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Investment, Gambling and Greed?

Tuesday, June 16, 2009 • 11:50 pm


Last week’s Sydney Morning Herald ran a story that’s been known about for some time in Sydney Diocese with the rather sensationalist headline “Millions wiped out by church gambles”:

THE world’s richest and largest Anglican diocese has lost more than $100 million on the sharemarket and is investigating ways to cut programs and ministries across Sydney.

Two years ago the Anglican diocese of Sydney was able to allocate $30 million to educate new ministers, spread the Gospel and reach out to young people. But returns from investments have plummeted so steeply that the funds available next year have been slashed to $5.6 million.

...

The Anglican Archbishop of Sydney, Peter Jensen, has written to clergy warning that the global financial crisis has caused significant losses. He said the diocese had borrowed money to invest and used the profits to build churches in 2007.

“In the extraordinary conditions at the end of 2008, as the whole market fell, this strategy also accentuated our losses,” Dr Jensen said.

“As a result, our investments have fallen by more than half and distribution of money from our investments has been cut by 50 per cent.”

At one stage it is believed the diocese had lost nearly $260 million but this has reduced as the market has recovered.

The diocese became aware of the looming crisis earlier this year. Now a series of inquiries is under way, and committees are debating what to do before the mess and its consequences are put to the Synod in October.

Because of the way that the Diocese is structured, this loss will affect centrally-funded projects but not the parishes, which are self-funded (unless supported directly by the Diocese).

Of course the newspaper has managed to round up the usual suspects for a juicy quote:

The Reverend John Cornish, the rector of St Alban’s at Epping and a long-time Jensen critic, said it was a shame so much money had been wasted and, while it was good to build churches in new housing estates, “excessive enthusiasm” meant the diocese had stayed too long at the stockmarket gambling table.

“Nobody’s taking responsibility for this. In other organisations heads would roll.”

but where it really gets interesting is in the letters over the next couple of days. First, a barrage of nothing short of Luke 12:15 Then he said to them, “Watch out! Be on your guard against all kinds of greed; a man’s life does not consist in the abundance of his possessions.”

Long before Jesus, Qohelet (the Teacher in Ecclesiastes) noted, with some irony, the fickle nature of wealth:

Ecclesiastes 5:10 Whoever loves money never has money enough; whoever loves wealth is never satisfied with his income. This too is meaningless. 11 As goods increase, so do those who consume them. And what benefit are they to the owner except to feast his eyes on them? 12 The sleep of a laborer is sweet, whether he eats little or much, but the abundance of a rich man permits him no sleep. 13 I have seen a grievous evil under the sun: wealth hoarded to the harm of its owner, 14 or wealth lost through some misfortune, so that when he has a son there is nothing left for him.

or, as another philosopher once said, “you can’t take it with you”, to which Qohelet would add “and some idiot squanders all the stuff you left behind”.

In the face of all this Jesus tells us to extend our investment horizon beyond retirement to eternity:

Matthew 6:19 “Do not store up for yourselves treasures on earth, where moth and rust destroy, and where thieves break in and steal. 20 But store up for yourselves treasures in heaven, where moth and rust do not destroy, and where thieves do not break in and steal. 21 For where your treasure is, there your heart will be also.

More than this, he gave a severe warning for those who got their investment horizons wrongly calibrated:

Luke 12:16 And he told them this parable: “The ground of a certain rich man produced a good crop. 17 He thought to himself, ‘What shall I do? I have no place to store my crops.’ 18 “Then he said, ‘This is what I’ll do. I will tear down my barns and build bigger ones, and there I will store all my grain and my goods. 19 And I’ll say to myself, “You have plenty of good things laid up for many years. Take life easy; eat, drink and be merry.” ’ 20 “But God said to him, ‘You fool! This very night your life will be demanded from you. Then who will get what you have prepared for yourself?’ 21 “This is how it will be with anyone who stores up things for himself but is not rich toward God.”

