Solomon's Riches: A Biblical Guide to Your Investments and Wealth

By Ron Peterson

Everything you need to know about making money in the markets can be found in the Bible. This cryptic comment by a very successful investor only became clear to the author when extensive real life experience was matched with the wisdom found in the Hebrew Bible and the New Testament. The book is a concise textbook of market strategies that a reader can take into their own investment program. He or she will learn what to expect of bull and bear markets, how to control risk, to be able to stay with winning investments while culling out losers, identify strong markets, how to profit under all market conditions and how do so with more confidence than ever before. Short investment lessons are precisely matched with appropriate Biblical passages and the reader is left with memorable investing techniques for a lifetime.

• Language: English
• Publisher: Xlibris US
• Release date: Sep 26, 2000
• ISBN: 9781462816231

Ron Peterson

Ronald Peterson is President of Three Arrows Capital Corp., an investment banking firm in Bethesda, MD, and has nearly 30 years of experience on Wall Street. He has lectured widely on investment subjects and hosted a popular radio show on investment strategy. He did his undergraduate work at the University of Minnesota and graduate work at George Washington and Johns Hopkins Universities.

Book preview

SOLOMON’S

RICHES

A Biblical Guide to Your

Investments and Wealth

Ron Peterson

Copyright © 2000 by Ron Peterson.

All rights reserved. No part of this book may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage and retrieval system, without permission in writing from the copyright owner.

This book was printed in the United States of America.

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Contents

PREFACE

ACKNOWLEDGEMENTS

TO CHRISTIAN AND KIRSTEN

PREFACE

My office was on the first floor of a Washington, DC office building and I met many of the regulars who dropped by to talk about their investments in stocks, mutual funds, bonds, options and futures. I’m a broker and market lecturer so I appreciated listening to their stories of success or failure, and learning from them. One person in particular stood out in my mind, a particularly wealthy investor by the name of Dan who seemed to make uncanny market buys and sells. One day when I asked him how he did so well he gave me a cryptic comment, Everything you need to know about making money is found in the Bible. I left that firm and never saw Dan again but I remained intrigued by what he’d meant.

A dozen years—and thousands of market transactions later—I was teaching a Sunday school class with my daughter, Kirsten, as one of the students. As we were comparing parts of the Old and New Testaments, it suddenly struck me just what Dan had meant. Nowhere in the Bible, of course, does it tell you to buy or sell shares of IBM or Yahoo but the wisdom of Dan’s remark became evident.

The more I understood the Bible the more I came to realize that it is the most profound document on human nature and behavior that has ever been compiled. Over the years I had also learned that while you had to know the technical aspects of investing, you also had to master yourself to be successful. Your emotions and attitudes are as vital to making good investments as your understanding of financial statements or new technology.

As I considered this, I understood that what you need to know about investing is right there, laid out in the Biblical passages. The Bible, in fact, reveals precisely what you have to do for successin all aspects of your life. My methodology for Solomon’s Riches is straightforward. A passage is selected from the Bible that illustrates an important point to improve investment performance.

The Bible is filled with guidance for growing our money and using it wisely. Billy Graham said that about one-fifth of everything Jesus is recorded as saying in some way deals with money. The Old Testament is filled with references on how assets are to be used.

This book is technical and professional in nature and is designed to give the reader practical insights into handling their investments. My hope is that lessons learned will quickly translate into satisfied investors. By better understanding the Bible, a person can become a far more confident investor. Many investors, I believe, are disappointed with their results and the lessons that are provided in the pages to follow are designed to give an investment education.

I actively solicit your comments and suggestions and if you’d like to suggest other stories, please send them to: solomonsriches@mail. com. Years ago my own minister told us The only thing you get to keep is what you give away.

ACKNOWLEDGEMENTS

I have been extremely fortunate to have the assistance of many colleagues and friends in the preparation of this book. They have given their time generously, for which I can only offer in return my sincere thanks.

