Cycles of Investing

The Good Book tells us, "There is a season and a time for every matter under heaven"-Ecclesiastes 3:1.

Likewise, in the world of investing every type of asset has its day in the sun and every type of asset has its winter.

You will often do well as an investor if you buy the asset that has been beat up in price the last 5-10 years and you are cautious about adding to assets that have appreciated significantly during that time span.

With that in mind, I did some research on the returns of different types of assets from 1999-2006. My compliance disclaimer is that these figures are for illustrative purposes only and are not to be construed as specific investment advice for individuals. Always check with your financial advisor as to what is appropriate for your situation.

Here are the 8-year average annual returns for the following assets. I chose this eight year time period because some of these asset types only date back to 1999.

• Small-Cap Stock Index (Russell 1725): 8.02%
• Large Growth Stock Index (Russell 1000 Growth): -0.75%
• Large Value Stock Index (Russell 1000 Value): 7.76%
• International Stock Index (EAFE): 6.70%
• Real Estate Index (REIT Index): 18.65%
• Multi-Strategy Hedge Fund Index (Barclay): 11.90%
• Bond Index (Lehman Brothers): 5.44%
• Commodity Index (Goldman Sachs): 14.10%

I like the odds that large company growth stocks will do better than real estate over the next 8 years. But sadly, many investors will see the recent returns of real estate and will load up their 401ks and investment accounts with real estate funds.

One of my fundamental beliefs is that in life you will do much better if you go against the crowd, but it is sometimes a lonely place. Soren Kierkegaard, "The majority of people are not so afraid of holding a wrong opinion, as they are of holding an opinion alone."

For The Goal of Wise Stewardship,

Ashley Hodge

Give, Save or Pay Off Debt?

You have an extra $10,000. What is the most spiritual decision?

A. Give the money to a charitable organization
B. Save/Invest the money for future needs
C. Pay down debt
D. Any of the above

I believe the answer is D. We should commit the matter to prayer. But you can find Scriptural support for any of these three options.

The Christian is told to give generously with a cheerful heart: "The point is this: whoever sows sparingly will also reap sparingly, and whoever sows bountifully will also reap bountifully. Each one must give as he has made up in his mind, not reluctantly or under compulsion, for God loves a cheerful giver," 2 Corinthians 9:6-7.

I have seen truly generous people continue to attract resources. This allows them to be even more generous. It is a spiritual law that God has set in His universe. It doesn't make sense to the rational mind. A false generosity that only gives to get may experience the rewards of "you scratch my back and I will scratch yours." But the true blessings are never fully enjoyed unless generosity comes from a heart that has been changed by Christ.

The Christian has biblical examples of why it is important to save. I read one example this morning. God instructed Joseph to tell Pharaoh to save seven years worth of grain for a famine was coming on the earth. Joseph tells his brothers, "And do not be distressed or angry with yourselves that you sold me here, for God sent me before you to preserve life. For the famine has been in the land these two years, and there are yet five years in which there will be neither plowing or harvest. And God sent me before you to preserve for you a remnant on earth, and to keep alive for you many survivors." Genesis 45:5-7.

I believe there are times when God puts the desire in our hearts to save. The reasons may not seem clear at the time. But then the economy turns down and you lose a job. A friend or family member has a crisis. A giving opportunity comes that you didn't expect. How could you help in a tangible, financial way unless you had savings?

Finally, I believe the Scriptures are clear that paying down debt is a worthwhile goal. Debt is a way of life for most American families. I carry debt on my home- although I am striving to pay it off quickly. Debt on a potentially appreciable asset can be argued for- home, business, education. But debt on depreciable assets- clothes, furniture, cars- doesn't make good financial sense. We are told by Paul, "Owe no one anything, except to love one another..." Romans 13:8.

The point is that we should not be manipulated to think that any one of the above uses of money- give, save, pay off debt- is better than another. The biblical Christian should work towards all three objectives and pray for the Spirit's leading. A commitment to strategic living that properly balances spending, giving, saving and paying off debts helps us to be in a position where God can use us for His purposes.

"A wise man saves for the future, but a foolish man spends whatever he gets," Proverbs 21:20.

For His Glory,

Ashley Hodge

Reading Good Books

This is a photo of my home office/study. I love books. I am reading through a couple of great books currently- Simply Christian by N.T. Wright and Systematic Theology by Wayne Grudem. I have been thinking of the books that have influenced me to place my trust in Christ.

Mark Twain remarked, "The person who doesn't read good books is no better off than the person who cannot read." Here are 5 books that have influenced my faith and also some short comments on why they have impacted me. I hope you read them.

1. Bible. Too many Christians never read the Bible. It is hard to understand why this is the case. Christians are to be people of the Word and to use this book as our life's guide. I encourage everyone- Christian and non-Christian- to read the Bible and study its contents. There are some great websites out there to help you read through the Bible in a year. One is the http://www.oneyearbibleblog.com/

2. Holiness- JC Ryle. This was the right book for me at the right time. I was at a point in my life where I had committed to Christ intellectually but had not experienced true conversion. This book helped me understand what true conversion to Christ is. I am forever grateful for having found JC Ryle's writings. He is one of the people I am most excited about meeting in Heaven.

