Investing in the Classics

Machiavelli’s The Prince: On Virtue vs. Fortune – Part II

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 Part 1 of this analysis


This is the second part of my analysis of virtue and fortune from Machiavelli’s The Prince. Machiavelli, a proponent of the “effectual truth” of things, says it is not simply enough to assert that princes ought to be virtuous without providing criteria by which to judge them. Having established the theoretical underpinning of virtue vs. fortune in the first part, I would be amiss if I wrote about Machiavelli in generalities, as he was a strong proponent of particulars supported by historical examples. In this analysis, I will focus on Machiavelli’s tangible criteria and judgment process by which he evaluates princes, and extract what lessons we can learn as investors.


After describing the various manners by which a prince can come to power in Chapters VI-IX, Machiavelli then turns to how princes ought to be measured. Machiavelli states “I judge those capable of ruling by themselves who can, by abundance of either men or money, put together an adequate army and fight a battle against whoever comes to attack them” (Chapter X). Machiavelli grounds his evaluation of the prince in the ability of the prince to act rather than the prince’s appearance, background, or any other characteristic. According to Machiavelli, the effectual truth lies in actions and not appearance or abstract ideals. Machiavelli writes:

“my intent is to write something useful to whoever understands it, it has appeared to me more fitting to go directly to the effectual truth of the thing than to the imagination of it. And many have imagined republics and principalities that have never been seen or known to exist in truth; for it is so far from how one lives to how one should live that he who lets go of what is done for what should be done learns his ruin rather than his preservation” (Ch. XV).

Machiavelli, an anti-humanist (or, an anti-‘idealistic-humanist’), sharply rebukes previous idealistic philosophers such as Plato and Augustine. From the modern investor’s perspective, this critique certainly resonates with the criticisms of the efficient market hypothesis, but that is a discussion for a different analysis. Returning to its application for investors, I extrapolate that this implies that all of the knowledge and prudence in the world does not itself mean success without its application. Machiavelli’s choice of a prince’s ability to command an army for the defense of a principality is an important choice as he could have chosen other benchmarks such as the size of the prince’s principality, the size of his coffers, or his popularity amongst his people.


Machiavelli asserts that the primary and unique function of the prince is to maintain his principality and this necessarily requires him to be educated and practiced in the art of war. Machiavelli writes that “a prince should have no other object, nor any other thought, nor anything else as his art but that of war and its orders and discipline; for that is the only art which is of concern to one who commands” (Ch. XIV). Machiavelli would likely argue that the other aforementioned benchmarks that I listed are inadequate; the size of an empire if often the result of inheritance and is therefore outside of the realm of ability for most princes, and his popularity is not only outside of ability and control of the prince, but is whimsical and ephemeral. The defense of his principality challenges the prince to exercise his unique functions as prince. Moreover, the choice of defending himself against invaders is a great benchmark for judging the ability of the prince because it requires the prince to prove his virtue (or lack thereof) by overcoming adversity. As Machiavelli says, “Without doubt princes become great when they overcome difficulties made for them and opposition made to them” (Ch. XXI). Similarly, the investor ought to be judged by his ability to perform during times of difficulty. In bull markets everyone does well, but during bear markets the virtuous investors differentiate themselves from those who were relying on fortune and thus didn’t build dams and dikes. In this way the virtue of prince is to the defense of his principality as the successful investor is to investing in turbulent markets.


Machiavelli asserts that the art of war is essentially the litmus test for the prince; the virtuous princes keep their principalities while the unvirtuous lose their states. Moreover, it also provides the opportunity for outside individuals to rise to power. Machiavelli writes:

“it is of such virtue that not only does it maintain those who have been born princes but many times it enables men of private fortune to rise to that rank; and on the contrary, one sees that when princes have thought more of amenities than of arms, they have lost their states. And the first cause that makes you lose it is the neglect of this art; and the cause that enables you to acquire it is to be professional in the art” (Ch. XIV).

Machiavelli then elaborates on why war differentiates the virtuous from the imprudent princes. He says that those princes who are distracted by other amenities neglect their primary function as a commander and their primary goal of maintaining their state. Similarly for the investor, success can bring with it many amenities that can distract and thereby detract from future success.


