Financial Adviser: 5 Investment Lessons Everyone Can Learn from the Old Testament and How to Profit from It

When it comes to investing, it's easy to focus only on making money and growing our portfolios. However, the Bible has a lot of wisdom that goes beyond just financial success. Even though it's a religious book, it offers valuable lessons for everyday life, including investing.

The Hebrew Bible, also known as the Old Testament, existed for over six centuries before the New Testament. It contains different kinds of writings, like stories and poetry. In these writings, we learn about people facing challenges and making important decisions. When we look at these stories from an investing perspective, we can learn important lessons about how to manage our money, make ethical choices, and be responsible with our wealth.

For example, the Ten Commandments in the book of Exodus give us guidelines for ethical behavior in investing. They teach us to be honest, not to steal, and not to be greedy. The book of Proverbs also gives us practical wisdom about working hard, being disciplined, and having a good reputation in business.

While the Bible is a religious book, it has practical insights that apply to many areas of life, including investing. It talks about responsible stewardship and encourages us to share our resources, be generous, and avoid taking advantage of others. These teachings remind us to consider the impact of our financial decisions on other people.

The Bible also tells stories of people who achieved wealth and success, but it goes beyond just material possessions. Characters like Abraham, Isaac, Jacob, Job, David, and Solomon show us the value of integrity, hard work, and wise management of wealth.

By learning from these biblical stories, investors can gain wisdom about managing their finances, living virtuous lives, and making ethical choices. The teachings of the Hebrew Bible not only help us succeed in investing but also guide us to contribute to society and build meaningful relationships.

Here are the five investment lessons everyone can learn from the Old Testament in the Bible:

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1| Know how to be patient and persistent

The story of Noah's Ark, found in the book of Genesis Chapters 6 to 9, teaches us important lessons about patience and persistence, which are also important in investing. Noah faced a big task of building an ark over many years.

Genesis 5:32 mentions that Noah was 500 years old when he became the father of Shem, Ham, and Japheth. Then, Genesis 7:6 states that Noah was 600 years old when the floodwaters came upon the earth. This implies that Noah spent about 100 years building the ark before the flood occurred. Despite challenges and people doubting him, he stayed committed to completing the ark as instructed by God.

This story relates to investing in a few ways. First, it shows us the value of patience. Just as Noah patiently worked on the ark, we need to be patient when dealing with the ups and downs of the financial markets. Investing is a long-term journey, and success often comes to those who can wait patiently without making impulsive decisions based on short-term changes.

Second, Noah’s story also emphasizes the importance of persistence. Noah encountered obstacles and setbacks, but he stayed determined to fulfill his mission. Similarly, we may face challenges like market fluctuations or unexpected events that test our conviction. During these times, it's important to stay focused on the long-term plan.

If you believe that uncertainties over inflation and high interest rates have not yet subsided, you should resist the temptation to buy aggressively in the market, even though the PSE Index has been rising. On the other hand, if you anticipate compelling reasons for interest rates to decline in the coming months, you can begin positioning in stocks now, even if the PSE Index falls.

Successful investing requires a long-term perspective and by remaining patient and staying committed to our investment strategies, we can position ourselves for long-term growth and success. As Warren Buffett famously said, "The stock market is designed to transfer money from the impatient to the patient."

2| Know how to diversify and manage risks

In Ecclesiastes 11:2, King Solomon advises, "Give a portion to seven, or even to eight, for you know not what disaster may happen on earth." In this chapter of the book of Ecclesiastes, Solomon discusses the uncertainties of life and emphasizes the importance of prudence in preparing for the future. He encourages readers to take proactive steps to invest wisely and spread their resources across different opportunities.

By "dividing your portion to seven, or even to eight," one can mitigate the risks associated with unforeseen events and increase their chances of financial success. King Solomon's counsel underscores his understanding of the understanding of the unpredictability of life and the need to mitigate risks by diversifying one's investments.

