Investing in the Classics

Machiavelli’s The Prince: On Leadership

Please note that for the purposes of this analysis, I use the Harvey C. Mansfield, Second Edition translation of Machiavelli’s The Prince. Please refer to these past analyses (Part I & Part II) of Machiavelli’s The Prince.


The Prince, while primarily concerned with giving advice on proper action, is also a book about effective leadership. Since most professional investors likely operate within an organization, as opposed to roughing it solo, leadership is inextricably linked with the character and responsibility of investors. In this analysis, I will focus on Machiavelli’s thoughts on leadership within The Prince, and how it relates to investors today. The first half of this analysis will focus on his insights of the proper mentality and characteristics of the leader, and the second half will focus on the relationship between the prince and his magistrates, akin to that of a portfolio manager and his analysts.


Machiavelli became infamous for and stereotyped by the phrase ‘the ends justify the means,’ though he never actually explicitly says it. What Machiavelli actually writes is:

“Everyone sees how you appear, few touch what you are; and these few dare not oppose the opinion of the many… in the actions of men, and especially of princes, where there is no court to appeal to, one looks to the end. So let a prince win and maintain his state: the means will always be judged honorable, and will be praised by everyone. For the vulgar [the people] are taken in by the appearance and outcome of a thing, and in the world there is no one but the vulgar; the few have no place there when the many have somewhere to lean on” (Ch. XVIII).

This is a profound claim by Machiavelli. Always a proponent of the effectual truth of things, Machiavelli realizes that the people (i.e. the masses, as opposed to the nobles) rarely are in contact with the particular individuals and things that they judge, therefore their beliefs are formed by the appearances and outcomes alone. This often creates a discrepancy between the outward appearance and the actual process and decisions that lead to a certain outcome. The public judgment is fooled by the appearance of the thing since they rarely are there firsthand, and those that are there firsthand often do not dare to oppose the opinion of the masses. Machiavelli tries to make the point to his readers that the prince should focus on his duty as a prince, which is to win and maintain his state. If he does this, then the means will be judged honorable.


In order to avoid oversimplification and misinterpretation, this argument deserves further elaboration. Machiavelli argues for a concept of ‘cruelty well used.’ This idea not only shocked readers during his time, but it continues to shock and unsettle readers today. However, close analysis yields that his argument is a rather utilitarian and pragmatic notion, rather than an immoral or tyrannical one. Along the lines of the effectual truth of reality, Machiavelli writes:

“For a man who wants to make a profession of good in all regards must come to ruin among so many who are not good. Hence it is necessary to a prince, if he wants to maintain himself, to learn not to be able to be good, and to use this and not use it according to necessity” (Ch. XV).

Machiavelli’s argument is not at all that in order to be successful a prince must not be good, as readers often stereotype him to be saying, but rather that the reality of the world does not permit a prince to be successful if he tries to be all-good. The prince therefore must learn how to not be good, but only according to necessity.


Machiavelli writes that the first and foremost goal of the prince is to avoid becoming hated; unnecessary evil generates hatred for there is no universally positive end to which that unnecessary evil generates. Machiavelli writes of cruelties well and badly used:

“Those [cruelties] can be called well used (if it is permissible to speak well of evil) that are done at a stroke, out of the necessity to secure oneself, and then are not persisted in but are turned to as much utility of the subjects as one can. Those cruelties are badly used which, though few in the beginning, rather grow with time than are eliminated. Those who observe the first mode can have some remedy for their state with God and with men… as for the others it is impossible for them to maintain themselves” (Ch. VIII).

Machiavelli’s argument is rather level-headed, he argues that there are some circumstances where tough decisions that may inflict short-term pain and discomfort that must be made for the long-term gain of everyone. Machiavelli lists several examples in The Prince, most famously the example of Cesare Borgia, a contemporary of Machiavelli’s time, who by means of coercion reduced a corrupt and disorderly land to peace and gave it good government (see Chapter VII). It is not this simple though as Machiavelli also notes; in the short-term such unpopular acts can incur a name for infamy. Machiavelli writes, “one should not care about incurring the infamy of those vices without which it is difficult to save one’s state” (Ch. XV). For investors today, these tough decisions range can from personnel decisions to investment decisions. For example, Paul Singer’s ongoing conflict with Argentina is certainly justified, but has brought him extraordinary scrutiny as a result. Seth Klarman also spoke of a relevant example at his “Psychology of Leadership” interview at Harvard. In this example, Klarman ended up firing a brilliant, but ultimately problematic analyst; this resulted in short-term pain, but was done for the sake of long-term, larger gains for the firm as a whole.


