Investing in the Classics

Machiavelli’s Discourses on Livy: On Virtue vs. Fortune

Please note that for the purposes of this analysis, I use the Harvey C. Mansfield and Nathan Tarcov translation of Machiavelli’s Discourses on Livy. Please refer to previous analyses (Machiavelli’s The Prince: On Virtue vs. Fortune – Part I & Part II) which I build upon here.


In the Discourses on Livy, as well as in The Prince, Machiavelli uses history as a source of experience and as a guide for people to learn from the successes and mistakes of the past. In particular, one of Machiavelli’s main criticisms is that the education and mode of proceeding of his times has made men abject and weak. If one reads Machiavelli’s Florentine Histories one sees that Machiavelli in his lifetime alone experienced numerous regime changes as no leader of his time emerged that was strong enough in virtue and fortitude to hold Florence, let alone unite Italy under one banner. Therefore, Machiavelli discourses at length in both The Prince and Discourses on Livy about how leaders in principalities and republics ought to act. In doing so he makes the distinction between those who rely on their own virtue and those who submit to fortune. The former find themselves secure and lasting, while the latter find ruin. Machiavelli’s analysis remains just as relevant for investors today as it was for the princes of his era, I argue.


Machiavelli was very effective in using history, often which his own unconventional perspectives and twists, to illustrate and craft his arguments. In regards to virtue, he offers his readers numerous examples. In regards to virtue, Machiavelli cites the uses the following example to illustrate what virtue is not:

“After Hannibal had defeated the Romans at Cannae, he sent his spokesmen to Carthage to announce the victory and request assistance. What had to be done was disputed in the Senate there. Hanno, an old prudent Carthaginian citizen counseled that this victory should be used wisely to make peace with the Romans, since they, having won, could have it with honorable conditions, and one should not wait to have to make one after a loss. For the intention of the Carthaginians should have been to show the Romans that they were enough to combat them, and having had victory over them, one should not seek to lose it though the hope of a greater. This policy was not taken up, but it was known well by the Carthaginian Senate to have been wise later when the opportunity was lost” (Book II.27).

Machiavelli’s example has many interesting points for investors today. First, Machiavelli points out that following Hannibal’s victory, he requested assistance which was indicative that Hannibal was not in an infallible position for further conquest. Next, Machiavelli argues through Hanno that the risk-reward profile had shifted following the first victory. At this point there was minimal risk to negotiating a favorable truce and there was significant upside in that Carthage would be able to push their own terms. However, engaging in further battles against Rome did not carry this same risk-reward profile. The reward of conquering Rome was certainly was higher than the alternatives, but the risk was also higher, which included the possibility of being destroyed. The Carthaginian Senate became greedy after their initial success and continued to press Rome, and the rest was history. The Roman general Scipio Africanus sailed across the Mediterranean and sacked and destroyed Carthage, just as Agathocles the Sicilian had done to Cartage not even a century earlier. To this Machiavelli concludes with the maxims that “nobody prudent ever takes risks unless necessitated” and “men make this error who do not know how to put limits to their hopes, and, by founding themselves on these without otherwise measuring themselves, they are ruined” (Book II.27).


The lessons for investors are apparent as investors’ essential function is to intelligently manage risk.  This means that investors ought to be focused on maximizing their risk-adjusted returns. In order to do so investors must learn when to invest and when not to. Few securities, if any, ever have no risk; all potential investments carry with them a particular and dynamic risk-reward profile. It is the job of the investor to seek out those securities that meet their investment criteria. In this way, the investor ought to hold cash or equivalents when there are no compelling opportunities, for investments when there is not sufficient risk-adjusted returns to be met are indicative of greed or impatience, both of which led to poor outcomes. Thus, like Machiavelli’s conclusion, the investor only takes on risk when the risk-reward profile is so attractive that he is compelled to invest, in this way the prudent investor only takes on risk when necessitated.


Machiavelli was also rather insightful to understand the role cycles related to virtuous and prudent individuals, and this lesson remains highly applicable today. Machiavelli writes:

“It has always been, and it will always be, that great and rare men are neglected in a republic in peaceful times. For though the envy that the reputation their virtue has given them has brought it, one finds very many citizens in such times who wish to be not their equals but their superiors” (Book III.16).

Machiavelli points out here is that when times are good, the virtuous and prudent individuals are overlooked and even disregarded, even when they are still recognized for their virtue. This is because the virtuous are so because of their prudence that allows them to avoid excess and not rely on fortune, in this way the virtuous show themselves to be successful not by any fortune but by their own skill and temperament. When fortune is good for everyone, the unvirtuous trick themselves into believing that their gains were by their own virtue, and so they take on excess risk while the prudent do not. These short-term gains allow the unvirtuous to advance for they appear to be successful to the ignorant and greedy. Machiavelli continued, stating:

“one sees, therefore, that in republics there is the disorder of giving little esteem to worthy men in quiet times. That thing makes them indignant in two modes: one, to see themselves lacking their rank; the other, to see unworthy men of less substance than they made partners and superiors to themselves. That disorder in republics has caused much ruin” (Book III.16).