Machiavelli says that the virtuous prince must always focus on crafting his art of war, for this is the only way to guard against the destructive forces of fortune. He writes that “he should never lift his thoughts from the exercise of war, and in peace he should exercise it more than in war” (Ch. XIV). Machiavelli advice here appears rather counter intuitive to unfamiliar readers, but actually resonates well with the principles of value investing and market psychology. When the prince is under attack the risks are apparent, though not entirely certain, and this is similar to the state of affairs in turbulent or falling markets. In depressed markets, the prudent investor ought to focus on achieving appropriate risk-adjusted returns. However, just as in peaceful times for the prince, irrational exuberance during bull markets often hides the underlying risks. Thus the prudent investor ought to take even more precaution during these ‘peaceful’ times such that when fortune reverses its course the investor maintains himself at the very least, while those who are lured in by the false sense of security are ruined.


Machiavelli then says that the virtuous prince ought to craft his exercise of war in his thoughts and actions.  Moreover, Machiavelli states tha “in peace he should exercise it more” (Ch. XIV). This is a rather shrew observation by Machiavelli as the prudent prince, just like the prudent investor, ought to prepare for upcoming challeneges before they are apparent so that he is ready to face them when they arise and even turn them to his advantage wherever possible. He continues, “he [the prince] can do with two modes, one with deeds, the other with the mind. And as to deeds, besides keeping his armies well ordered and exercised, he should always be out hunting, and through this accustom the body to hardships” (Ch. XIV). Machiavelli’s virtuous prince not only accustoms his thoughts to war and strategy, he also makes sure his own physical abilities are exercised in the event of war. Similarly, the investor must also be constantly thinking about risks while at the same time he ought to be constantly exercising his own financial analysis skills. Machiavelli elaborates stating that the knowledge gained from this experience and thought is useful in two modes:

“First, one learns to know one’s own country, and one can better understand its defense; then, through the knowledge of and experience with those sites, one can comprehend with ease every other site that it may be necessary to explore as new… so that from the knowledge of a site in one province one can easily come to knowledge of others” (Ch. XIV).

Here, Machiavelli provides rather apt and practical advice that is applicable to investors. First, the investor through this mode understands his current investments and his possible risk exposures. Secondly, through his accumulated knowledge the investor sees similarities in new potential investment avenues.


Machiavelli provides concrete examples for the prince to exercise these faculties. Machiavelli writes earlier that “a prudent man should always enter upon the paths beaten by great men, and imitate those who have been more excellent” (Ch. VI).Throughout The Prince, Machiavelli provides an abundance of historical and contemporary examples of men and their actions that illustrate his points. In this case, Machiavelli describes the example of Philopoemen, prince of the Achaeans. Machiavelli says of Philopoemen:

“in times of peace he never thought of anything but modes of war; and when he was on campaign with friends, he often stopped and reasoned with them: ‘If they enemy were on top of that hill and we were here with our army, which of us would have the advantage? How could one advance to meet them while maintaining order? If we wanted to retreat from here, how would we have to do it? If they retreated, how would we have to follow them?’ And he put before them, as he went along, all the chances that can occur to an army; he listened to their opinions, gave his own, supported it with reasons, so that because of these continued cogitations there could never arise, while he led the army, any accident for which he did not have the remedy” (Ch. XIV).

In this example, Machiavelli illustrates the constant commitment that success requires. Philopoemen’s method resonates with Howard Marks’ term ‘Second Level Thinking’ (see: The Most Important Thing, Ch. 1) as Philopeomen asks the questions necessary to understand all possible scenarios, even to second- and third-order effects, and then proceeds to rationally debate the possibilities with evidence such that he is always prepared for any outcome and all other similar situations. The parallels to investing here are very apparent.


Machiavelli does not end there, he provides his readers with further advice  for the exercise of the mind. He writes:

“as to the exercise of the mind, a prince should read histories and consider in them the actions of excellent men, should see how they conducted themselves in wars, should examine the causes of their victories and losses, so as to be able to avoid the latter and imitate the former… A wise prince should observe such modes, and never remain idle in peaceful times, but with his industry make capital of them in order to be able to profit from then in adversities, so that when fortune changes, it will find him ready to resist them” (Ch. XIV).

Machiavelli’s advice here is also rather insightful. He argues that not only should one acquire experience and knowledge by reading about the experience of others, but that it is not enough to just learn the outcome. Machiavelli asserts that in order to truly benefit from history, one must understand the process and rationale of those figures and their situations. In this way princes, and parallel for investors, can understand the causal forces that lead to success and failure, and apply these to the prince’s present and future situations. Thus, princes and investors can learn from the experience of others by internalizing it as a part of their own experience, if researched properly. He concludes that the truly virtuous prince not only prepares for changes in fortune but tries to turn adversity to profit. Similarly, the astute investor holds cash when he perceives risk to be too high to justify investments, nevertheless he waits patiently and with great discipline to capitalize on future bargains when the winds of fortune change.


