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This charactestic - also known as a 'factor' - was popularised by Eugene Fama and Kenneth French and consists in investing in the cheapest shares.Ĭheapness is measured, for example, in terms of valuation multiples. The best-known of these styles is no doubt 'value'. Value investing and the virtue of justice
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In the world of equity investment, there are also 'stable dispositions', meaning investment styles that enable 'ease, self-mastery, and joy', as they offer recurring outperformance for a given level of risk. They make possible ease, self-mastery, and joy in leading a morally good life.” The four cardinal virtues are prudence, justice, courage and temperance. Plato said that “Human virtues are firm attitudes, stable dispositions, habitual perfections of intellect and will that govern our actions, order our passions, and guide our conduct according to reason and faith. Linking investment styles and human virtues While this may seem an unusual approach, it is far from being anecdotal and helps invetors to better understand the link between quantitative asset management and behavioural finance, as well as the value of well-constructed style diversification in an equity portfolio.