I owe special thanks to John Pekkanen, an accomplished writer, who consulted on style. Erle Keefer, a legendary market trader in his own right, who shared insights into market behavior and strategy. Rachel Welborn patiently prepared the manuscript drafts and insured that we were accurately portraying the message.

Mostly, the individuals, authors, clients and investment professionals who shared their stories with me are responsible for the lessons that follow.

I fully realize that few Biblical scholars would ever be in agreement with me regarding the meaning of a particular passage from scripture in regards to the investing references I have made. I do believe that the Bible teaches on many levels and it is quite appropriate for any of us to abstract the meanings that relate to our immediate life situations and to use those meanings to solve any mysteries and provide insightful guides to our behavior.

If you wish to share an investing story that has an important lesson on our website or in future editions of Solomon’s Riches, please send it in as follows: Ron Peterson, 7517 Westfield Drive, Suite A, Bethesda, MD 20817-6627 or email: solomonsriches@mail. com

. Include your name and telephone number. All submissions become the property of Three Arrows Capital and may be republished in any medium. Indicate if you do not wish attribution.

How long will you go limping with two different opinions? 1 Kings 18: 21

In this passage, the prophet Elijah is exhorting the Israelites to decide who to follow—God, or the idol Baal. In effect, Elijah is saying make up your mind.

Limping is a key term. It suggests Israelites can’t make any headway as long as they remain undecided. And so it is with investing. Think how often you’ve been confronted with intriguing investment possibilities, only to talk yourself out of doing anything because you’re uncertain of making the right decisions. You usually do this because you’re so overloaded with other choices and inadequate or useless information that decisive action becomes impossible. Elijah called it limping. Others call it paralysis by analysis.

Many callers on my radio show seek to solve this dilemma by searching for the ultimate truth about investments. They ask me, and others, countless questions. They seem to be searching for a consensus that will provide ultimate market wisdom. One frequent caller is a man who bought shares in a woman’s apparel company. The stock initially rose and subsequently dropped, leaving him tormented. Even worse, he’s been frozen into inaction because he keeps seeking everyone’s opinion. So he’s in limbo, limping along, losing money, and making no decision at all. It’s also extremely painful for him, costing him sleep and self-confidence.

My advice is the same as Elijah’s. Don’t become mired down in indecision—don’t go limping in two different directions. You must also accept the fact that no matter how much you study, read and analyze, there’s no way you can learn everything possible about a company. Rather, heed the prophet’s words, find a way to make a decision and then act upon it. Once you are able to do this, you are on your way to becoming a serious—and skilled—investor.

Fear and trembling come upon me, and horror overwhelms me. Psalms 55: 5

How does fear relate to investing? First, know a Wall Street adage that goes: Scared money can’t make money. If you have any doubts about this, try the following experiment. Find a simple puzzle and ask a number of people to solve it. Keep track of their average time. Next, find two others, sit them together, and give them the same puzzle. But this time, promise $20 to the one who solves it first. You should find the winner of the $20 takes longer to solve it, by nearly fifty percent, than the average person who does it just for fun. Why? By offering money, he’ll feel pressured and won’t be able to think as clearly, or work as fast.

One of the biggest impediments to making money is your own fear. Concern and worry creates an enormous emotional obstacle. It prevents you from being in the proper frame of mind to make sound decisions.

Remember the classic movie Gunfight at the OK Corral? Doc Holliday, played by Kirk Douglas, asks Wyatt Earp, played by Burt Lancaster, to borrow money so Doc can get in on a big poker game. When Earp asks for a guarantee against a loss, Holliday tells him not to worry. He reasons that he has nothing to lose, which is why he always wins. The successful poker player and successful investor each have this same relaxed, confident air about them. It’s a major reason they win.

