Article originally posted here by The Bible Project

by The Bible Project

Conversations about racial injustice continue to rage across the country, and as so many are doing, we’re trying our best to listen, to learn, and to help initiate progress toward a more equal and just society. That’s why we want to share this video from the team at The Bible Project. We recently had Jon Collins on our partner Faith Driven Entrepreneur podcast, and The Bible Project team is doing incredible work to make the Bible easier to understand and access. This video is just one timely example of that.

by Vince Birley

Introduction

With trillions of dollars flowing into now free passive non-managed funds, is it wise to join this trend? Some pundits are claiming that this new form of investing is creating a new investment bubble getting ready to burst. Others are saying it is the new way to invest. This paper explores both claims to help Christians navigate this decision.

What is an Index Fund?

An index fund is a fund that tracks an index. A market index is used to measure publicly traded securities markets. It is a tool used by investors and financial managers to measure segments of the market and to compare returns.  

The first market index was created by Charles Dow in 1896 by averaging the stock prices of the top 12 publicly traded companies; Dow went on to create other indexes. The most popular index now is the S&P 500 Index.  

The S&P 500 Index is a market capitalization weighted index (commonly called a “market cap index”). To calculate the market cap of a company, one must take the number of outstanding shares and multiply it by the current share price. The S&P 500 Index compiles the largest 500 U.S. companies and weights the companies according to each company’s market cap. For a simple example, assume the total market cap is $100 for three companies valued at $70, $20, and $10. The $70 company gets a 70% weighting, the $20 company gets 20% and the $10 gets 10% of the index.  

An index fund mirrors an index by buying the same securities at the same allocation as the index. The first index fund was started on December 31, 1975 and was sponsored by Vanguard and called the First Index Investment Trust. It tracked the S&P 500 Index and was later retitled to the Vanguard 500 Index Fund. Today there are $3.4 trillion in assets that track the S&P 500.

Are Index Funds Creating the Next Stock Market Bubble?

There are current arguments positing that index investing is creating the next stock market bubble. The theory is that money is flowing into index funds buying stocks of the index without any fundamental analysis. This blindly increases the stock market to valuation levels that are greater than the inherent value of the companies.  

This idea makes sense when the amount of trading activity reaches a point where there are not enough market participants to exploit price distortions in the market. Without more discerning market participants, prices become irrationally high. This creates a price bubble that one day the markets realize and the bubble bursts, e.g. tulip bulbs in the 17th century, tech stocks in the late 1990s, and collateralized mortgages in the 2008-09 financial crisis.  

Some of the statistics that support these concerns are the number of funds tracking indexes. In 2019, the number of index funds rose to 45% of all fund assets from 25% just ten years earlier. Other reports from J.P. Morgan suggest the number of funds tracking indexes and using quantitative strategies (computer driven) have reached 80% of all fund assets. Even though funds are increasingly tracking indexes or are computer driven, index funds only own around 14% of all outstanding shares. And to minimize further the impact of index funds, these funds represent only 5% of the daily stock market trading.  

While the rise of index investing is considerable, there appears to be enough non-index market participants to have efficient price setting of stocks. It is worth watching these levels as at some point indexing could reach what the industry is calling “peak index.” Peak index is when active market participants cannot exploit mispriced securities and the market becomes inefficient, creating irrational pricing.  

Is It Wise to Invest in an Index Fund?

Over the last ten years I have worked on creating investment solutions based on a biblical worldview to help investors more wisely invest in the public securities markets. In summary, our research revealed that public markets reflect both human behavior and the collective power of human innovation and productivity. The public trading and price setting of public securities reveals the herding effect of investors that swings from overly optimistic to overly pessimistic outlooks. Markets over the long term also reflect the ability of people to create more wealth than they consume. Their profits reward and attract additional capital. Economies and markets are both uncertain and unstable. It is uncertain as to which industries, companies, or innovations will attract the most capital. Instability is something we should expect as well with economic recessions and market corrections. The coronavirus is a current example of the instability of living in a fallen world and the market’s perspective on the future.  

The research indicates that investors should evaluate public market options with clear goals for returns over their identified time frames. Most of the industry is focused on relative return goals, beating their peers and market indexes. One of the reasons there is so much money being allocated to index funds from professionally managed funds is that most managers fail to beat an index. Given this difficulty, investors desiring to beat indexes are pushed toward buying index funds, giving up on their more expensive professional managed funds.  