Ultimately, material investments will do nothing for you. In fact, more often than not they will provide us with a false sense of security. They will keep our head buried like ostriches, preventing us from looking up and seeing the oncoming judgement of God for what it is - the ultimate market crash.

So does that mean we stick out of that kind of business altogether? Well, no. We’re also told to look after our wealth responsibly…

1 Timothy 5:4 But if a widow has children or grandchildren, these should learn first of all to put their religion into practice by caring for their own family and so repaying their parents and grandparents, for this is pleasing to God.

of course, a few paragraphs later the Apostle, drawing on themes we saw in Ecclesiastes, will warn again about greed…

1 Timothy 6:6 But godliness with contentment is great gain. 7 For we brought nothing into the world, and we can take nothing out of it. 8 But if we have food and clothing, we will be content with that. 9 People who want to get rich fall into temptation and a trap and into many foolish and harmful desires that plunge men into ruin and destruction. 10 For the love of money is a root of all kinds of evil. Some people, eager for money, have wandered from the faith and pierced themselves with many griefs.

Greed, it seems, is not just the problem of the pagan. It can mess up a Christian.

So does this mean we, as Christians, should shun all such matters of money? Does this mean investing is permanently off the agenda? Jesus provides an interesting close to the debate:

Luke 16:1 Jesus told his disciples: “There was a rich man whose manager was accused of wasting his possessions. 2 So he called him in and asked him, ‘What is this I hear about you? Give an account of your management, because you cannot be manager any longer.’ 3 “The manager said to himself, ‘What shall I do now? My master is taking away my job. I’m not strong enough to dig, and I’m ashamed to beg—4 I know what I’ll do so that, when I lose my job here, people will welcome me into their houses.’ 5 “So he called in each one of his master’s debtors. He asked the first, ‘How much do you owe my master?’ 6 “‘Eight hundred gallons of olive oil,’ he replied. “The manager told him, ‘Take your bill, sit down quickly, and make it four hundred.’ 7 “Then he asked the second, ‘And how much do you owe?’ “‘A thousand bushels of wheat,’ he replied. “He told him, ‘Take your bill and make it eight hundred.’ 8 “The master commended the dishonest manager because he had acted shrewdly. For the people of this world are more shrewd in dealing with their own kind than are the people of the light. 9 I tell you, use worldly wealth to gain friends for yourselves, so that when it is gone, you will be welcomed into eternal dwellings.

It’s intriguing, isn’t it? Jesus says that the dishonest manager is to be emulated. Now obviously his dishonesty is not being praised here, but rather his shrewdness. He knows how to manage things so that they go the best way. Jesus calls upon the Church to be equally shrewd with the world. We should use worldy wealth to make friends, says Jesus, who Himself is noted in Luke’s gospel as being a friend of all sorts of people, tax collectors, prostitutes and the rest. So we should use the money of the world to gather friends from the world - put another way we should be wise, shrewd, in the use of our assets for the sake of expansion of the Kingdom. Invest to evangelise!

So back to the Diocese and, perhaps, a slightly calmer look at it all.

Some things now worth considering:

  1. Investing one’s assets is not per se being greedy. It may simply be shrewd (and therefore godly) management.
  2. Gordon Gecko is wrong: greed is not good. More than that, greed will very likely take you to hell.
  3. Greed is about foolish mis-placed self-interest. Which is not the same as investing in order to charitably benefit others, as Sydney Diocese does.
  4. When the market crashed last year, everyone tanked. No-one escaped without damage. Were they all greedy foolhardy gamblers or, perhaps, did they all act sensibly and get stuffed anyway?
  5. Have those in the know called for the widespread resignations of other heads of investment over the crash and associated losses? If not then it might be an indication that the market understands that sometimes these things are not a result of irresponsibility. Compare to the way those responsible for sub-prime got hammered.
  6. Nevertheless, was the Diocesan decision to borrow and gear up their investments a wise decision? Was it shrewd? Were other people doing the same thing? Were they advising further gearing up, not for individual assets but the extension of already diversified portfolios?