Machiavelli’s most virtuous men, Moses, Cyrus, Romulus, Theseus, are acclaimed for instituting ‘new modes and orders’. They were great leaders because they were able to bring about new paradigms, a feat that Machiavelli believes to be the hardest and most dangerous. As Machiavelli writes:

“And it should be considered that nothing is more difficult to handle, more doubtful of success, nor more dangerous to manage, than to put oneself at the head of introducing new orders. For the introducer has all those who benefit from the old orders as enemies, and he has lukewarm defenders in all those who might benefit from new orders. This lukewarmness arises partly from fear of adversaries who have laws on their side and partly from the incredulity of men, who do not truly believe in new things unless they come to have a firm experience of them… It is however necessary, if one wants to discuss this aspect well, to examine whether these innovators stand by themselves or depend on others; that is, whether to carry out their deed they must beg or indeed can use force. In the first case they always come to ill and never accomplish anything; but when they depend on their own and are able to use force, then it is that they are rarely in peril” (Ch. VI).

One of the most difficult challenges persons in position of authority face is how to overcome rooted self-interest and human inertia to institute new modes and orders. Sometimes such tasks can prove to be Herculean if not perilous to one’s career prospects, depending on the outcome. Hence the vast majority of individuals will always opt for the well-traveled path. But when the individual or investor has the virtue and vision to find the better, bolder path, he or she needs to be able to implement it with conviction. Because the introducer will have many enemies and only lukewarm defenders, they must always carry out their deed with strength and never beg, Machiavelli advises, elsewise they will always come to ruin. Innovation by necessity creates displacement; displacement naturally arouses enmity. As Machiavelli famously remarks, “From this it arises that all the armed prophets conquered and the unarmed ones were ruined” (Ch. VI).


Machiavelli also understood that no prince governs alone, and therefore the role of the prince’s ministers must be addressed. Machiavelli writes:

“The choice of ministers is of no small importance to a prince; they are good or not good according to the prudence of the prince. And the first conjecture that is to be made of the brain of a lord is to see the men he has around him; and when they are capable and faithful, he can always be reputed to be wise because he has known how to recognize them as capable and maintain them as faithful. But if they are otherwise, one can always pass unfavorable judgment on him, because the first error he makes, he makes in this choice” (Ch. XXII).

Machiavelli wisely asserts that the quality of a leader is reflected by his choice of ministers and those he surrounds himself with. Wise leaders surround themselves with capable and honest individuals. Poor leaders surround themselves with incapable or unfaithful individuals. In other words, an investor will more likely than not find his or her success inextricably linked to the individuals they surround themselves with. Therefore, the selection of analysts is a paramount consideration for the prudent investor. This extends beyond technical knowledge, or even investing orientation, but extends to the very fundamental characteristics of the individual, as Machiavelli subsequently explains.


Machiavelli elaborates on the proper relationship between the prince and his ministers, and I believe this is akin to the portfolio manager and his or her analysts. Machiavelli states that “When you see a minister thinking more of himself than of you [the prince], and in all actions looking for something useful to himself, one so made will never be a good minister; never will you be able to trust him” (Ch. XXII). Certainly, individuals who wish to aspire to be a prince or a portfolio manager are nature to have such ambitions, as Machiavelli states earlier that “it is natural and ordinary thing to desire to acquire, and always, when men do it who can, they will be praised or not blame” (Ch. III). Machiavelli realizes the reality of ambition, especially the notion that when this desire is fulfilled it is often praised for that individuals vigor and determination, and it is only blameworthy when one desires to acquire but fails to do so (which we often ascribe with the terms ‘greed,’ ‘pride’ and ‘ambition’). The prince has two mechanisms to defend against this toxic relationship from developing. Firstly, by his choice of minister he ought to select those ministers he believes to be the most capable, and secondly he has a reciprocal duty as the leader to properly incentivize his ministers. Machiavelli asserts:

“the prince should think of the minister so as to keep him good – honoring him, making him rich, obligating him to himself, sharing honors and burdens with him so that he sees he cannot stand without the prince and so that many honors do not make him desire more honors, much wealth does not make him desire more wealth, and many burdens make him fear changes” (Ch. XXII).

