The Dichotomy of Control

The Dichotomy of Control sounds extremely simple, but it’s incredibly powerful and it’s very difficult to actually execute it in daily life. And it’s basically says this. There are certain things that are up to us. It’s our values. It’s our decisions. It’s how we react to things. And everything else is not up to us.

So, let’s talk about stoic philosophy and we’ll get to that. I mean stoic philosophy is a 2,000-year-old philosophy that started in ancient Greece and then moved to Rome. What I really loved about it when I discovered it, it’s almost like I suddenly got this operating system for life. There was no religion attached to it. It helped me figure out how to deal with daily life.

One of the key concepts, there are a lot of lessons there, but the one that really sucked me into it, was the dichotomy of control. And the dichotomy of control sounds extremely simple, but it’s incredibly powerful and it’s very difficult to actually execute in daily life. It basically says this: there are certain things that are up to us, our values, our decisions, how we react to things, and everything else is not up to us.

What does it mean? Well, that means that we should spend our energy only focusing on things that are up to us. And when it comes to things that are not up to us, whether it’s the street lights that come up when you’re driving to work, your neighbor being rude to you, your coworker being rude to you, or whatever, you treat them as things you cannot control. You train yourself to dismiss them, or just focus on your reaction, but not let it get to you. In other words, you try to control the things you can control.

By the way, that applies to investing so much. Stoicism should be taught as the second class of value investing right after margin of safety. All you can do is focus on the process: try to get better at valuing companies, study management, set up your process in decision-making. How the market is going to price them on a daily basis is completely not up to you. Therefore, not being obsessed about it and not being upset about it is paramount.

I just wrote about this. 2024 was a very mediocre year for us, and I’ve got to tell you how unfazed I was by that, not because I don’t care, but because I looked at my portfolio and my companies fundamentally had done well, even if the market’s attention was elsewhere. The market had not chosen to price my stocks appropriately, or at least what I think is appropriate, and that’s absolutely fine with me. That’s an example of applying this philosophy to life.

Let’s talk about Epictetus, where he said wealth comes from what you have. What is wealth? It’s basically assets minus liabilities. You can argue that your wants are your liabilities, and what’s left is your equity. Or you could look from an income statement perspective: your wants are expressed as your expenses.

If you want very little, then your equity is going to be higher. If you earn $100,000, you could always want $150,000 worth of things. If you earn $1 million, you could always want $1.5 million worth of things. So if you just have a simple lifestyle where your wants are low and you appreciate what you have, then your expenses will be lower than your income and you’ll always have something left over.

In my case, when we chose to live in a modest house or buy used cars, I taught myself to be very happy driving a 12-year-old car. I was absolutely fine with that and it didn’t bother me, because I didn’t care what people thought about my car.

There’s an interesting idea here, too. A lot of times we link our identity to the things we own. Think about this: let’s say you buy a brand new car, and people start complimenting you on it. What are they really complimenting? All you did was write a check, maybe even get into huge debt, to buy this car. You didn’t actually create it. Elon Musk or Tesla engineers could be proud of Tesla, but you should not be proud of just driving a Tesla car.

One way to own what you have is to divorce your identity from owning material things. That said, this is a true story: about six years ago I did buy myself a new car, a Tesla Model 3. It was new because I couldn’t buy it used at the time. I remember looking at my Tesla Model 3 next to my friend’s 20-year-old Honda Accord. And I remember feeling envy toward him.

You would ask, why? Because he didn’t have to worry about where he was going to park his car, or about dents. That’s when I realized: we don’t own things. Those things own us. And this is where I understood how little we should attach our identity to owning material possessions.