I think the last question is the one that needs to be asked about the Diocese. Did they follow a strategy that was acknowledgeably risky? Or did they follow the shrewdness of the world? Because, believe it or not, Jesus might just have commended the latter.


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Comments:

An interesting question.  When does gambling cross the line?  It can be a tremendous amount of fun if 1) you know what you are doing and 2) the stakes are low enough.  Craps for example requires a minimum stake of 40 times the minimum bet.  On a 50 cent minimum bet table, that’s $20.  A disciplined player should never lose more than $10, and could easily play for 2 hours.  That’s the equivalent of a movie.  Try and find a table with minimums that low, however.

On the other hand, gambling is a snare and a trap for a small percentage of people.  It will destroy lives.  Is my liberty worth that price?  Is it worth the damage done to the community by the presence of a casino?  The citizens of my community resisted the tide, and kept the casino out a few years ago.  A good decision, I think. 

I haven’t set down any money at a casino since April 1993.  On that day, I drove an hour to the casino, waited 15 minutes to play, lost half my stake (the inviolate ‘quit now’ threshold) in two minutes, and left.  During the hour-long drive home, I thought to myself “Well, that was fun.  Maybe God is telling me something.”  Perhaps I could consider it an aspect of liberty, but perhaps I should also consider the impact on my public testimony.  I never went back. 

carl

[1] Posted by carl on 06-17-2009 at 01:32 AM • top

It seems on first glance that highly imprudent decisions were taken. It would be wise to look at how such decisions came to be made and put in place measures aiming to improve investment decisions. (I’m slightly curious - David when the Church Commissioners portfolio decreased in value following a risky venture into a property boom, did you ask if they might be shrewd?)

[2] Posted by driver8 on 06-17-2009 at 02:08 AM • top

I’m slightly curious - David when the Church Commissioners portfolio decreased in value following a risky venture into a property boom, did you ask if they might be shrewd?

I don’t remember saying anything about it. Do you have a different recollection?

[3] Posted by David Ould on 06-17-2009 at 03:35 AM • top

Dear David,
You and I know from whence Sydney Diocese obtained its wealth. many SF readers probably do not know, nor the fact that it originated with the establishment of the “Glebe” land in and around Sydney, nor the fact that Sydney shares this income with other Dioceses in N.S.W. for they were once upon a time the whole Diocese of Sydney.
Could I suggest a brief history of the Glebe lands as it pertained to Sydney, and the Glebe land given to many many parishes in N.S.W..I recall the little town of Bundarra has its glebe land for the Parson to graze his cow(s) around the Vicarage(Diocese of Armidale) from whence I came.
A little knowledge might prevent some people from making false and presumptuous statements about the Church’s wealth, after all it belongs to The People.
You might make it a link for those so inclined to have a look.
Blessings
Brian (Aussie)

[4] Posted by Brian (Aussie) on 06-17-2009 at 05:26 AM • top

My grandfather, having supported a family through the Great Depression, thought of the stock market as gambling.  I would say to him now, that he’s right some of the time.  Too much volitility, or doing your own research when you don’t have a gift for it;  that’s gambling.  But, it doesn’t sound to me like ++Jensen is gambling. 

My understanding of Lk 16.1 is that the manager in question (a) believed his boss that his future was going to take a change for the worse, and so (b) made the best of the situation by (c) being zealously gracious.  He ever had an eye on the future. 

Hmm.. I have a question related to the town where St Alban’s resides, but it’s OT, so I’ll either wiki it or send you a PM.

[5] Posted by J Eppinga on 06-17-2009 at 06:55 AM • top

Meh.

You’ve used a hammer and anvil to deal with a problem that the liberal angry letter-writers don’t really think is a problem.  They just wanted to say something in order to process their joy at an institution which they do not like losing money—so they chose the “gambling” meme.

Here’s the real crux of the letters: “When you adopt the high moral ground, you have so much further to fall.”

The key is, David, that the Diocese of Sydney should cease adopting the moral high ground.

Just stop it, okay?