Most people invest to get a return on their savings to one day use that money. Therefore, an investment process must factor in risk management elements to better protect their savings. The first risk with investing in public stocks is that the short-term price volatility makes investing in stocks uncertain. Again, as I’m writing this paper, the S&P 500 is down over 10% in just six days. This makes a S&P 500 index fund imprudent for short term savings. Research suggests public stocks need at least ten years to provide investors a reasonable positive return on investment. 

Using a ten-year time frame, the following factors give an investor the highest probability of a positive return:

Quality – Improve the quality of companies by choosing better managed companies with good track records and honest accounting.

Price – Avoid stocks that have unrealistic expectations for future growth.  

Diversification – Make sure there is a highly disciplined diversification strategy that invests in an appropriate number of different companies.

Discipline – Systematically sell higher priced stocks and buy lower priced stocks.

These practices yield insight on using index funds, specifically the S&P 500:

Quality – The cap weighted index does not analyze any quality factors of management or their historic track records. The only factor it uses is the size of the company.

Price – The cap approach buys more of the most expensive stocks. The current top five holdings in the S&P 500 Index has an average price to earnings ratio of slightly over 30 as of 2/26/20. This means that investors are paying 30 times the earnings of a company. Forecasting these earnings to achieve a 12% return requires earnings to grow 21% per year for the next ten years to justify this price. To give some historical perspective, the historical average price-to-earnings ratio is 16 and the historical average earnings growth of stocks is 7%. To put this another way, in order to get a 12% return on your investment over the next ten years requires a company to grow their earnings by 21% per year which is three times the historical growth rate. While this is possible, it is not prudent for investors who need their money with a reasonable return one day.  

Diversification – Today the top five holdings represent over 18% of the S&P 500 Index while the bottom 300 stocks represent around 18% of the same index. Cap weighting significantly concentrates the holdings into the largest holdings giving a very small exposure to smaller companies.  

Discipline – One of the tenets of successful investing is to buy low and sell high. The cap weighting method buys more of what became more expensive and sells more of what got cheaper. In other words, it is a buy high and sell low strategy. This can work in the short term due to the herding tendencies of buying by popularity. This explains the recent success of the S&P 500 returns. However, over longer periods of time the buy low/sell high strategy delivers a more consistent return.

Our research concluded that buying index funds are the most efficient tools for tracking markets, but markets do not adequately mitigate risks that increase the probability of investors getting minimum returns over longer periods of time.     

Our Solution

Our firm sought to develop indexes that reflect the risk management factors for investors prioritizing their long-term goals. Over the long-term, this approach provides a higher probability of success.  

Our indexes include quality and value factors including the board’s level of engagement in oversight of the leadership’s compensation plan, the quality of financial statements, and the historic profitability and earnings growth of a company.  

Our indexes also mitigate the risk of speculating on price by finding better-valued companies that have realistic projected growth rates. And last, to mitigate the risks of too much concentration, our index put a maximum allocation of 0.5% per company.

Conclusion

Following the world’s decisions typically does not reflect biblical wisdom. Investing money into a fund because it is popular and free doesn’t necessarily make it wise. This is not to say that investing in these funds are dangerous; Christians should analyze their investment decisions through a biblical worldview that clarifies their goals, analyzes and mitigates risks in meeting their goals, and takes advantage of the opportunities. Ultimately, Christians should find contentment and peace in their prayerful decisions, trusting God with the results.  

by Luke Bolton

Working in investment management, I’ve met many Christians who believe there is no such thing as a genuinely Christian ethic for investing – other than “Make all you can!” Of course, they plan to do good with any gains they receive. But is that the extent of a Christian ethic for investing?

Pastor John Piper exhorted many years ago that, “There’s a massive sun that belongs at the center of the universe of our lives and, by its weight and glory and mass and beauty and power, holds the orbits in place. And therefore, my prayer… is that you would press on to know the supremacy of Christ.” We do exalt Christ’s supremacy in worship, but when it comes to ethics and investing Jesus tends to get very little attention.

Since Christ is our Lord and ultimate treasure, overlooking him in our investing ethics is a problem that should be confronted pastorally and theologically. What would happen if we held up the supremacy of Christ as the foundation for a truly Christian ethic for investing?

Why a Christian Ethic?

Some questions have been addressed directly in Scripture, such as “Should I steal?” These questions can be addressed with a direct appeal to Scripture: “You shall not steal” (Exo 20:15). 

But when someone asks, “Should I invest in this or that fund, or in this or that company?” it is unwise to expect a direct, authoritative answer from one Bible verse or passage. The way believers have dealt with questions like these is by a process of moral reasoning, based on biblical principles or themes, shaped by historic Christian teachings, and informed by knowledge about the topic (i.e., in this case, investing). In other words, we need a Christian ethic to deal with lots of modern topics like investing.