Machiavellian virtue, though Machiavelli himself never provides a clear definition of it, seems to be partly skill and partly temperament. In addition to the aforementioned qualities, Machiavelli writes:

“he [the prince] should be slow to believe and to move… he should proceed in a temperate mode with prudence and humanity so that too much confidence does not make him incautious and too much diffidence does not render him intolerable” (Ch. XVII).

Here, Machiavelli exalts skepticism and prudence as traits of a virtuous prince. These principles are certainly in accord with modern investing principles because they reflect a rational, independent thinking process which is common to success in many fields. Machiavelli elaborates later saying “prudence consists in knowing how to recognize the qualities of inconveniences, and in picking the less bad as good” (Ch. XXI).


Machiavelli also elaborates on the characteristics of fortune. He writes that princes who come to power by fortune do so either by inheritance or through the arms of others. Machiavelli is adamant that princes who are fortune do not maintain themselves as well as those virtuous princes do; this is especially prevalent in exercise of war. Machiavelli discusses virtuous princes in Chapter VI, which is titled, “Of New Principalities That Are Acquired through One’s Own Arms and Virtue”. In Chapter VII he discusses fortunate princes, that chapter being titled “Of New Principalities That Are Acquired by Others’ Arms and Fortune”. As the titles suggest, arms and the modes of becoming a prince is inextricably linked to the prince’s own coming to be virtuous or fortunate. Princes who rely on their own arms are said to be virtuous, those who rely on others’ arms are said to be fortunate. Similar to investing, when success is the result of one’s own ideas and research, said investor may be thought of as skillful. When success is the result of using ideas that are not one’s own, that investor is not intrinsically skillful, but fortunate. Machiavelli writes of the fortunate princes:

“These persons rest simply on the will and fortune of whoever has given a state to them, which are two very inconstant and unstable things. They do not know how to hold and they cannot hold that rank: they do not know how, because if one man is not a man of great ingenuity and virtue, it is not reasonable, that having always lived in private fortune, he should know how to command; they cannot hold rank because they do not have forces that can be friendly and faithful to them. Then, too, states that come to be suddenly, like all other things in nature that are born and grow quickly, cannot have roots and branches, so that the first adverse weather eliminates them – unless, indeed, as was said, those who have suddenly become princes have so much virtue that they know immediately how to prepare to keep what fortune has placed in their laps” (Ch. VII).

Machiavelli’s analysis is quite reasonable. Firstly, relying on the goodwill of others is unstable, especially in times of turbulence. Secondly, by relying on others, the prince cannot and does not develop his own virtue. Thus if the prince actually had to perform the functions of the prince on his own, he would be unable to because he has no experience nor skill. And as Machiavelli concludes, his own people will not respect him as a result because they realize, especially in times of turbulence, the inability of their commander. Therefore, when fortune reverses its course, as Machiavelli believes fortune is fickle, the prince who relies on fortune is ruined. As a side note, one of the main takeaways from The Prince is Machiavelli’s call to arm the people, for these very same reasons, among several others. In concluding, I believe this same analysis can be held as true and applicable to investors today.


The causal relationship in terms of what makes the prince virtuous is not perfectly clear. Machiavelli doesn’t clearly specify if the actions make the prince virtuous or that the prince who is inherently virtuous is of the sort to do these things. I posit that the relationship is like bi-directional for there is both a sense of the virtuous being so as a result of one’s predisposition (temperament, in a sense) and yet there is definitely a notion in which virtue is also actively cultured. In the weighting of this relationship, Machiavelli emphasizes the practical methods by which a prince can imitate and develop his virtue as he is writing a book of advice. Nonetheless, it is clear that princes and investors alike have the ability to develop their own virtue of sorts that positions them for long-term success.


In summary, it is better to be virtuous than fortunate in the long-term, for the virtuous prince will maintain himself more. Princes, and investors, certainly have the ability to develop their own virtue and prudence, it is not necessarily inherent. However, being virtuous and prudent is not easy, it requires an unrelenting focus and dedication to developing one’s skill and craft. One ought to imitate those great men of history if one wishes to be as virtuous of them. The virtuous are shown to be virtuous in overcoming adversity, and this is similar to the investor in times of turbulence and uncertainty. In times of adversity, especially when fortune reverses its course, those who were prudent not only find themselves preserved, but also find the opportunity to achieve greatness for fortune is also opportunity for those willing to command it. I conclude with Machiavelli’s own words, “those defenses alone are good, are certain, and are lasting, that depend on you yourself and on your virtue” (Ch. XXIV).

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