Diversification means spreading your investments across different types of assets, like stocks, bonds, real estate, and commodities. By doing this, you can reduce the risk of relying too much on a single investment. If one sector in the market doesn’t perform well, having a diversified portfolio helps minimize the impact on your overall investments. You can do this by diversifying your investments in uncorrelated assets.

For example, in stock investing, you can mitigate the risks of your portfolio due to market fluctuations by reducing your overall beta. You might consider allocating a portion of your funds to high-beta stocks and low-beta stocks.

High beta stocks are stocks that tend to experience greater price movements compared to the overall market. For example, Ayala Land (PSE: ALI) has a beta of 1.57, which means that when the PSE Index rises, ALI tends to rise by a larger percentage, and similarly, when the market falls, it also tends to decline by a larger percentage, in this case, 57 percent more.

Diversifying into low-beta stocks can help mitigate the risks of your stock portfolio. These stocks tend to have smaller price movements compared to the overall market. For example, Emperador (PSE: EMI) has a beta of only 0.0048, while San Miguel (PSE: SMC) has a beta of 0.22, indicating that they are less sensitive to market fluctuations

The other less sensitive stocks are the preferred stocks, which have practically zero beta. Of course, you can also diversify your in other asset classes. For example, you can allocate a portion of your funds into fixed income instruments, real estate or even cryptocurrencies.

This strategy of diversification is like having a safety net against unexpected challenges in life. It's a sensible approach to dealing with the uncertainties of the financial markets. By following this advice from Ecclesiastes, investors can protect themselves and increase their chances of success in the long run.

3| Know how to prepare for market uncertainties

In the biblical account of Joseph interpreting Pharaoh's dreams in Genesis 41, Joseph's role as an interpreter and advisor to Pharaoh during a period of uncertainty offers profound insights into the principles of prudent risk management.

Pharaoh's dreams, depicting seven years of abundance followed by seven years of famine, serve as a metaphor for the cyclical nature of economic prosperity and hardship. Recognizing the gravity of these visions, Joseph provides Pharaoh with strategic counsel aimed at mitigating the adverse effects of the impending famine.

Genesis 41:29-38 says "...God has shown to Pharaoh what he is about to do. There will come seven years of great plenty throughout all the land of Egypt, but after them there will arise seven years of famine, and all the plenty will be forgotten in the land of Egypt. The famine will consume the land, and the plenty will be unknown in the land by reason of the famine that will follow, for it will be very severe.

"And the doubling of Pharaoh's dream means that the thing is fixed by God, and God will shortly bring it about. Now therefore let Pharaoh select a discerning and wise man, and set him over the land of Egypt. Let Pharaoh proceed to appoint overseers over the land and take one-fifth of the produce of the land of Egypt during the seven plentiful years.

"And let them gather all the food of these good years that are coming and store up grain under the authority of Pharaoh for food in the cities, and let them keep it. That food shall be a reserve for the land against the seven years of famine that are to occur in the land of Egypt, so that the land may not perish through the famine."

Joseph's recommendation to store grain during times of plenty reflects a prudent approach to risk management. Rather than squandering the surplus during periods of abundance, Joseph advises Pharaoh to exercise foresight and discipline by stockpiling resources for the lean years ahead.

In the financial markets, periods of economic prosperity often lead to complacency, with investors becoming overly optimistic and neglecting to anticipate downturns. Joseph's prudent approach serves as a reminder to investors to resist the temptation to overextend during bullish periods and instead build reserves to weather future uncertainties.

Furthermore, the story of Joseph and Pharaoh highlights the significance of disciplined resource allocation. This can be exemplified through disciplined investment strategies, such as dollar-cost averaging and portfolio rebalancing, which enable investors to maintain a balanced portfolio and withstand market fluctuations with greater resilience.

Joseph's counsel to Pharaoh resonates with the concept of market timing and cyclical investing. Just as Pharaoh stored grain during periods of abundance to prepare for times of famine, investors can adopt a contrarian approach by accumulating assets during market downturns to capitalize on future growth opportunities.