Jesus & All Creation

Investing pulls us into relationships with the world of business. Many businesses leverage natural resources and thus manage aspect of the material creation. This includes many industries, from energy and transportation to food production and technology. But what does that have to do with Jesus?

John’s gospel affirms, “all things were made through him” (John 1:3) and we know that, “in him all things hold together” (Col 1:17). Hebrews reminds us that God spoke by his Son, “through whom also he created the world… and he [Jesus] upholds the universe by the word of his power” (Heb 1:2-3). In other words, Jesus is Lord over all creation.

The natural world is Christ’s own possession and an object of His ongoing maintenance and care. As investors and businesspeople, we have a role in managing and caring for the natural world Christ made and holds together. So, we may ask questions like, how does this company or fund seek to honor Christ as Lord of all creation?

Jesus & Human Life

By their products, services, or management of employees, every company makes decisions about human life. And some industries deal specifically with matters of life and death, such as the medical and pharmaceutical industries. But what does that have to do with Jesus?

John’s gospel notes, “the Word became flesh” (John 1:14). Certainly, humans were created in God’s image, but through his incarnation Christ took on “the likeness of men” and was “found in human form” (Phil 2:7-8). Jesus is “the Author of life” (Acts 3:15), and since we “share in flesh and blood, he himself likewise partook of the same things” to destroy the power of death (Heb 2:14). In short, Jesus Christ is Lord over all matters of human life and death.

One implication is that all human life not only reflects God’s image, but also reflects Jesus’ own incarnate person as a human being. Through investing, we can participate with companies that enhance and enable human life, or that destroy and demean it. So, we may ask, how does this fund or company seek to honor Jesus as the Author and Lord of life?

Jesus & Moral Choices

Every company develops guidelines and norms that reflect their collectively held moral values. By investing, we enter into a kind of relationship with those companies. How does this relate to Jesus?

According to the gospel, a day is coming when, “God judges the secrets of men by Christ Jesus” (Rom 2:16). Not only is he our Judge, but the standard of moral maturity for believers is, “the measure of the stature of the fullness of Christ” (Eph 4:13). In sum, Christ is our supreme moral authority.

This conviction that Christ is our ultimate moral guide and judge can be expressed in a variety of ways by Christian investors. Some, understanding Jesus is their ultimate “financial advisor”, seek to avoid investing in particular kinds of morally objectionable industries. Others find in Jesus a role model for redemptive engagement, leading them to find and use their voice as investors to encourage companies toward making positive policy changes.

Beyond “oppositional” responses, other investors have taken an “affirmational” response by seeking to invest in companies that embody the Golden Rule, or Jesus’ command to love our neighbor as ourselves. Based on these perspectives, Christians can ask, how does this fund or a company help us honor Christ as our ultimate Judge and moral guide.

Pursuing Maturity

The supremacy of Christ is the foundation for a truly Christian ethic of investing. This ethic goes beyond, “make all you can,” to encompass many other Christ-honoring considerations – from what we invest in to how we use our influence as investors.

Even where investors share the same moral convictions, their implementation strategy in the markets may vary widely. As with other matters of discernment, we must pursue moral maturity by training our “powers of discernment… by constant practice to distinguish good from evil” (Heb 5:14). So as we press on to know the supremacy of Christ over investing, may this be our prayer: “Lord, what are you enabling and calling me to do?”

The opinions voiced in this material are for general information only and not intended to provide specific advice or recommendations for any individual. No investment strategy assures financial success or protects against loss. All investing involves risk including loss of principal.

Securities and advisory services offered through LPL Financial, a registered investment advisor, member FINRA/SIPC. WaterRock Financial, LLC is a separate entity from LPL Financial.

Article originally posted here by Access Ventures

by Access Ventures

The future of creative work is ever-changing, that’s the nature of creativity. New circumstances often breed new creative ideas, businesses, solutions, problems. It’s fair to say that everyone’s circumstances have been changed to some degree in the past year. Covid-19 has rampaged through the world leaving devastating effects. One of its effects is rising unemployment, which left many creatives adjusting how they have previously worked and seeking new tools and services to help them thrive.

The overall global sentiment toward the creator economy has become widely favorable and popular this past year. But why? Perhaps the pandemic’s disruption in traditional ways of production, distribution, and consumption caused consumers to take interest in a new direct-to-creative market. And creatives seized the opportunity in the market by using new tools and platforms to monetize their creative expressions and work. The result is that artists are creating NFT’s to writers making money on substack to podcaster’s receiving full-time salaries using Patreon.