Then we’d all feel appropriately saddened when you lost all that money and there’d be no scrabbling around looking for some kind of sin on which to hang the joy over your lost investments.  ; > )

[6] Posted by Sarah on 06-17-2009 at 07:12 AM • top

Well, IMHO, borrowing money to buy shares is gambling. Gambling that the return on the shares will exceed the interest on the loan.
With money you already have, buying shares can be a way to improve the return over what the bank would pay you in interest. There is risk involved either way. Savings account interest vs inflation rate or Shares return vs interest rate & inflation. Take you pick.
But then we take measured risks everyday, getting in your car to go to to the grocery store has risks, too, but it is necessary to obtain food, so we take the risk.
When it comes to determining if an action is gambling or investment, the Prudent Man rule applies.

[7] Posted by Marie Blocher on 06-17-2009 at 07:29 AM • top

Moot,my parents lived through the depression and my dad never considered the market gambling. In his later years he followed it closely and made sure his investments would provide for my mother after his passing. He only invested in things or people he knew. My only mistake after his passing was hanging on to Ennron too long since he knew the founders personally. Does anyone who has a 401 feel like they are gambling?  Hope this is not off topic too much.

[8] Posted by bob+ on 06-17-2009 at 07:39 AM • top

Life is gambling.  Getting into your car and hoping you’re not run over by a beer truck is gambling.  Where investing in the stock market (or engaging in any other financial action) differs from what is being here referred to as “gambling” is that it is not a zero sum game in which one player gets rich while all the rest lose their money and the house takes a hefty cut.  Buying stock is, effectively, taking on ownership of a company that one expects will make money.  All owners can make money from the company.  It is no more a “gamble” (indeed much less so if you mean statistical risk) than starting your own company.  Of course, anything can be done in a prudent or a foolish way.  When dealing with other’s money one has a fiduciary responsibility to be prudent.  But that’s another story entirely.  If the diocese had put all its money into producing “Anglican Wine” and the company failed, it could be criticized, but you would hardly say they were “gambling.”

[9] Posted by Catholic Mom on 06-17-2009 at 07:44 AM • top
[10] Posted by Jill Woodliff on 06-17-2009 at 08:09 AM • top

“Four of the 10 letters on the Sydney diocese yesterday equate investing in the sharemarket with gambling. The two are completely different and it beggars belief that 40 per cent of people might believe that prudent investment in public companies, based on research, is the same as betting on a roulette wheel. Small wonder the markets have taken such a beating.”

Four of ten, or 40% of the population equates very closely with the percentage of the population that does not finish high school, the dropouts. It is no small wonder that these people equate investing with gambling. You could have easily predicted this from their grades in Algebra I and Geometry and Economics (ah, yes, that is a senior level course that they never got to.) Reporters know this when they stop a guy from mowing a lawn at 2:00 Wednesday afternoon and ask him a question about macro economics. This is why clergy call them sheep and give them new theological ideas all the while solicting funds for “God’s work”. Baaah!

[11] Posted by ctowles on 06-17-2009 at 09:01 AM • top

RE:  “my grandfather also..” & “Life is gambling..”

He was of course, very backwards by today’s standards.  One of his solutions to the Crash was to distrust the stock market completely.  Who could blame him?  Similarly, my other grandfather (an elder at his CRC parish) was ready to discipline any young man or woman involved in the evils of premarital rug-cutting. 

Backwards. 

On the other hand, I wonder sometimes if we are really that better off with all of our sophistication.  Prior to the bubble bursting, the “Rich Dad” guy was telling everyone that investing ourselves into debt was good.  Now, he’s going around telling everyone that the rules have changed, and wouldn’t you know it, he’s the man with the answers.  Dave Ramsey’s strategy never changed;  and I suspect that he and Gramps would get along great, though Ramsey would put in a few good words for 401k’s and mutual funds, I’m sure.  And I’m equally sure that Grandpa would have listened to Ramsey. 

BTW, I have a 401k.  And no, it’s not gambling, nor is life gambling.  If it were, then we’d need a new word for the way that casinos make money.

