Fear and Greed

• Print

Details

Created: Monday, 01 November 2004 18:05

Written by Tom Lipp

Fear and greed are dangerous enemies to good investing. Imagine, our own attitudes as our biggest foes! Some say that fear and geed drive the markets. I disagree. The way I see it, fear and greed influence the markets negatively, but the markets themselves are powered by the cumulative work and creative production of us all. In truth it is God who gives us the ability to generate wealth, while fear and greed contaminate the process like two poisons added to a soup. So how can we rid ourselves of these evils? 

First of all we need to call them for what they are… sins. The business world sometimes considers greed a virtue! The Lord does not. Greed is irrational and affects all of us. It is often illuminated by that age-old question: How much is enough? The standard, tongue-in-cheek response is: Just a little bit more! There is an expression in the financial community that identifies this problem. Bears eat. Bulls eat. But pigs get slaughtered. Although we prefer to deny it, the piggish syndrome affects us all to varying degrees and at one time or another. We need divine power to overcome it on a sustained basis. This divine power is called grace. Jesus said that there are various kinds of greed. One of them relates to investments. When investments go up quickly should we “hold ‘em or fold ‘em?” I have found it best to pre-determine some guidelines/trigger points as we make the initial investments, when we will re-evaluate if we should sell some of our investment. This ties into the following quote attributed to the famous investor Warren Buffett. “ To invest successfully over a life time does not require a stratospheric IQ, unusual business insight, or inside information. What’s needed is a sound intellectual framework for decisions and the ability to keep emotions for corroding that framework.” That “sound intellectual framework” includes a sell discipline. For example, if we invest $100 in ABC shares and their value increases to say $150 should we take some profit? Everyone has a point at which they should sell and it is best to identify the selling discipline at the very beginning. I have seen people make huge profits and rather than taking some profits off the table, they wait too long. They miss the market peak. Our goal is to the on the left hand side of the peak when we sell, not at the top but hopefully near the top. 

Financial fear is also irrational. It can paralyse us. Is fear a sin? You bet! Please hear this clearly though, seeking a high return is not necessarily a sign of greed. It all depends on the motivation for profit. Generosity is a strong antidote for greed.

Financial fear is also irrational. It can paralyse us. Is fear a sin? You bet! Sometimes fear is a mask for laziness. In Proverbs 22.13 we read that the “sluggard says there is a lion in the streets. I will be killed in the streets.” In other words, a lazy person imagines all kinds of unfounded dangers in order to justify his inaction. Like greed, fear also needs divine grace to overcome this sin on a sustained basis. I once heard someone say that most of the things we fret and worry about never happen. That must mean all the fretting and worrying helps! I jest of course. The real response is that those who fear the Lord need fear nothing else.

With regard to investments we need to research alternatives properly. With five year GIC’s pay about 4% and inflation running at 2-3% it is hard to make any money after tax. Keeping it all under the mattress guarantees that inflation will erode its purchasing power. One of my favourite investments has been real-return government bonds packaged in a mutual fund wrapper. They have yielded about 9% per year on average during the past five years and are backed by Canadian governments. Certainly they have some associated risks, but then as the saying goes… nothing ventured , nothing gained!

Obedient Christians have in the grace of the Lord Jesus Christ the only solution to fear and greed. Avoid these dangers… but don’t avoid the marketplace.