3. The Chronicles of Narnia series- CS Lewis. Before reading these books, my view of Heaven was boring. After reading this series, I have been fired up about Heaven. It will be a prepared place for a prepared people. Lewis' biblically inspired vision is that Heaven is a place of adventure, learning, renovation of beautiful creation where the curse of sin is removed. Heaven will be a place where the Trinitarian God is tangibly present and sin is absent.

4. Provocations- Soren Kierkegaard. This book is a great summary of Kierkegaard's thoughts. I find many of Kierkegaard's thoughts to be relevant to our current society in the West. He wrote about the corruption of the church and what true Christianity should look like in contrast to this corruption. Kierkegaard was one of the giants of philosophy and was filled with a God-centered passion.

5. Creation Regained- Al Wolters. I had to read this book for an Apologetics class at Westminster Theological Seminary in Dallas. The book does a great job of explaining the major themes of the Bible: Creation, Fall, Redemption. It also transformed the way I think about the secular versus sacred distinctions. Wolters teaches that all of creation is good and needs to be reformed in ways that are glorifying to Christ. What was formed by God has been deformed by sin and needs to be reformed for the purposes of Christ.

I pray that some good books find you in 2007. And since it is a day where Martin Luther King, Jr's life is remembered, I thought of an excellent biography that I read about him several years ago: Let the Trumpet Sound- Stephen Oates.

For God's Glory,

Ashley Hodge

Conscious Capitalism

I read an excellent essay on Conscious Capitalism by John Mackey- founder of Whole Foods. If you are interested in how the pursuit of profit and stewardship of people, money and the environment can co-exist, you will find the ideas that Mackey sets forth as worthy of consideration. The essay can be found here:

http://www.wholefoods.com/blogs/jm

I will attempt to summarize some of Mackey's important points:

1. Profits are like happiness. They are best achieved when you don't focus on them. Mackey argues that profits will come when the stakeholders in the business- employees, management, vendors, customers and investors- are consistently satisfied.

There is a book coming out in February of 2007 called Firms of Endearment: the Pursuit of Purpose and Profit by David Wolfe, Rajendra Sisodia, and Jagdish Sheth. This book takes a look at the difference in performance between stakeholder centered companies- like Whole Foods- and traditional businesses that seek to maximize profits for shareholders (investors). The chart below compares the difference in stock performance between stakeholder companies (SC) and other companies in the S&P 500.

The stakeholder centered companies in the study include: Amazon, Best Buy, CarMax, Caterpillar, Commerce Bank, Costco, eBay, Google, Harley Davidson, Honda, JetBlue, Johnson & Johnson, Progressive Insurance, Southwest Airlines, Starbucks, Timberland, Toyota, UPS, and Whole Foods Market.

This idea reminds me of John Templeton's philosophy. Templeton outperformed the market by an average of 3% annually per year after fees from 1954- 1992. He accomplished this in large part by buying shares of companies that perform a service beneficial to the world. He avoided buying shares in companies that prey on human weakness. One of Templeton's fund managers in the 1990s- Rusty Leonard- has incorporated this investment approach with a distinctly biblical worldview.

2. Executives should be compensated fairly but not outrageously. Whole Foods implements a policy that the highest paid executive makes only 19 times the average paid employee. The average for the S&P 500 was 411 times the average paid employee in 2005. As stewards of stakeholders' interest, executives should become wealthy as long-term stakeholder value is created.

Mackey contends that the best way to deal with envy is to become more transparent with compensation. Whole Foods shares the salaries of all employees. Mackey contends that by having this type of transparency people can see what types of skills are valued and rewarded in the organization and manage their career objectives accordingly.

Along those lines, Whole Foods distributes stock options so that employees can share in the creation of stock value over time. Only 7% of stock options go to the top 16 executives at Whole Foods. In comparison, 75% of stock options go to the top 5 executives at a typical S&P 500 firm.

3. Mackey believes that the stereotypes of good, altruistic non-profit organizations and greedy, selfish corporations are wrong. Mackey contends that the majority of non-profits are inefficient, wasteful and stagnant. He argues that both non-profits and businesses need to migrate towards a holistic model. Business and capitalism can be forces for enormous good in this world. The world has gone from nearly 95% poverty 200 years ago to 60% poverty currently. And with the emergence of China and India, the poverty rate is likely to be less than 25% by 2050. This reduction in poverty is attributed to increased profits, prosperity, technological innovation, etc... But the pursuit of profit at all costs is not a good thing for society and this is why Mackey urges businesses to adopt Conscious Capitalism.

I find Mackey's thoughts line up with my understanding of biblical stewardship even if Mackey doesn't share evangelical, biblical beliefs. A point that I have made in other blog entries is that God gave Adam a stewardship mandate in the Garden of Eden to grow, cultivate, take dominion over the resources that God provides- Genesis 1:28. Many environmentalists long for a return to the Garden like paradise. But God moves creation from a Garden- Genesis to a City- Revelation. Progress is a good thing if it is done according to God-honoring stewardship principles. We should not seek repristination. We should seek biblically progressive reformation. The good that was formed by God has been deformed by sin and needs to be reformed for the purposes of God.

For His Glory,

Ashley Hodge