How can you achieve this same winning attitude? In Ecclesiastes 5: 1 we’re told, Set not thy heart upon thy goods. I think this is vital advice when it comes to investments. If you’re the type who looks at stock quotations every day and calculates how much money you’re up or down, you’ll miss important messages contained in markets. You’ll be looking at the wrong things and acting in poor ways. You’ll become pressured, unfocused, and make mistakes.

So how do you gain better control of your emotions, become focused, and make sounder market decisions? My advice is to develop a set of

strict rules. These rules should reflect what you’ve learned about markets, but more importantly, what you know about yourself. You’ve just found in these paragraphs, for example, that if you make money your only objective, you’ll lose sight of what is going on in the market. You can also establish other rules that will help stem anxiety, and guide you to sounder investment decisions.

For example, if your investment isn’t ahead after a month or two, you might make a rule to bail out—no matter what. You might also make a rule to sell if your investment drops more than twenty percent in value. Another rule might be to always diversify. Another rule should be to adopt only your rules, and not anyone else’s,

Whatever rules you choose to follow, make sure they allow you to feel comfortable, and allay your investment fears. This will only become apparent through trial and error. By adopting a set of personal rules, you sharpen your focus and make better decisions. You’ll probably find that the money will come in greater amounts than you dared dream, and you will do away with fear and trembling that had overcome you in the past.

If they will not believe you or heed the first sign, they may believe the second sign. If they will not believe even these two signs or heed you, you shall take some water from the Nile and pour it on the dry ground; and the water that you shall take from the Nile will become blood on the dry ground. Exodus 4: 8-9

In this Old Testament story, Moses first doubts his ability to persuade Israelites to leave Egypt. God then tells him these signs—such as turning water into blood—will convince them.

There are abundant signs for us to read in our daily lives, from the glaring red of a traffic light, to a subtle wink from across a room. Most of the time, however, we miss them until they become so obvious that they become unmistakable. This is especially true of investing.

In the 1970s, I was in the office one Saturday reading news service wires. One story jumped out at me. A U. S. delegation was in Moscow discussing the sale of wheat to the former Soviet Union. The USSR had suffered disastrous harvests, while our own supplies were enormous. On Monday morning, the wheat market opened higher by 7 cents per bushel. In the weeks following, wheat prices rose dramatically. In a leveraged market like wheat, that meant fortunes were made. And yes, I did buy wheat that Monday morning.

I guess it was fortunate that I read that story and reasoned out that it meant a dramatic rise in wheat prices was coming. Or was it? At that time, one of our analysts was using a simple mathematical system to decide whether to buy or sell. It was based on analyzing price trends. I then discovered that several days before I bought, this system had already purchased at even lower prices!

I tell this story to emphasize an important point. Seldom is there one big event, which spells a major shift in market prices. More often, you’ll find a series of smaller, less public signs that lead to the big changes. That’s what our system had already detected, and what I had missed up to that time. So learn to read theearly signs, don’t wait and wait. One of your best indicators is a shift in volume. Something that had been quietly trading, like a stock at a few thousand shares a day, suddenly is trading 100, 000 shares per day. The stock prices begin to rise. So often, you’ll find, this signals a significant price increase to come. Insiders do know what’s coming, and they find a way to act on it with their money.

If you wait too long, virtually everyone will have read the signs, and there’s a good chance you’ll end up buying at the top or selling at the bottom. You’ll find all the significant buying and selling has ended, and the stock stagnates, or even reverses itself. You have to move early, during times of uncertainty, because that’s when stock prices really fluctuate. Only then will you be in position to make serious money. As Exodus tells us, look for the first sign. Then act on it.

This one thing I do; forgetting what lies behind and straining forward to what lies ahead, I press on toward the goal. Philippians 3: 13-14

It’s human nature to look back at what has happened. Sometimes this can help you profit from your mistakes, but more often it causes you to second-guess yourself. This happens all the time in the stock market. We look to the past to see where our shares were once priced, and compare it to where they are now. Perhaps we bought a stock at $40, and it rose to $60. Then it dropped back to $50. We somehow decide that $60 is the right price, and resolve to wait until the shares go back up there again. I’ve seen this happen to people many times. They convince themselves that the moment the stock goes back up to $60, they’ll sell.

