Monday, November 23, 2015

Learning about Investment from Gimli son of Glóin

“I do not foretell, for all foretelling is now vain: on the one hand lies darkness, and on the other only hope. But if hope should not fail, then I say to you, Gimli son of Glóin, that your hands shall flow with gold, and yet over you gold shall have no dominion.” Galadriel, Lady of the Golden Wood

In the Lord of the Rings, Gimli the dwarf, representing the most acquisitive species in the Middle Earth in the great quest, asks a favor of, “The mightiest and fairest of all the Elves that remained in the Middle Earth and the greatest of elven women,” three strands of her golden hair to mount in crystal.

Pleased with this bold yet courteous request, the lady grants his wish along with the blessing quoted above. This story contains a truth that we should all pursue. Not many will reach the goal, but all of us who choose to invest in the market can do better, moving closer to that state of perfection that was ultimately achieved by Gimli the dwarf after a great deal of hard work. I don’t know who first said it, but someone observed, invest as though you do not need the market. What is the meaning of this koan? We invest our money to earn what we will need for the big expenses of life like college educations for our children, retirement, and a legacy for future generations.

It seems like we kind of need the market.

As you begin the saving process early in your working life, your first major goal is building an emergency fund. Of course, if your employer offers a 401(k), by all means take advantage of the opportunity to begin saving for your retirement, even if at a very low level. During this time you are not investing money that you can not afford to lose. Later, you will begin to invest more aggressively, building a diversified portfolio that uses shares from many asset classes to protect your future against individual risk. Hopefully, someday you will have a large enough stream of interest and dividends, so that you can not only survive major disruptions to the economy, but use those times as an opportunity to buy when those around you are selling in fear and desperation. If you achieve this goal, you have protected yourself and your legacy from systemic risk.

Recently at age 87, T. Boone Pickens took some horrendous losses in the oil downturn, losing his status as a billionaire. He laughed, observing at his age the $900 million he had left was probably going to be enough. He added that since he had given over $1 billion to charity, he had given away more than he was currently worth. Don’t worry about Mr. Pickens he is already planning on how to recover his wealth.

But note: He doesn’t need the market.

The first step is a desire in your heart to be content with what you have in the present moment even as you plan to have more in the future. This requires a great deal of trust in something, hopefully the goodness of God your provider. If you look to credit to fulfill the desires of your heart, you need the market. Remember, banks are a just another asset class in what is termed “the market.”

When you are in your working years, buying a house and raising a family, live on less than you earn, using the surplus, money that doesn’t need the market to fulfill your ultimate dreams. If a thirty year old man saving $100 a month has $5,000 in a 401(k) a stock market crash such as the one that occurred in 2008 simply doesn’t matter. $2,500 over the course of the remaining 35 years of our young man’s working years is pretty irrelevant. He doesn’t need the market in order to survive.

In both the dotcom bust of 2000-2002 and again during the slow motion train wreck that occurred between 2006 and 2009, I watched intelligent, successful men who had achieved more than I could ever imagine for myself, suffer losses that broke their will. They sold out at the bottom, locking in their losses to protect what remained of their devastated retirement portfolios. They were investing in a manner that required the market to deliver their retirement needs.

This is why diversification is so important.

In early 2000, at the height of the dotcom bubble, one investor I follow had 10% of his holdings in Internet companies. He was creamed, just like everyone else, but even an 80% loss of 10% is not going to kill your future. Another very knowledgeable investor who taught me some of my early lessons believed the great lie, “This time it’s different.” He thought Internet stocks would go up forever. He needed the market for both survival and for his self identity. Putting together the pieces from our various conversations, I know he lost an amount of money somewhere in the mid six figures. I don’t know if he ever recovered.

Don’t forget to let that gold flow through your hands, even if you have a trickle rather than a river. After the War of the Rings ended, Gimli now know as the Lord of the Glittering Caves, started a one dwarf Marshall Plan to rebuild the Middle Earth, particularly Gondor, the city of the king, his buddy Aragorn son of Arathom, Elessar the Elfstone, Dunadain, heir of Isildur. By the way after living a long and fulfilling life, Gimli was the only dwarf allowed to pass over the sea to the Undying Lands of the West.

Using your money to build the Kingdom of God is another indication that you don’t need the market.

It is harder now than it was even during the dark years of the first oil crisis when the best job I could find was packing cloth in a bleachery or when I lost my job in great recession of the early 1980s. Walking in contentment isn’t easy in a consumer society that isn’t creating enough stable quality jobs in the private sector. Yet, in good times and in bad we are challenged to trust God and walk in the truth and I for one could do better learning to live and invest without needing the market.

1 Timothy 6:6-8

“But Godliness with contentment is great gain, for we brought nothing into the world, and we cannot take anything out of the world. But if we have food and clothing, with these we will be content.”

No comments:

Post a Comment