Some of the particular criteria of Machiavelli’s description here are more pertinent to his time than ours but the core of his idea remains true. The proper relationship between the prince and the minister is one where they are not diametrically opposed nor is it one where the prince dominates. The proper relationship is one where the prince and his ministers are all aligned together in their incentives such that they all share in success and failure; this relationship is mutually beneficial for both parties and is therefore the most functional relationship.


Machiavelli also emphasized the need for trust in the relationship between the prince and his ministers. Machiavelli writes, “When, therefore, minsters and princes in relation to ministers are so constituted, they can trust one another; when it is otherwise, the end is always damaging either for one or the other” (Ch. XXII). These words are especially true for investors today, for the relationship between the portfolio manager and his or her analysts is based on trust; the portfolio manager needs to trust that the analysts are focused on recommending the securities that offer the best long-term risk-return profile instead of focusing on short-term gains for their own annual bonuses, for example. Similarly, the analysts trust that they will receive their fair dues in terms of the success and failures of their work, and that they will not be punished for being honest in their recommendations, even if it was not what their portfolio manager wanted or hoped to hear (a good portfolio manager ought to only hope for the truth, but this seems to be rarely the case in reality). Machiavelli emphasizes that within the principality, internal divisions are not beneficial. He writes, “I do not believe that divisions ever do any good; on the contrary, when the enemy approaches, of necessity divided cities are immediately lost, because the weaker party always joins the external forces and the other will not be able to rule” (Ch. XX). Machiavelli is rather apt to point out that such divisions tend to surface into disruptions in times of adversity, which is when relationships are even more strained and put to the test.


Given the natural desire to acquire, the relationship between a leader and his followers, such as the prince and his ministers, is subject to further complexities. In Chapter XXIII, titled “In What Mode Flatterers Are to Be Avoided”, Machiavelli details the utter necessity of a leader to avoid having flatterers as his ministers. Machiavelli says:

“For there is no way to guard oneself from flattery unless men understand that they do not offend you in telling the truth; but when everyone can tell you truth, thy lack reverence for you. Therefore, a prudent prince must hold to a third mode, choosing wise in his state; and only to these should he give free will to speak the truth to him, and of those things only that he asks about and nothing else. But he should ask them about everything and listen to their opinions; then he should decide for himself” (Ch. XXIII).

Machiavelli’s analysis is still useful today, even though the parts regarding reverence are antiquated to the social norms of his time. In order to avoid flattery (which he calls a ‘plague’), the best defense always resides in those things which the prince can control the most, which are his own actions. Machiavelli asserts that the prince must first choose wise ministers, and then he must emphasize that those who speak the truth will be rewarded over those who only seek to flatter. In this way the prince can and should question broadly and often, but as the prince, he should use the information and advice given to him to make his own decisions. Machiavelli states that the prince “should be a very broad questioner, and then, in regard to the things he asked about, a patient listener to the truth; indeed, he should become upset when he learns that anyone has any hesitation to speak to him” (Ch. XXIII). So too should the investor avoid flattery; he should properly incentivize his or her team such that everyone has a shared interest and accountability for the organization as a whole.


Ultimately, Machiavelli’s commentary on the proper role of leadership requires that the prince ought to first and foremost reflect and come to understand himself. The prince must understand his own strengths and weaknesses, and surround himself with ministers that fit according to his needs. Machiavelli says, “there are three kinds of brains: one that understands by itself, another that discerns what others understand, the third that understands neither by itself nor through others; the first is most excellent, the second excellent, and the third useless” (Ch. XXII). Princes and investors alike ought to do some self-introspection and understand what kind of person and leader they themselves are. This is important because as Machiavelli posits, the ultimate responsibility for the success and failure of the prince and his principality falls on the prince. Machiavelli writes that “a prince who is not wise by himself cannot be counseled well… [he] will never have united counsel, nor know by himself know how to unite them. Each one of his counselors will think of his own interest; he will not know how to correct them or understand them” (Ch. XXIII). Therefore in conclusion a prince ought to understand himself first and foremost before he plans on being a leader.

WP-Backgrounds Lite by InoPlugs Web Design and Juwelier Schönmann 1010 Wien