So what happens? All too often that stock never approaches $60 again. In fact, when it starts to go down, it’s far more likely to sink even further. Keep in mind that because some security sold for a high price at one time, doesn’t mean that it will ever sell at that price again. Unfortunately, people often remain fixated on the idea that the stock is somehow worth $60, and punish themselves for not having the sense to sell it then. This is not only a destructive exercise for your psyche, but it also diverts you from the proper focus of your attention. You should be concerning yourself with only one issue—should I sell the stock now?

My advice—and the Bible’s—is simple. Forget those things that are behind. Make your decision on the basis of what the stock is actually doing now, not on what the stock had done before.

Finally, you should also accept these occurrences as opportunities to learn how and why that stock behaved as it did. What seemed to affect its price fluctuations? How and when did it change? By doing this, you begin to learn what the market can teach you about the likely direction of a stock’s price. You will then be far better equipped to make good investment decisions in the future.

Do not judge by appearances, but judge with right judgment. John 7: 24

I should have followed this advice by John years ago. I was just out of college and working for the federal government. I’d finally gotten a few dollars together and felt it was time to invest in some stocks. I walked into the plush offices of one of the country’s biggest brokerage firms. The highly polished brass, mahogany and marble all gleamed. I was ushered into the office of the broker—a company vice president—who had been recommended.

He wore a dark blue suit, a crisp white shirt, expensive necktie and polished wingtips. His office walls were lined with framed articles and testimonials, including a letter from the governor.

He didn’t seem especially intelligent, but I dismissed my own qualms, given all the other trappings of wealth and expertise. He urged me to buy high quality stocks for long-term growth. I assumed he knew what he was talking about so I followed his advice; I bought the stocks he recommended.

Within a few months, and after a number of other recommendations, I found myself in a highly leveraged margin account. A margin account is where you borrow money through the brokerage firm to buy even more stocks—a risky procedure indeed. The stocks I had were going nowhere, except down. Some of the high quality stocks he’d suggested were issued by companies that were on their way to bankruptcy court, and I guess I was lucky that I wasn’t headed there too. I lost my money. I could have had more fun if I tossed the cash out the window.

At first I blamed the broker, but as I reflected back on that experience, I realize that I was to blame. The broker was an idiot, but I was a bigger one for following his advice. I’d been fooled by appearances, and suspended my own critical judgment. I had not, in the words of John, judged with right judgment.

Years later, I reflected on how I wished that first meeting with a broker had gone. I wish that he had taken the time to educate me a bit, and prepare me for the investment world to come. To be fair, thisis a skill that he probably did not possess himself, but nonetheless here is what I wished transpired, what he should have told me:

While I do think salesmen help the world go round, and that things need to be sold, I didn’t need a pitchman to be my broker. I needed honest and competent instruction. I needed some real wisdom (for I did not show any. )

When pride comes, then disgrace; but wisdom is with the humble. Proverbs 11: 2

Warnings against the sin of pride are one of the most compelling messages of the Bible. They are repeated throughout the Old and New Testaments. The same message should be heeded by anyone considering investing. Let me explain with this story.

In 1975, a retired U. S. Congressman from New York State dropped into my office to check market quotes. As we talked, he told me of an experience he had during the stock market crash of 1929. Before that fateful Black Friday in October, he’d felt the market was poised to go lower. He’d sold a lot of stocks short, looking to buy them back later at lower prices. Selling short—a reversal of the usual order of buying first and selling later—is a common practice among investment professionals. It’s done by borrowing stocks from your brokerage house, then selling them. Later, when the prices fall, you buy the shares back at a lower price, and