Friday, August 27, 2010

Wall Street and the Word of God: Is It Wrong to Invest in the Stock Market?

A dirt path connecting the Hudson River with the East River in the Dutch trading post called New York quickly became the center of commercial activity in the early to mid-1600s. A wall made of brush and mud was erected to keep out cows and Indians. The wall was later replaced with a wooden one. Eventually Indians got in on the act, for in 1626 they sold Manhattan for $24 and some beads. At first glance it seems that they were cheated, but legendary mutual fund manager Peter Lynch pointed out, tongue in cheek, that if the Indians had invested the $24 in stocks, by now their ancestors' net worth would be more than the real estate value of Manhattan! Of course, there was no stock market when the Indians made the deal.

The 17th century merchants of Wall Street traded in all kinds of merchandise: furs, molasses, tobacco, rum, and other commodities. They also engaged in the money market, exchanging currencies. They speculated on land and bought and sold insurance policies. One thing they did not do was trade stocks and bonds. It wasn't until 1790 that the first stock exchange was established, not in New York, but in Philadelphia. The first meeting of Congress in 1789, however, was in Federal Hall on Wall Street, the same place in which George Washington was inaugurated. And their first order of business was the issuance of government bonds to pay for the War of Independence. Two years after that, then Secretary of the Treasury Alexander Hamilton founded the Bank of the United States and offered shares to be sold to the public. So began the selling of shares in a company. In those early years, Wall Street merchants sold shares, mostly of bank and insurance company stocks, in coffee houses and through newspaper ads. By the early 1800s the traders had moved to a large building at 40 Wall Street.

The development of the New York Stock Exchange on modern Wall Street is a fascinating, and in some respects disturbing story. But it is part and parcel of our American free-market economy, and like it or not, virtually every American holds a stake in it. It is estimated that only 24% of American workers now have a traditional pension program. The rest, if they have any retirement plan at all, have a 401(k) or 457(k) with or without matching funds from their employer, and perhaps an IRA. And even the traditional pension funds are invested in stocks and bonds to keep up with the rising cost of living. So directly or indirectly, we are all in the stock market. So just what is it, and to what extent should a Christian be involved in it?

Simply put, stocks are shares in a company. If you buy one share or 1,000 shares of a company, you own part of it. The company's prosperity becomes your prosperity; it's woes also become your woes. Many companies pay quarterly dividends, a kind of profit sharing with its share holders. Since dividends are offered as a fixed amount per share, they can be a nice source of income, even when the price of the shares declines. But it should be noted that stock ownership does not guarantee any return. Your money is not loaned to the company; you are actually buying the company--well, a part of it.  Bonds, on the other hand, are loans. A company issues bonds at a certain interest rate to raise capital for various reasons, usually for expansion. Semi-annual or annual interest payments are made to the bond holder for the length of the bond contract, and at the end, the principal is returned. Corporate bonds are often "callable," which means if the company wants to pay off the loan ahead of time, it may. Then you have to go looking for another bond so you can continue to receive income. Mutual funds provide a way to invest more safely in both stocks and bonds, but that discussion will have to wait for another blog.

Now the big question: Is it wrong for a Christian to invest in stocks?  The following parable is instructive in this regard.

Therefore (Jesus) said: "A certain nobleman went into a far country to receive for himself a kingdom and to return. So he called ten of his servants, delivered to them ten minas, and said to them, 'Do business till I come.'

"But his citizens hated him, and sent a delegation after him, saying, 'We will not have this man to reign over

"And so it was that when he returned, having received the kingdom, he then commanded these servants, to whom he had given the money, to be called to him, that he might know how much every man had gained by trading. Then came the first, saying, 'Master, your mina has earned ten minas.' And he said to him, 'Well done, good servant; because you were faithful in a very little, have authority over ten cities.'

"And the second came, saying, 'Master, your mina has earned five minas.' Likewise he said to him, 'You also be over five cities.' 

