Article originally posted here by Paradiem

by Eric Dunavant

February 5, 2018, the Dow Jones Industrial Average dropped 1,175 points to mark the worst one‑day drop in the history of the market.[1] It made all the headlines, but what really happened?

In reality, the market was down 4.6 percent.[2] Not fun, but within the realm of possibility of what one could expect on occasion. The challenge is, when we see headlines like this, we often misunderstand or are confused by what is actually happening versus what is being reported.

One of my favorite phrases is “surprise is the mother of panic.” When something happens that we never expected, we react in a way that could be detrimental to our long‑term outcomes. This is why knowing the typical volatility patterns is important.

Every day the market moves, but that doesn’t mean you need to take action. When you begin to understand the typical volatility of markets, it can set a framework giving you the ability to ignore the noise and operate from a place of peace; knowing you are exactly where you should be for your long‑term perspective. As Mark Twain once said, “History doesn’t repeat itself, but it rhymes.”

The first thing you need to know is the word “correction.” It is defined as a drop in the market of 10 percent or more.[3]

The talking heads in the media will focus on the market being down, but it might only be down seven percent.  Once the drop exceeds 10% the hysteria usually increases, because now they can add the word “correction” in the headline to scare people even more.

What they fail to tell you is that corrections are very common. They happen about once a year.[4] As a matter of fact, the average intra‑year correction for the stock market over the last 30 years is 14 percent.[5] And, 74 percent of years end positive.[6]

Just because the market is in a correction doesn’t mean that you need to do anything. It means that the market is behaving the way it has almost every single year.

The second word you need to know is “bear.” A bear market is defined by a drop of 20 percent.[7] Typically, a bear market will occur in about one out of every five years.[8] The challenge is getting the media to agree when a bear market has occurred, especially if it doesn’t serve their headlines.

Many people are reporting that we haven’t had a bear market since 2008. It really depends on what story you want to believe. The market was down more than 20 percent for large companies back in December of 2018[9], and small companies and international companies have experienced two to three bears over the last 10 years.

The reason the talking heads continue to say we haven’t had a bear market, is because the market didn’t close more than 20 percent down. It was more than 20 percent down during the day, but when the final bell rang it was only down 19.8 percent.[10] It serves their fear inducing headlines to say we haven’t had a bear market.  The pain of that 20 percent drop was a very real event to everyone.  Instead of looking for the next big drop, consider that the bear market you’ve been told to expect already happened in 2018.

The third thing to understand is, no matter how uncomfortable a correction or a bear market may be, to succeed, you must survive them. The headlines are trying to get you to take action, action that may ultimately be detrimental to your long‑term plan. My favorite phrase when it comes to investing is, “Don’t just do something, sit there.” In the middle of scary headlines, in the middle of extra volatility, the tendency is to feel like you need to do something.

Over the last 30 years, there have been eight bear markets. Five of them started, found their bottom, and began their climb back in less than five months. The last two bear markets have recovered all of their losses in a year or less.[11]

The challenge with trying to avoid a bear market is you don’t make one decision, you make two. You decide when to get out, and then you decide when to get back in. I have yet to see any individual or any professional organization consistently get this right.  Most investors get this wrong and it costs them growth in their investments.

As much as it feels like action would be the best, the statistics and the reality show, the best investors achieve success by riding the volatility out until it passes.

When I came home from school as a young kid, I would turn on afternoon TV. They always had those public service announcements that ended with the phrase, “The More You Know.” I believe the more you know about volatility, the better an investor you will become.

You will be in a better position to make decisions for the long term, knowing that you own stock in high‑quality companies in America and around the world. You can have confidence that these companies are managing themselves for long term profits, and the daily volatility of the markets has nothing to do with the long-term strategies these companies are using to grow their business.  Do yourself a favor and ignore the daily news.

At Paradiem, we hate “investing” and think you should too! We are not just investors; we are OWNERS and we believe WHAT you own and WHY you own it is a much more important consideration. If you would like more information on the importance of understanding what you OWN, email info@paradiem.org with the subject “Ownership” or give us a call at (985) 727-0770.

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[1] https://www.cnbc.com/2018/02/05/dows-nearly-1600-point-plunge-marks-its-biggest-one-day-point-drop-ever.html

[2] https://money.cnn.com/2018/02/05/investing/stock-market-today-dow-jones/index.html

[3] https://www.investopedia.com/terms/c/correction.asp

[4] https://www.fool.com/knowledge-center/6-things-you-should-know-about-a-stock-market-corr.aspx

[5] https://www.cnbc.com/2018/12/20/when-the-market-is-in-correction-tech-tends-to-get-pummeled-the-worst.html

[6] https://www.icmarc.org/prebuilt/apps/downloadDoc.asp

[7] https://www.investopedia.com/terms/b/bearmarket.asp

[8] https://www.aaii.com/journal/article/stock-market-retreats-and-recoveries

[9] https://www.cnbc.com/2018/12/31/stock-market-wall-street-stocks-eye-us-china-trade-talks.html

[10] https://www.investopedia.com/a-history-of-bear-markets-4582652

[11] https://www.macrotrends.net/2324/sp-500-historical-chart-data

by Tony Chen

As a serial tech entrepreneur, I love the process of pivoting/iterating the next version of a potential product every 5 weeks. As an emerging fund manager, I received some great advice from a friend who’d transitioned into VC, “Yes, you can iterate on funds. But instead of 5 weeks, it might take 5 years.”

That motivated me to learn from experienced investors who’ve iterated. We asked them: what drives outcomes in early-stage ventures in Africa?  We interviewed 100+ Africa-centric entrepreneurs, investors, and LPs, took 900+ pages of notes, and synthesized our findings. We just released the resulting report: Chasing Outliers: Why Context Matters for Early-Stage Investing in Africa. Here’s a summary of what we learned.