4| Know how to exercise caution against speculative investments

In Genesis 25:29-34, Esau hastily sells his birthright to his brother Jacob in exchange for a bowl of stew when he is famished. Esau's impulsive decision, driven by immediate gratification, caused him to lose his birthright and inheritance, which holds significant long-term value.

On the other hand, Jacob demonstrates foresight and patience by recognizing the value of the birthright and seizing the opportunity to acquire it.

"Once when Jacob was cooking stew, Esau came in from the field, and he was exhausted. And Esau said to Jacob, ‘Let me eat some of that red stew, for I am exhausted!’ Jacob said, ‘Sell me your birthright now.’ Esau said, ‘I am about to die; of what use is a birthright to me?’ Jacob said, ‘Swear to me now.’ So he swore to him and sold his birthright to Jacob. Then Jacob gave Esau bread and lentil stew, and he ate and drank and rose and went his way. Thus, Esau despised his birthright."

This narrative serves as a cautionary tale against making rash and impulsive decisions in pursuit of immediate gains. It serves as a reminder to carefully evaluate investment opportunities and consider their long-term implications before making decisions. Rushing into investments based solely on short-term gains or emotions can lead to financial loss and missed opportunities for future prosperity.

By taking a cue from Jacob's approach, investors can adopt a strategic and thoughtful approach to investing in stocks. This involves conducting thorough research, analyzing market trends, and considering the potential risks and rewards of each investment opportunity.

As Proverbs 21:5 advises, "The plans of the diligent lead surely to abundance, but everyone who is hasty comes only to poverty." This verse warns against hasty and speculative investments that can lead to financial ruin.

The story of Esau and Jacob reminds us against speculative investing driven by impulsive actions. Speculative investments, characterized by high risk and uncertainty, often entice individuals with promises of quick returns but carry a significant potential for financial loss.

5| Know how to make informed investment decision

In Exodus 18, Moses is overwhelmed with the task of judging the Israelites' disputes. His father-in-law, Jethro, advises him to appoint capable leaders to assist him in the task, suggesting a system of delegation. Moses heeds Jethro's counsel and selects trustworthy individuals to share the burden of leadership.

Exodus 18: 13-24 says, "The next day Moses sat to judge the people, and the people stood around Moses from morning till evening. When Moses' father-in-law saw all that he was doing for the people, he said, ‘What is this that you are doing for the people? Why do you sit alone, and all the people stand around you from morning till evening?’

"And Moses said to his father-in-law, ‘Because the people come to me to inquire of God; when they have a dispute, they come to me and I decide between one person and another, and I make them know the statutes of God and his laws.’

"Moses' father-in-law said to him, ‘What you are doing is not good. You and the people with you will certainly wear yourselves out, for the thing is too heavy for you. You are not able to do it alone. Now obey my voice; I will give you advice, and God be with you!...look for able men from all the people, men who fear God, who are trustworthy and hate a bribe, and place such men over the people as chiefs of thousands, of hundreds, of fifties, and of tens. And let them judge the people at all times. Every great matter they shall bring to you, but any small matter they shall decide themselves. So it will be easier for you, and they will bear the burden with you…’ So Moses listened to the voice of his father-in-law and did all that he had said."

In investing, Moses can be seen as representing the investor who is overwhelmed by the complexities of managing their portfolio alone. Just as he faced challenges in judging the Israelites' disputes, you may encounter difficulties in making the right investments decisions. Jethro's advice to Moses to appoint capable leaders to assist him can be likened to seeking guidance from financial advisors, mentors, or investment professionals. Seeking advice from knowledgeable experts can help you make better-informed decisions and alleviate the stress.

Moreover, Jethro's suggestion of selecting trustworthy individuals underscores the importance of choosing reliable and experienced advisors in the realm of investing. You can seek guidance from individuals with a proven track record, expertise in financial markets, and a commitment to acting in their clients' best interests.

Henry Ong, RFP, is an entrepreneur, financial planning advocate and business advisor. Email Henry for business advice [email protected] or follow him on Twitter @henryong888