[12] Posted by J Eppinga on 06-17-2009 at 11:46 AM • top

Then again, if we labeled what goes on in casinos as stealing, then we could use the word gambling for everyday situations.

[13] Posted by J Eppinga on 06-17-2009 at 11:48 AM • top

Yes, Moot, I agree.  If gambling is “trying to maximize return per unit of risk” then everything we do is gambling.  In the casinos the sum total of the return (that is the total that all gamblers will get) is less than the sum total of the risk (the amount of money risked) because the house takes a huge cut. This is not gambling.  This is just stupidity.  And as the bumper sticker says “gambling (this kind) is for people who failed math.”

[14] Posted by Catholic Mom on 06-17-2009 at 12:07 PM • top

And even if the house didn’t take a cut, the average unit of return would equal the average unit of risk which no investor would ever agree to. (It would be like lending money at 0% interest. Only difference is the return is randomly, rather than equally, distributed.)  This is also just plain stupidity, but without the stealing component.

[15] Posted by Catholic Mom on 06-17-2009 at 12:11 PM • top

RE:  ‘stupidity.’

No, it’s gambling:

gam⋅ble  /ˈgæmbəl/  Show Spelled Pronunciation [gam-buhl]  Show IPA verb, -bled, -bling, noun
–verb (used without object) 1. to play at any game of chance for money or other stakes.
2. to stake or risk money, or anything of value, on the outcome of something involving chance: to gamble on a toss of the dice. 

–verb (used with object) 3. to lose or squander by betting (usually fol. by away): He gambled all his hard-earned money away in one night. 
4. to wager or risk (money or something else of value): to gamble one’s freedom. 
5. to take a chance on; venture; risk: I’m gambling that our new store will be a success. 

–noun 6. any matter or thing involving risk or hazardous uncertainty.
7. a venture in a game of chance for stakes, esp. for high stakes.


————————————————————————————————————————

Origin:
1150–1200; ME gamenen to play (OE gamenian), with substitution of -le for -en; see game 1

As for business matters where the risk is assessed and managed beforehand, when we refer to the venture as a ‘gamble’, we’re employing a cliché’ that is in essence, hyperbole.  Managing the risk after all is pretty far away from leaving things to chance.

[16] Posted by J Eppinga on 06-17-2009 at 12:40 PM • top

It seems to me that the truly fundamental difference between gambling and investing has been missed.  Gambling is essentially, at best, a zero sum game. If I win, you lose.  Of course, in casinos of it is worse because “the house” takes a cut.  This is what is immoral about gambling.  When I gamble, I am greedy and intend to profit at the expense of others. 

Investing has the potential to be a win / win situation.  If I lend you money / buy stock in your corporation, you can start a business that makes money for both of us by providing goods or services that benefit others.  With a good investment, at the end of the day you and I are both better off, as are the customers of your business.  Wealth has been created.

Is it possible to gamble on the stock market?  It is gambling, and immoral, if I expect my stock profits to be made at the expense of others (e.g., by taking advantage of inside information).  If however, I am investing in companies or organizations that, because of my investments, are now able to help others and create wealth for me and themselves, then what I am doing is moral. 

Even with true investments, there are obviously issues of prudence.  Investing in long shot ideas, even if the potential reward to investors companies and the world is high (e.g., a company planning to manufacture perpetual motion machines or generate economical solar power), may not be a good idea.  These are issues of good stewardship, particularly when other people’s money is involved.  However, it seems more appropriate to assess the morality of the action based upon investor’s intent and the state of knowledge at the time, than on the outcomes.  That, is it is as wrong to gamble and win as it is to gamble and lose.  Likewise, the fact that a prudent investment, entered into with the intent of benefiting all involved, loses money does not make the investment immoral.  It may be imprudent and it may be immoral if the people whose money was invested were not apprised of and willing to accept the risks involved.

