Modern investment theory advocates investing for the long-term, diversifying your portfolio across asset classes, securities and investment styles and balancing your portfolio's income and growth against the sleep-at-night investor-comfort test.

But modern investors could learn a thing or two from the ancients about steering a safe passage between fear and greed to a more wholesome financial and lifestyle outcome.

Take that fabulously wealthy and wise ancient investor, King Solomon.

In his seminal work, known in the Bible as Ecclesiastes, King Solomon says: "Everything has its season and there is a time for everything under the heaven."

He continues: "(There is) a time to be born and a time to die; a time to plant and a time to uproot the planted; a time to keep and a time to discard; a time to love and a time to hate; a time for war and a time for peace."

LESSON ONE: Life is seasonal. Everything - including business cycles and investment markets - has its ups and downs. For investors, this means you need to be patient and diversify. You need patience because seasons and cycles take time to run their course and yield long-term benefits. Diversification, because every market has its time in the sun but exactly when is a mystery to us all.

LESSON TWO: Envy is a treacherous base upon which to build an investment strategy because it tempts us to carry more risk than we are suited to bear. If you are wearing somebody else's risk profile, it's easy to trip.

King Solomon goes on to say: "Better is one handful of pleasantness than two fistfuls of labour and vexation of the spirit." This is interpreted by 18th century commentator Metzudas David as meaning that it is better to earn less, but with pleasantness and quiet, than to earn more through difficult labour and aggravation.

LESSON THREE: A well-advised investment strategy allows investors to sleep at night - but does not put investors to sleep.

In Ecclesiastes, King Solomon is searching for meaning, value and poise in a volatile world.
"As he had come from his mother's womb, naked will he return, as he had come; he can salvage nothing from his labour to take with him." You can't take it with you.
Rabbinical commentator Imrei Shefer (1760-1832) says unless we can show significant or meaningful achievement in our lives, we should feel dissatisfied.

LESSON FOUR: Get a return on the rest of your life, too. Ecclesiastes is not an essay praising idleness or poverty: "A feast is made for laughter, and wine makes life merry, but money is the answer for everything." Many commentators say this means that even the happiest occasions, the feasts of life, cannot be properly enjoyed without industrious preparation.

LESSON FIVE: Prepare diligently and invest ahead so that you can enjoy the feasts of life but adopt a whole-of-life approach.
Are you acquiring financial assets necessary for living and performing charitable acts or are you driven by something else? For practical investment advice, Ecclesiastes goes on to say: "Distribute portions to seven, or even to eight, for you never know what calamity will strike the land." Diversify.
Another striking example of practical investment advice from the ancients about asset diversification is contained in the Talmud, where Rabbi Isaac advises:
"A person should always divide his money in three. A third in property, a third in prakmatia (a Greek word meaning tradable wares or goods) and a third in ready cash."
Basic principles for investing have been around since ancient times. The major innovation of modern times is perhaps the substitution of the electronic prakmatia of the stockmarkets for the prakmatia of old.

LESSON SIX: Diversification is necessary for investment success but if you over-diversify, you dilute returns.
The final lesson is the hardest.
Wise investing is not about reading tea leaves or knowing how to read computer models. It depends on your capacity to consistently steer safely between fear and greed. For that you need the kind of inner-poise that comes from adopting clear principles that are meaningful and true for you.
The investment world offers many opportunities for wealth creation and is driven by the political, the economic and disasters that create these opportunities. Wise investors can accommodate volatile investment markets because they possess a capacity to step back and see the bigger picture.
This bigger, thoughtful picture allows wise investors to invest with optimism and realistic expectations.
For wise investors, money is important but not the most important thing in their lives. Wise investors know themselves, are clear about the principles by which they choose to live their lives and have the self-discipline and self-awareness to maintain the objectivity necessary to make congruent decisions undistorted by fear, greed or popular opinion.
Wise investors invest for the future and the financial wellbeing of themselves and their family. They also invest in a holistic manner - not out of naive idealism but out of a desire to make their lives meaningful and to make a contribution to the community around them.

LESSON SEVEN: You need to consider the bigger picture to succeed in investment and in life.
Consider the toughest investment market of all, futures trading. According to a less-ancient text, the Sydney Futures Exchange pamphlet "Techniques and Guidelines for the Futures Trade", published in 2000, successful traders are objective, open-minded, have the capacity to accept that the market is always right, the ability to admit mistakes and take a loss, self-discipline, dedication, absence of fear and greed, can go against the crowd and are self-aware. It says: "Traders often begin their trading career believing that the battle is against the markets. But gradually they realise the battle, in fact, exists within themselves."

Reuven Blecher is a financial planner at the Balaclavia branch of the National Bank of Australia.

 Printer friendly version      Email to a friend