Overarching Biblical Principle

Please reply to this thread that must be 450 to 500 words, and include 2 peer-reviewed references and one biblical integration,.

The Bible provides countless references and insight to financial topics including budgeting, investing, and wealth management. Individual authors often cite that the Bible contains “over 2300” verses dealing with money-related references. Some of these verses provide specific financial guidance while others provide an overarching Biblical principle for a fulfilling lifestyle. The four verses that follow are a reference to a foundational principle and three which are oriented to specific financial guidance.

Overarching Biblical Principle

“I am the LORD thy God, which have brought thee out of the land of Egypt, out of the house of bondage. Thou shalt have no other gods before me.” (King James Bible, 1769/2017, Exodus 20:2-3 KJV).

Have you ever met an individual in the financial profession or any individual investor who is obsessed with finances? They wake in the morning to check the pre-market movement. They watch all day to the nuanced advances in sectors. They may calculate multiple financial metrics daily to include: TRIN (which is the ratio of average trading volume in declining issues to average volume in advancing issue),  Sharpe ratio (a statistic used to rank portfolios using risk-return trade-off), probability distributions, and alpha (a set of securities’ expected excess return when the market is zero) ( (Bodie et al., 2021, pp. 125, 272, 6.11). 

The same individuals might also look to Harry Markowitz, William Sharpe, or Eugene Famma for insight in their quest to “beat the market.” Harry Markowitz says, “Even if you could use God’s own probability distribution of returns on securities, there still wouldn’t be one perfect portfolio” (UCS Rady School of Management, 2012). One might suggest Markowitz simply has never had God’s input but at least he recognizes even his Nobel Prize-winning work is fallible.

For those that spend countless hours on technical analysis, we viewed a video interview with Vince Stanzione regarding the “Random Walk Theory.” When asked to reply to the statement, “Technical analysis is a mathematically accurate representation of past prices, it has no bearing whatsoever on future prices,” Stanzione, at the 4:20 of the interview stated, “yes, that’s actually true” (UKspreadbetting, 2016).

I use Markowitz’s and Stanzione’s quotes not to suggest one should disregard the financial theories presented; we also read in Proverbs, “Plans fail for lack of counsel, but with many advisers they succeed (KJV, Proverbs 15:22). I use these examples to support the notion that there is no perfect solution. One must study, research, and formulate a disciplined approach for their investing advice but recognize the point at which the quest becomes an obsession, an “idol.”

Specific Financial Principle

“For which of you, intending to build a tower, does not sit down first and count the cost, whether he has enough to finish it—lest, after he has laid the foundation, and is not able to finish, all who see it begin to mock him, saying ‘This man began to build and was not able to finish?”(King James Bible, 1769/2017, Luke 14:28-30)

What is the plan? We can look to an investment account to apply these verses from Luke. Every individual is unique and their retirement goals can vary greatly. Today, a 30-year-old with 37 years to retirement might calculate a need of a 5% average annual rate of return (ROR) on their contributions to meet their goals. According to the modern portfolio theory, there is an efficient diversification across asset types to achieve a stated ROR with the least risk (Bodie et al., 2021, p. 111). One can use an investment opportunity set to graphically show this diversified allocation. Is there any incentive to attempt to target a higher rate of return because of a long time horizon? There exists such a mix of assets but with this increase in ROR comes an increased standard deviation (risk). In planning the tower (retirement) one must first count the costs (develop a plan) and find if one can finish. If you can finish then begin the foundation (implement the plan). If you cannot, redesign the tower.

Proverbs 21:5 The plans of the diligent lead to profit as surely as haste leads to poverty (King James Bible, 1769/2017, Proverbs 21:5).

Investors who develop a plan with diligence often behave with confidence. One’s confidence may come from spiritual contentment in their faith. It may also come or be supported by one’s education and experience. Confidence in one’s plan increases the likelihood of sticking with the plan through stressful times and might increase the probability of success. However, behavioral finance may impact one’s ability to make optimal decisions (Bodie et al., 2021, p. 258). Heuristics are not a solution for the diligent, and many other behavioral tendencies may harm investing outcomes. The list of behavioral issues includes subsets of behavioral biases and information processing. How does one limit the effect of overconfidence or framing?  Although no one is immune from behavioral issues, diligence builds a wall of confidence that minimizes hasty decisions.

“Invest in seven ventures, yes, in eight; you do not know what disaster may come upon the land (King James Bible, 1769/2017, Ecclesiastes 11:2).

Countless financial gurus advocate individual stock picking as an investing strategy. For example, any one of these who recommended Amazon (AMZN) as the stock to buy on May of 1997 would now boast of a 210,496% return ($1.51 on 31MAY1997, $3180.07 on 10FEB2022) (Morningstar, 2022). However, during this time frame, Amazon lost 94% of its value from December 1999 to October 2001 ($106.59 on 10DEC1999, $6.01 on 01OCT2001) (Morninstar, 2022). Are you able to ride through a loss of 94% and stick with your plan? An investment in an S&P 500 Index gained 420% when Amazon gained 210,496% but lost only 25.3% during the time Amazon lost 94%. If one is still inclined to choose individual equities because of this example, also consider 2,101 companies were delisted from the market during this similar time frame (Brosen, 2017). 

Diversification means that many assets are held in the portfolio so exposure to a negative event in one asset is limited (Bodie et al., 2021, p. 11) Standard deviation is a useful measure of risk for diversified portfolios but not a useful measure of risk of individual securities (p. 126) Business risks include both internal and external factors. One knows an individual security’s risk includes its systematic risk, Beta (risk common to the entire economy), and also it firm-specific (residual-risk). If one invests in a mutual fund or ETF (exchange-traded fund), they can nullify the effect of firm-specific risk on the entire portfolio.