Investing in the Classics

Aristotle’s Nicomachean Ethics: On Virtue

Please note that for the purposes of this analysis, I use the Richard McKeon translation of Aristotle’s Nicomachean Ethics, as seen in “Basic Works of Aristotle”.


The Nicomachean Ethics is Aristotle’s most important study of personal morality and the ends of human life. Though it was written more than 2,000 years ago, it offers readers today many valuable insights into human needs and conduct. Aristotle follows Socrates and Plato in taking the virtues to be central to a well-lived life. However, he rejects Plato’s metaphysics as a necessary prerequisite for a full understanding of the good and virtue. Aristotle believes that in order to live well, a proper appreciation is required, which through proper upbringing and habits, gives us the ability to see, on each occasion, which course of action is best supported by practical reason for the community as a whole. Aristotle’s conception of virtue remains highly relevant for investors today because it presents us with a moral system that emphasizes the role of self-cultivation for the sake of excellence, as opposed to a moral code that is a list of ‘do’s and don’ts.’


Aristotle’s conception of “virtue” (Greek: aretē) is more akin to our concept of “excellence of any kind,” as opposed to the religious or moral sense of the term. As a result, Aristotle asserts that there are multiple kinds of virtue; one of which is an excellence in performing one’s designated function called intellectual virtue, which is acquired by learning, and the other being moral virtue, which is the result of habit or practice. He writes: “Virtue, then, being of two kinds, intellectual and moral, intellectual virtue in the main owns both its birth and its growth to teaching (for which reason it requires experience and time), while moral virtue comes about as a result of habit” (Book II.1, 1103a). Aristotle continues, as he states:

“From this it is plain that none of the moral virtues arises in us by nature; for nothing that exists by nature can form a habit contrary to its nature. For instance the stone which by nature moves downward cannot be habituated to move upwards, not even if one tried to train it by throwing it up ten thousand times… Neither by nature, then, nor contrary to nature do the virtues arise in us; rather we are adapted by nature to receive them, and are made perfect by habit” (Book II.1, 1103a)

Aristotle argues that moral virtues are not implanted in man by nature, for nothing created by nature can be made to change its direction or tendency by habit, nor are the moral virtues produced in man against nature. According to Aristotle, man is not born either moral or immoral, but he has the capacity to develop moral virtue and this capacity can only be developed through habituation. Similarly, for investors, the virtue of an investor lies in his or her prudence, among other virtues. Thus the moral quality, such as prudence is for the investor, is achieved on the basis and achievements of habit through practice.


Aristotle proceeds to discourse on how moral virtues are acquired by practice. He draws an analogy to how excellence is achieved in the arts, as opposed to natural endowments. Aristotle writes:

“but the virtues we get first by exercising them, as also happens in the case of the arts as well. For the things we have to learn before we can do them, we learn by doing them, e.g. men become builders by building and lyre-players by playing the lyre; so too we become just by doing just acts, temperate by doing temperate acts, brave by doing brave acts” (Book II.1, 1103a-b).

Aristotle argues that the development of moral virtue is more like achieving excellence in the arts as opposed to how we get natural faculties. Natural faculties allow man to use these faculties before they are actually used; for example, one acquires the ability to see before one actually sees.  However, moral virtue is acquired just as skill is acquired in the arts, via practice and habituation. Similarly, one learns to invest by investing, but one also learn to invest with prudence by investing.


For Aristotle, it is not enough to end there, he also needed to show that if moral virtues are acquired from achievement in practice, so too can virtues be destroyed by poor habits.  Aristotle says, “Again, it is from the same causes and by the same means that every virtue is both produced and destroyed, and similarly every art; for it is from playing the lyre that both good and bad lyre-players are produced” (Book II.1, 1103b). Aristotle believes that this must be necessarily the case, for if this were not so, there would be no need for teachers and everyone would just be born as either a good or a bad craftsman. Likewise, it is only by action and by dealing with other men that one is able to become either just or unjust, temperate or intemperate, prudent or reckless. For readers today, one can extrapolate that good and bad investors are found to be good and bad by their success or failure in investing, and this is logically related is the idea that prudent and speculative qualities come to be from the acts of investing.