Here, Machiavelli asserts that the virtuous, especially those who seek to quell the passions that are inflamed by good fortune among those who are greedy or ignorant, fall out of favor. This is all too apparent in financial markets. As euphoria bubbles over, many wise and prudent investors have constantly warned market participants of the excessive risk being taken on. These investors are often ignored, despite their successful long-term track record, and ruin follows for those who did not listen.


Machiavelli illustrates this point with several examples, among them the most notable example is that of the pride and fall of the Athenians during the Peloponnesian War. He writes:

“On this there is a good passage in Thucydides, the Greek historian. He shows that when the Athenian republic was on top during the Peloponnesian War, and had checked the pride of the Spartans and almost subdued all the rest of Greece, it rose to so much reputation that it planned to seize Sicily. This enterprise came under dispute in Athens. Alcibiades and some other citizen, planning to be the heads of such an enterprise, counseled that it be done, as those who, while thinking little of the public good, thought of their honor. But Nicias, who was first among those reputed in Athens, argued against it. The greatest reason that he brought up in haranguing the people, so that they might lend faith, was this: that in counseling that this war not be made, he was counseling a thing that would do nothing for him. For while Athens was at peace, he knew that there were infinite citizens who wished to go ahead of him; but if war was made, he knew that no citizen would be superior or equal him” (Book III.16).

In this example, Machiavelli recounts how the successes of Athens in the Peloponnesian War made many individuals greedy. They, namely Alcibiades, sought to advance their own interests by taking unnecessary risks, especially for minimal rewards. The virtuous Nicias, who was looking after the common good, was not able to win over the people, who were promised victory, glory, and riches. Nicias ended up being right in the end; the Athenian army was crushed in Sicily, and shortly thereafter the weaken Athenians were crushed by Sparta and Athens was burned to the ground. As Nicias correctly reckoned, those bold individuals who sought to press their luck were nowhere to be found when Athens had to face the consequences of their rashness.


Having established the consequences of unvirtuous and imprudent actions, especially in regards to how they occur in times of good fortune, Machiavelli elaborates on how this distinction comes about. He says:

“Among the other magnificent things that our historian [Livy] makes Camillus say and do, so as to show how an excellent man ought to be made, he puts these words in his mouth: ‘Neither did the dictatorship ever raise my spirits nor did exile take them away.’ Through them one sees that great men are always the same in every fortune; and if it varies – now by exalting then, now by crushing them – they do not vary but always keep their spirit firm and joined with their mode of life so that one easily knows for each that fortune does not have power over them” (Book III.31).

Of the virtuous, Machiavelli argues that they are so because their temperament does not allow their judgment to be swayed by their passions. This rational decision making process allows them to avoid the excesses of good and bad fortune, and thus they can adhere more closely to their principles.


Machiavelli then describes the manner by which those lacking virtue react according to fortune. He states:

“Weak men govern themselves otherwise, because they grow in vain and intoxicated by good fortune by attributing all the good they have to the virtue they have never known. Hence it arises that they become unendurable and hateful to all those whom they have around them. On that depends the sudden variations of fate; as they see it in the face, they fall suddenly into the other defect and become cowardly and abject. It arises from this that in adversities princes so made think more of fleeing than defending themselves, as those who are unprepared for any defense because they have used good fortune badly” (Book III.31).

Following the concepts outlined in a previous analysis, the unvirtuous who rely on fortune do not build ‘dikes and dams’ as to prepare themselves when fortune reverses its course. Left unprepared, these speculators find themselves ruined when their fortune reverses its course. Since they lack virtue, these speculators do not know how to guard against their new ill fortune and they panic. Moreover, out of bitter resentment of their own failure to acknowledge their mistakes, they continue to find comfort with the rest of the masses who also lack virtue. They ascribe their failures not to their excessive risk taking, but rather they blame their failures on a malignity of fortune, calling it a ‘black swan’ event. They claim these events are never predictable even though they were constantly warned and advised by the very virtuous individuals whom they ignored.  In this way, through their ignorance and greed they try to ascribe their good fortune to their virtue and their lack of virtue to a malignity of fortune.


Machiavelli sees through the excuses of the ‘weak men’ and asserts not only that they are accountable for their own actions, but that this is the result of their poor education. He asserts:

“For becoming insolent in good fortune and abject in bad arises from your mode of proceeding and from the education which you are raised. When that is weak and vain, it renders you like itself; when it has been otherwise, it renders you also of another fate; and by making you a better knower of the world, it makes you rejoice less in the good and less aggrieved in the bad” (Book III.31).

Machiavelli is quite sensible in asserting that bad outcomes are more often than not the result of bad modes of proceeding (i.e. actions), which in turn is often the result of a bad education. On the contrary, a proper education leads individuals to make wise and prudent choices, which in turn leads to good outcomes most of the time. For investors, the only prudent mode of proceeding is that which is in accord with the principles of value investing. This is because value investing is the only rational approach to investing that allows investor to achieve maximal risk-adjusted returns over a long-term horizon.

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