According to a report by Signal Fire, about 50 million Americans identify as creators. That’s a 2.5x increase from the number of people who identified as creatives in 2017, as stated in a report by Influential Marketing article. Additionally, the survey found that more American kids want to be a YouTube star (29%) than an astronaut (11%) when they grow up. The creator economy is currently booming, and the data suggests it will sustain the growth for years to come.

In 2020, we saw the creator economy become a household name as creatives were forced to reimagine how to survive and thrive in this new world. As we reflect on this past year, we notice how more creatives prioritize the need for ownership of what they create. There’s also been a growing interest in consumers wanting to financially support and follow individual creatives rather than large brands for their content. And with the rising interest in creatives, people are leaving their full-time jobs to begin working independently and betting on themselves and their creativity.

However, the hype in the creator economy should focus on more than just content creators and should encompass all types of creatives and artists. For more than five years, our work at Access Ventures has focused on directly supporting and funding creatives through philanthropic grants (VSCO Voices, Murals, etc), commissioned work (photography, design, etc.), and creative gatherings (CreativeMornings and Creative Works). In all of our efforts, we have been involved in both the creator economy and the creative economy, and what we have learned is that there is considerable overlap between the two. Instead of prioritizing one over the other, we’re going to continue focusing on supporting all types of creatives.

Today, we’re excited to announce that Access Ventures is expanding our support for creatives by launching a new fund, Hidden Ventures, that will deploy investment capital into startups building the future of creative work. Hidden’s goal is to invest in startups that are building the next wave of creative tools, products, and services that unlocks creativity and empowers creatives to flourish in the creator economy.

Hidden Ventures invests in tools and services…

– For Creators (art, photography, videos, media, music, podcasts, etc)

– For Designers (fashion, UX, graphic design, AR/VR, etc)

– For Developers (blockchain, games, software, web3, etc)

– For Commerce (marketplaces, payments, services, software, etc)

We believe creatives of all types (artists, designers, developers, etc) are the ones that disrupt, beautify, and challenge our communities to be better, therefore, we want to invest in startups who are equipping and supporting the future of creative work. We believe these startups will unlock ingenuity and drive economic growth for creatives. After years of working directly with all types of creatives, we hope to find new and exciting tools from emerging startups that we can deploy back into our creative communities.

Hidden Ventures will deploy investment capital into startups building the future of creative work.

Hidden Ventures is an extension of the work we’ve been doing for years at Access Ventures. Outside of our philanthropic work, we have also been investing for years in other emerging and impactful startups. We’re confident in our ability to leverage our investment experience and history of working directly with creatives and artists to find and fund startups that are creating the tools and services that will help support even more creatives to flourish.

Article originally posted here by Eventide Asset Management

by Eventide Asset Management

Eventide was founded with a vision of “investing that makes the world rejoice.”

Nowhere is this vision of investing more clearly seen than in biotechnology, where human creativity is being channeled to eradicate and treat devastating diseases. Here we find investment opportunities that can result in hope for patients and families.

One such story is for a little girl named Evelyn Villarreal, and for her parents, Milan and Elena.

Evelyn was diagnosed at birth with a rare genetic disease called spinal muscular atrophy type 1 (SMA1). As the name implies, it is a disease that causes the muscles to atrophy. Babies born with SMA1 have little muscle function; they are limp and floppy at birth, and have difficulty nursing and swallowing.

The disease is caused by a genetic mutation where motor neurons cannot make a necessary protein called SMN (survival motor neuron). And without the ability to make this protein, motor neurons die leading muscles to progressively atrophy to the point where even breathing becomes impossible. The mortality rate is nearly 80% by 24 months and no children with SMA1 are ever able to sit, stand, or walk.

For the parents Milan and Elena, the news that Evelyn had SMA1 was devastating. Unimaginably, they had already lost one child to SMA1, their daughter Josephine, who died at 15 months of age.

Ten years ago, if you were a child born with SMA1, your chance of making it to adulthood was almost 0%. Today, children with SMA1 have a future. How? Biotechnology companies are boldly addressing SMA1 through new treatments such as gene therapy. And investors are capitalizing this important work.

Gene therapy is a targeted treatment that delivers a healthy copy of the right gene to the right cells, promoting normal cellular function. The SMA1 gene therapy uses a virus to deliver a healthy copy of the SMN1 gene to motor neurons so they can produce the protein SMN, thereby enabling normal survival, development, and function.

Evelyn received a gene therapy for SMA1. Here she is, now three years old, doing push-ups!

In fact, 100%(!) of the children who received the full dose of the SMA1 gene therapy were alive at 20 months.