Aristotle makes an early conclusion in his argument that if moral virtue is acquired by habit and practice, this implies that proper education has a central role. He writes:

“Thus, in one word, states of character arise out of like activities. This is why the activities we must exhibit must be of a certain kind; it is because the states of character correspond to the differences between these. It makes no small difference, then, whether we form habits of one kind or of another from our very youth; it makes a very great difference, or rather all the difference” (Book II.1, 1103b).

Because individual characteristics develop from corresponding habituation, Aristotle argues, people’s early experiences are very formative in setting them on or off the right track. For this reason individuals must be certain that our activities are of the right kind, for any variation in them will be reflected in our dispositions. This point underscores the importance of early education, for it makes a great difference whether or not one is inculcated in certain habits from an early age. For investors, this point yields true today. Aspiring investors are often very malleable in their investment philosophies such that one often pursues the strategies that they were first introduced to, which is more often than not a matter of circumstance. This incidental factor can dramatically shape the trajectory of an investor’s career, and put them in a good position to succeed if brought up with prudent principles. However, an education in charting, growth, or any other non-sense can set an investor for failure which they may never be able to recover from once their track record has been tarnished.


Having established the groundwork for how moral virtue (or excellence) is acquired, Aristotle proceeds to distance moral virtues from simply being reduced to the menial level of skill in the arts. He states:

“the case of the arts and that of the virtues are not similar; for the products of the arts have their goodness in themselves, so that it is enough that they should have a certain character, but if the acts that are in accordance with the virtues have themselves a certain character it does not follow that they are done justly or temperately. The agent must also be in a certain condition when he does them; in the first place he must have knowledge, secondly he must choose the act, and choose them for their own sakes, and thirdly his action must proceed from a firm and unchangeable character” (Book II.4, 1105a).

Aristotle asserts that there is a significant difference between acts that create virtue and acts that are caused by virtue because excellence in the arts is determined only by the end product and not by the process by which that product is created. In regards to the arts, one judges the excellence of the art by its outcome, not with the artist’s process or procedure. Aristotle says this is not the case in ethics. A virtuous act is not virtuous only because it is an act of a certain quality or kind, the agent or doer of a virtuous act must also be in a certain frame of mind and have certain characteristics when he acts. Aristotle asserts three main criteria for virtuous actions; 1) the agent must be conscious of what they are doing, 2) the agent must deliberately choose or will their action, and choose it for its own sake, and 3) that the action must proceed from a fixed moral disposition. In other words, the agent must intentionally act by choosing an option that they believe is the most virtuous option with the intention that this is the most virtuous option given their moral belief system. These criteria represent internal factors that are not present in the evaluation of art. Similarly for investors, in order to qualify as investing with virtue, by which we imply to be with prudence, one must invest on the basis of knowledge with the intention being that this security suitably possesses one’s own investment criteria, which itself must be derived from a fixed and development investment philosophy. Any other buying or selling of securities that does not fit this criteria is purely speculative and subject to elements of chance.


Aristotle, having defined the conditions of what constitutes virtuous actions, proceeds to reassert that the practice of acting virtuously is what makes a person virtuous, as opposed to the notion that intrinsically virtuous person is the one who does virtuous actions. Aristotle writes:

“Actions, then, are called just and temperate when they are such as the just or temperate man would do; but it is not the man who does these that is just and temperate, but the man who also does them as just and temperate men do them. It is well said then, that it is by doing temperate acts the temperate man is produced, and by doing temperate acts the temperate man; without doing these no one would have even a prospect of becoming good” (Book II.4, 1105b).