"Then another came, saying, 'Master, here is your mina, which I have kept put away in a handkerchief. For I feared you, because you are an austere man. You collect what you did not deposit, and reap what you did not sow.' And he said to him, 'Out of your own mouth I will judge you, you wicked servant. You knew that I was an ustere man, collecting what I did not deposit and reaping what I did not sow. Why then did you not put my money in the bank, that at my coming I might have collected it with interest?'

"And he said to those who stood by, 'Take the mina from him, and give it to him who has ten minas.' (But they said to him, 'Master, he has ten minas.) 'For I say to you, that to everyone who has will be given; and from him who does not have, even what he has will be taken away from him.
(Luke 19:12-26)

Let me acknowlege at the outset that the point of Jesus' parable was not financial management. He was teaching a spiritual lesson, primarily to the Israelites to whom had been committed the spiritual riches of the Scriptures and worship of the one true God. Some Israelites, the faithful remnant, had invested those riches wisely, other had sat on them. He was undoubtedly speaking also to his current followers, admonishing them, as well, to use wisely all that God committed to them.

In making his spiritual point, however, Jesus uses a worldly financial situation from which we can draw some solid, common sense principles that we can apply to our material possessions.

First, the king in the parable expected his servants to invest what he had given them. When he returned he called them to account for what "every man had gained by trading". The original word means to thoroughly undertake a business for the purpose of gain. The first servant did very well! He gained 900%! Sounds impossible, doesn't it?  But on November 19, 2008, Ford Motor Company stock sold for $1.26 a share.Today it's around $12.00 a share. (But was Ford a stable company? Well, it was the only U.S. auto maker not to go to Washington with hat in hand. They went, but not for a handout.) Ford returned nearly what the first servant got: 852%.  Also during that dismal fall, shares of The Andersons, an Ohio-based, family-run company with diversified agricultural and retail businesses, fell as low as $11.25. As of today, the price is $37.02--a 229% gain.

The second servant in the parable gained five minas from his one, a 400% return. Since Luke only records three of the ten servants' reports, we don't know what kinds of results the other seven got. Probably more like the rest of us get in our mutual funds! What puzzles me about the parable is that such yields could be achieved without a stock market!

So is it wrong to invest in the stock market? Not in and of itself, but like many things, there are factors that can make it sinful. Still, it is clear from Scripture that we are to use wisely all that God entrusts to us. It is sinful to waste money, and it is irresponsible not to seek out the best investments within Scriptural guidelines.

What, then, makes investing sinful?

First, as noted in the last blog, if we intend to "get rich," especially "get rich quick," our motive is sinful and dangerous. Our desire must never be to gain such wealth that we think we don't need to depend on God. Our desire should be to do the best we can with the resources God gives us so we can fulfill His will with the return. Paul exhorts us to work with our hands that we "might have something to give him who has need." (Eph.4:28) Greed is a sure way to make investing sinful.

Second, investing in companies that are involved in sinful activities is wrong. This gets difficult when we are invested in typical mutual funds. Those funds hold so many stocks that it is time-consuming to check them all. I discovered some years ago that one of my mutual funds had significant holdings in the "Gaming" industry. I strongly oppose gambling and so I sought alternative funds. Some companies are involved in the abortion industry or fetal stem cell research or pornography. When you invest in individual stocks, you can and should pick your companies more carefully.

Third, speaking of gambling, "playing the market" is gambling, and in my opinion is sinful. Day traders try to time the market, using a variety of technical formulas to predict when the market as a whole will go up or down. Wise investors call this "a fool's game." Wise investors find good, solid companies and don't worry about the fickle fluctuations in the market. In fact, wise investors take advantage of market downturns to purchase shares of good companies at bargain prices.

I wish I had known twenty or thirty hears ago what I know now. But I can still make the most of what God has entrusted to me. And I can pass on the knowledge I have gained. The best book I have read on stock investing is One Up On Wall Street by Peter Lynch, the legendary manager of the Fedelity Magellan Fund in the 1970s and '80s. I was pleased and impressed that among his dedications was this: "To Holy God for all the incredible blessings I have been given in my life."