We live in the most exciting time in the history of medicine. Advances in biotechnology have now made it possible to meaningfully fight diseases that previously were a death sentence. Through next-generation gene sequencing and targeted gene therapy, scientists have been able to discover, and doctors now treat, the root causes of diseases like SMA1.

Investors in Eventide are doing more than simply investing for their future – as investors, they are partnering with companies that are replacing sorrow with rejoicing in the lives of those like Evelyn, Milan, and Elena. We invite you to join us in this mission.

Learn more about Spinal Muscular Atrophy (SMA) at https://www.curesma.org/

by Efosa Ojomo

This year, I have been reflecting on Jesus’ Sermon on the Mount, more specifically verses 14 through 16. It reads:

You are the light of the world. A town built on a hill cannot be hidden. Neither do people light a lamp and put it under a bowl. Instead they put it on its stand, and it gives light to everyone in the house. In the same way, let your light shine before others, that they may see your good deeds and glorify your Father in heaven. Matthew 5: 14-16, NIV

Reflecting deeply on what this means has caused me to realize a couple of things.

1. First, one of the purposes of light is to make other things visible. One rarely walks into a room and focuses on the light coming from light sources. Or we rarely ever gaze at the sun. Instead, the source of light, wherever we are, serves a purpose to illuminate things around us. In addition, light democratizes visibility for everyone and to everything in the room. Rich, poor, big, small, tall, short, regardless of who you are, light provides equal access. Light exposes the good and the bad. Light does not discriminate.

2. Second, I have never seen a person shine a flashlight in broad daylight or in a room that is well lit. Think about it. We would never, in broad daylight, walk outside our homes or offices, and proceed to  shine a torch as we walk to the bus or train station. Light adds value only in darkness. In a place where there’s light, adding more light has no value. 

The more I thought about these realizations, the more I wondered: where am I shining light? If light only makes sense in places of darkness, doesn’t it mean I should go to, be drawn by, and immerse myself in places of darkness? 

In Psalm 16:2, David notes,

I say to the LORD, “You are my Lord; apart from you I have no good thing.” In essence, everything good about David, about me, and about you comes from the Lord. He wants us to let our light shine before others, that they may see this good that comes from him in order to glorify Him.

Practically speaking, as an investor or entrepreneur, what does it mean to let my light shine? The beauty about Jesus, the Gospel, and Christianity is that God meets us where we are but he never leaves us as we are. This means, the answer to that question will look differently, depending on where you are and how fast you choose to move. But here’s one way we can shine some light in the world for faith driven investors and entrepreneurs: Investing and creating markets to tackle poverty and increase human flourishing. 

Globally, fewer than 7% of people live on more than $50 a day ($18,250 a year). In Africa and South Asia, the percentages are 0.3% and 0.1% respectively. This means that everyday billions of people wake up and struggle immensely to feed their families, educate their children, and manage their ailments. In addition, in many poor countries governments struggle to provide social services to their citizens and overt corruption is rife. 

The lack of infrastructures, institutions, and the presence of corruption–not to mention the poverty rates–are reasons enough for capital not to flow to these countries. And so, capital flows increasingly to wealthy countries where governments provide services, infrastructures work, and institutions generally serve people. It’s simply “safer” and more “sensible”. 

From the standpoint of development and prosperity, what does darkness look like? It looks like poverty, corruption, and weak or struggling institutions. As a faith driven investor or entrepreneur, shining light would look like working to create inclusive prosperity in the regions of the world where there is immense lack. To be clear, this is different from charitable donations to help the poor. This is more about investing to fundamentally change the systems in a region.

The Prosperity Paradox: How Innovation Can Lift Nations Out of Poverty

In that book I was fortunate to co-author with the late Harvard Business School professor, Clayton Christensen, we wrote about a particular type of innovation called, market-creating innovations. These innovations create new markets by transforming complicated and expensive products into simple and affordable ones thereby making them more accessible to the population. When this happens, jobs are created, taxes are generated, and culture is changed. Consider the impact of the Model T in the United States. What would it look like if faith driven investors and entrepreneurs accelerated prosperity in poor countries by investing intelligently in market-creating innovations? 

Practically speaking, it would look like assessing where we invest our capital and where we choose to build businesses designed to serve people. It would mean allocating capital to places where most people, especially nonChristians, would question your decision. It would mean bringing a high level of integrity to the way you do business to regions in the world where integrity is simply an utopian ideal. From an investing and entrepreneurship standpoint, this would shine our light so bright that the world will see and glorify our Father in heaven. 

We do not turn on a flashlight where there’s light. As Christ-followers, let’s seek out the darkness in the world and let our light shine. For light only matters where there’s darkness.