Acts are called virtuous when they are the kind of acts a virtuous man would perform, Aristotle posits, but a man who performs a virtuous act is not necessarily himself virtuous. The virtuous man is the one who performs the act in the way common to virtuous men, i.e., he knows that the act is the right thing to do in the circumstances, and he does it for the right motive. If this were not the case, this would imply that no one can become virtuous through the performance of virtuous acts, but would have to be intrinsically virtuous. This latter, highly deterministic notion is not in accord with modern thought nor did Aristotle agree as he already ruled this out earlier for similar reasons. What Aristotle also implies here is that for investors today, those who devote themselves to the theoretical study of investing often assume that this makes them good investors, but they are foolish, for knowledge of investing without the exercise of virtue is of little value. Moreover, Aristotle would likely argue that knowledge without experience is a limited kind of knowledge. A looser interpretation of these latter points also yield a strong criticism against academics who proclaim market efficiency on the basis of theoretical equations and not in practice, but that is a point for another analysis.


Aristotle elaborates on the value of virtue itself. He states that “the virtue of man also will be the state of character which makes a man good and which makes him do his own work well” (Book II.6, 1106a). Virtue, or excellence, in man is therefore the characteristic makes him a good man and causes him to perform his function well. For investors, virtue (or prudence) is what allows the investor to be successful. To contrast, one might get lucky and therefore perform his function well in the time that he retains this good fortune, but he would not be virtuous for his luck does not make him prudent nor good.


Having established how virtue comes about and why it is important, Aristotle establishes what virtue is. If virtue is what makes us excellent in our function, and masters are those who are considered excellent in their function, than virtue is what masters of a function do. He writes that “a master of any art avoids excess and defect but seeks the intermediate and chooses this – the intermediate not in the object but relative to us” (Book II.6, 1106b). Aristotle believes this to be the case because virtue is concerned with emotions and actions. In judging emotions and actions, we criticize excess and deficiency and praise the mean, which is construed by most people to constitute success. Both praise and success are signs of virtue and excellence. Consequently, virtue must be a mean in the sense that it aims at the mean. His justification for this is not as pertinent for this analysis, but his implications are very important. Aristotle elaborates further stating:

“virtue is more exact and better is more exact and better than any art, as nature also is, then virtue must have the quality of aiming at the intermediate. I mean moral virtue; for it is this that is concerned with passions and actions, and in these there is excess, defect, and the intermediate. For instance, both fear and confidence and appetite and anger and pity and in general pleasure and pain may be felt both too much and too little, and in both cases not well; but to feel them at the right times, with reference to the right objects, towards the right people, with the right motive, and in the right way, is what is both intermediate and best, and this is characteristic of virtue” (Book II.6, 116b).

Moral virtue is thus be defined as a disposition to choose the mean relative to oneself, as determined by a rational principle (i.e., by the rational principle that would be applied by a man with practical wisdom and common sense). Aristotle asserts that it is possible to experience too much or too little of any emotion, and in either case the emotion is not experienced properly. The mark of virtue is to experience an emotion at the right time, toward the right objects or people, for the right reason, and in the right manner; in other words, in accordance with the mean. This principle applies to the evaluation of all human actions. Investors too must aim at the mean, they must be arrogant enough to purchase a security but humble enough to know that they can be wrong. They cannot entirely avoid fear and greed, but must be fearful and greedy at the right times; fearful when others are greedy and greedy when others are fearful.


Aristotle concludes by summarizing the means, ends, and the constitution of virtue. He writes:

Again, it is possible to fail in many ways… while to succeed is possible only in one way… for these reasons also, then, excess and defect are characteristic of vice, and the mean virtue; For men are good in but one way, but bad in many. Virtue, then, is a state of character concerned with choice, lying in a mean, i.e. the mean relative to us, this being determined by a rational principle, and by that principle by which the man of practical wisdom would determine it. Now it is a mean between two vices, that which depends on excess and that which depends on defect (Book II.6 1106b-1107a).

Overall, Aristotle’s Ethics, despite many issues that scholars and readers have with it, such as his assertion of natural slavery, among others, does have parts that are truly admirable. Aristotle provides his readers with an ethical system that gives us something to strive for actively in the pursuit of excellence, which is differs from other (but not necessarily incompatible) moral systems which are based on avoiding evils in the hopes of other-worldly benefits. For investors today, Aristotle provides level-headed guidance based on an active duty for self-cultivation in order to develop our prudence, and thereby success. How this virtue comes to be is through the use of what Aristotle calls “practical wisdom,” a topic that I will cover in a future analysis.

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