Money creates a dilemma. It's like a poisonous substance that when used properly does useful work, but used impropertly is deadly. Not every Christian in the world has this dilemma. Much of the world still lies in poverty. And God has not promised material prosperity to anyone in this age, contrary to what the prosperity preachers tell us. He has promised to give us our daily bread, to care for our daily needs. If God has entrusted wealth to us, He requires that we be good stewards of it. He requires that we invest it and use it wisely to His glory and for the good of others. May He guide us all in the way of righteousness.

Disclaimer: Stocks and companies mentioned in this blog are for illustration purposes only. They are not intended as recommendations. Research companies well before investing.

Saturday, August 21, 2010

Money, Money, Money!

This may come as a surprise to some, but Jesus had more to say about money than about heaven or hell. The same goes for the Apostle Paul’s writings. And both Jesus and his apostle explained the reason for this emphasis. Jesus said, “How hard it is for those who have riches to enter the kingdom of God” (Mark 10:23 cf. Luke 18:24). And Paul wrote: 

But those who desire to be rich fall into temptation and a snare, and into many foolish and harmful lusts which drown men in destruction and perdition.
For the love of money is a root of all kinds of evil, for which some have strayed from the faith in their greediness, and pierced themselves through with many sorrows.  (1 Timothy 6:9-10)

The last few years have dramatized the truth of Scripture: “Will you set your eyes on that which is not? For riches certainly make themselves wings; they fly away like an eagle toward heaven.” (Proverbs 23:5)  Since God is sovereign over all things, He could have prevented the economic crisis that devastated the savings of countless millions of ordinary, hard-working people, including Christians. God not only allowed it to happen, but He has a purpose for it; or I should say purposes. God’s purpose for the unbelieving world is one thing, and His purpose for His people is another.  One way God is using this crisis is to teach his people to trust in Him for their well-being, to depend on Him and not “to trust in uncertain riches but in the living God, who gives richly all things to enjoy.” (1 Timothy 6:17)

God wants us to be industrious and productive, but not so we can be independent of Him. We are to work so that we can be of benefit to others, including, of course, our family (1 Timothy 5:8).  The Bible doesn’t condemn a person for being rich; it just warns people not to desire to be rich. To those who happen to be rich, Paul writes: “Command those who are rich in this present age not to be haughty, nor to trust in uncertain riches but in the living God, who gives us richly all things to enjoy.  Let them do good, that they may be rich in good works, ready to give, willing to share, storing up for themselves a good foundation for the time to come, that they may lay hold on eternal life.” (1 Timothy 6:17-19). 

In the above passage, Paul was elaborating on the teaching of Jesus, “Do not lay up for yourselves treasures on earth, where moth and rust destroy, and thieves break in a steal; but lay up for yourselves treasures in heaven, where neither moth nor rust destroy, and thieves do not break in and steal. For where your treasure is, there your heart will be also.” (Matthew 6:19-21)  By using the material wealth God grants us in a way that glorifies Him, we lay up treasures in heaven. And it is glorifying to God when we give in His name.

It is important to note that the “sharing” and willingness to give that Paul talks about are voluntary; they would have no value if they were not.  In the Book of Acts, when Ananias and Sapphira sold some property and gave a portion of the proceeds to the church, they were not condemned because they only gave a portion; they were condemned because they lied and said it was all the proceeds. Peter made it clear that they had the freedom to do what they pleased with the money: “While it remained, was it not your own? And after it was sold, was it not in your own control? Why have you conceived this thing in your heart? You have not lied to men but to God.” (Acts 5:4)  Paul exhorted the Corinthian Christians: “So let each one give as he purposes in his heart, not grudgingly or of necessity; for God loves a cheerful giver.” (2 Corinthians 9:7)

As Christians we should be industrious (Ephesians 4:28; 2 Thessalonians 3:10; Acts 20:34), and we should be good stewards of the material wealth God entrusts to us (Luke 19:12-23). But above all, we should honor God with our material possessions and trust Him to meet our needs.

My next blog will be titled, Wall Street and the Word of God: Is It Wrong to Invest in the Stock Market?  Look for it next week.)

Disclaimer: Stocks and companies mentioned in this blog are for illustration purposes only. They are not intended as recommendations. Research companies well before investing.