[17] Posted by ABQ Methodist on 06-17-2009 at 02:44 PM • top

I think the real problem is clued by the report that the diocese was borrowing in order to buy stock. That only magnifies the risk, since the creditor expects to get the loan back with interest. If the stock goes up, then of course one can sell the stock to repay the loan and interest when due and maybe make a profit. But if the stock goes down (has it has generally in the past 18 months) you lose money you never had! You have to sell at the loss and make up the difference out of your own pocket (or go bankrupt). That’s gambling.

If you are investing in stocks and bonds with your own money there is a risk. If the net asset value goes up you can sell for a capital gain, or simply hold and reap whatever dividends the assets yield. If the NAV goes down, you can sell for a capital loss, but it’s your own money and you don’t have to sell to pay your creditor. Or you can simply hold, reap whatever dividends the assets yield and hope that eventually the market will improve.

In a related matter, one of the reasons for the financial collapse last year was that financial institutions were leveraging money (i.e., borrowing) to make risky loans in the expectation of making big, quick profits (with someone else—namely the taxpayers at it turns out—holding the bag).

[18] Posted by Ken Peck on 06-17-2009 at 02:54 PM • top

1) They should not have put borrowed money in the stock market.  If churches have very long term needs (e.g., pensions) they could put some of their portfolio in high quality stocks, so that the long term nature of their need (clergy retirement) is matched with the long term nature of their investment (stocks).  Match your investments to your needs.

2) I agree with Sarah.  The letter writers are loving the fact that they can whale away on Jensen.  The fact of the lost dollars is secondary in their motivation.

[19] Posted by Looking for Leaders on 06-17-2009 at 03:09 PM • top

John Bogle, the founder and past chairman of Vanguard Group of Investment Companies, in his very straightforward and compact book, “<u>The Little Book of Common Sense Investing</u>”, makes a clear distinction: Investing is owning a piece of a company in order to gain the profits of that business operation and share in the business risk along with the other owners. Speculating is trading stocks hoping that you will be a winner while others will be losers. The first has risk, but it is acknowledged business risk. The second has the risk of casino gambling, and it is not even a zero-sum process, since it includes trading costs and manager costs if you do it through an actively managed mutual fund or with the paid-for help of a financial advisor. In this little book, he does not even mention borrowing to invest. That would be gambling for sure.

Sydney was certainly not alone in getting hit by the economic downturn. However, if they borrowed to “invest”, it does sound as if they may have been focused on supposedly high return, but also high risk investments. Borrowing in order to “invest” - as defined above - cannot be very profitable, when the cost of borrowing is factored in against hoped for company dividends and business growth, so I assume that Sydney was speculating (again as defined above). If so, the diocese was gambling.

[20] Posted by Bill Cool on 06-17-2009 at 06:19 PM • top

The speculation/gambling issue is IMO a red herring. I would like to know a lot more about the borrowing in order to invest in equities. On first glance it seems to indicate a willingness to accept a level of risk that is highly unusual for a non profit. However, in order to begin to come to a considered view I would like to know such things as what was the value of their portfolio when they borrowed, what was the amount they borrowed, what was the interest rate of the loan and what was the repayment schedule. It would be helpful too to see the advice given by their actuary and by the fund managers. Presumably they also have an investment policy that they were (or were not) following.

It is worth saying that as a result of the huge losses incurred by the Church Commissioners imprudent investment in the booming property sector in the late 80s I think new appointments and policy changes were made. I think it’s also fair to say that in a private sector fund there would have been changes in personnel demanded by clients.

Also FWIW by end of March 2009 the FTSE 100 had fallen by something around 30% since late 2007. The Church Commissioners portfolio declined in value by 22% over the same period. It looks that Sydney’s assets declined in value by over twice as much (but over what period isn’t clear to me).

[21] Posted by driver8 on 06-17-2009 at 08:22 PM • top

Anyone who has a mortgage, and invests money in the stock market rather than paying off the mortgage sooner, is “borrowing in order to invest.”  I don’t see a clear line there, rather than just a general question of appropriate risk.

How does the “zero-sum” aspect distinguish gambling from, say, a football game?  Only one team wins, but no one thinks it’s a sin to play football.

[22] Posted by Aidan on 06-18-2009 at 01:27 PM • top

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