Silicon Valley venture capital is largely a mismatch for most African ventures. The VC model works when the context has these critical ingredients: huge markets, high lifetime value of customers, efficient infrastructure to capture and retain customers cheaply, and plentiful investors at every stage of the business lifecycle. In most African markets (and actually in most markets globally), very few of those ingredients are present. Context matters.

Another important contextual element is time horizon. Things often take longer in Africa (and many emerging markets). Exogenous shocks — a shaky transition of power, a drought, a new head-scratcher regulation — are frequent. Relationships and trust take time to build. Also, an entrepreneur trying to solve problem A realizes she can’t unless she also solves problems B & C. How do you create the “Amazon of Africa” if there aren’t addresses? How do you loan money if there isn’t such a thing as credit scores? These foundational problems — reframed — are massive opportunities. Investors willing to look deeper into the context will be rewarded. But most overestimate what can be done in five years, and underestimate what can be done in 15. 

Venture capital is like a race car. With smooth, straight roads, good weather, and a pit crew, you can get places fast. It’s a beautiful vehicle designed for a very specific purpose under very specific circumstances. But too often, too many have copy-and-pasted it into other arenas too widely.  
Nonetheless, we are quite encouraged by the entrepreneurs and investors who are innovating within these realities. One fund’s primary investment thesis was companies that solve those “problems B & C” — reducing the friction of doing business. Some are innovating around fund structure and instruments used. Some are innovating how due diligence is done so that smaller $50-500k checks can be written in more sustainable ways. Some agri entrepreneurs are pursuing end-to-end vertical integration to build unique moats. I’m not surprised and excited to see that the early-to-growth stage African funds here at Faith Driven are utilizing innovative structures (e.g. Talanton and Future Africa). A significant new wave of entrepreneurs and investors will succeed massively in Africa, as they respect context, think longer-term, innovate in the right sequence, build great teams, and execute with resilience.

[ Photo by Ono Kosuki from Pexels ]

Article originally posted here by Paparelli

by Charlie Paparelli

This pandemic has me thinking about my current investments.

I’m not looking for new investments. I’ll listen, but I’m not looking. I know once this pandemic passes, however long it takes, I’ll be attracted to some spectacular startups with excellent opportunities. I believe the Covid-19 pandemic will accelerate change and create enormous new market opportunities.

But for now, I am concerned about my current investments. As I talk to the entrepreneurs, I am not surprised. Almost all of them think they are in the right place at the right time. They believe this pandemic and its resulting macroeconomic backwash will only be good for them. Each of them can articulate the three reasons they will come out of this as winners.

I love it. That’s what I want from an entrepreneur. I want positive leadership. But let’s be mindful of this.

Cash is king

No one knows how their buyers will react as this pandemic plays out. The more unknowns in this economy, the more difficult it is to forecast. The more uncertainty in the business’s forecast, the more cash needed just in case. Hit your forecast, and you are a hero. Miss it, and you might be gone. This is the reality of such a time as this.

I am using these three criteria for reviewing my current investments.

1. Do I believe they have long-term viability?

2. What cash is needed to keep them viable in the short term?

3. Can we agree on a plan going forward?

Long-term viability

There is a new normal emerging. I’m starting to see the signs of it. Some of my investments are positioned to take advantage of it. Others, not so much. I feel like my portfolio has been thrown. The companies I was worried about seem to be the most exciting now. The companies I was most excited about now concern me.

So I ask my entrepreneurs,

• “Are your customers using your product more today than yesterday?”

• “Are your prospects who were delaying pre-Covid now wanting to buy?”

• “Is this new buyer momentum sustainable post-Covid? Why?”

These are my questions in discovering long-term viability.

Short-term viability

I have a fellow investor who says, “You must be present to win.” He says this to entrepreneurs when talking about cash and cash flow. You need cash to survive each day. You can get it from customers who buy what you sell. Or you get it from investors who want to own some of your company’s future.

My investments must have enough cash to get through this pandemic into the recovery. Some of the larger VCs are recommending twelve to eighteen months of cash. As an angel investor, this number was never a reality for early-stage companies. After the investment, they usually have six to eight months of cash. During that time, they are aiming to close deals so they can attract the next round of investment or get to cash flow positive.

My investments appear to have either just closed a financing round or are about to close one. This is great timing. The others need to work on preserving cash until we exit this economic tsunami.

I often say, “I’ve never seen a business go out of business that has month-to-month positive cash flow.”

Cash flow equals business viability. To continue to survive, you are either living off investor cash or customer cash. Net, net, you need cash to live another day.

“Can we agree on this?” That’s the big question when I talk to entrepreneurs.

For me to support the business, the entrepreneur and I need to agree on cash. We need to agree on where it comes from, where to spend it, and how quickly to do so. This simple analysis will tell us how much is needed. If we can’t agree, it means I don’t believe in the plan going forward. If I don’t agree, I won’t invest.

Where does it leave the entrepreneur? He needs to find money from other investors or come to an agreement on a business plan with the majority of investors.

Stressful times

When cash gets tight, experienced entrepreneurs get focused.

• They focus on their burn.

• They focus on their team.

• They focus on their most successful product.

• They focus on their customers.

• They focus on their investors.

That’s a lot to focus on. But all of these elements must be considered as they are the source of cash and ever-increasing value.

It ain’t easy being an entrepreneur, but it sure is exciting. These economic times will birth the next generation of great entrepreneurs.

FOR MORE INFORMATION ON COVID-19, PLEASE SEE OUR PAGE HIGHLIGHTING SOME OF THE BEST RESOURCES OUT THERE FOR FAITH DRIVEN INVESTORS & ENTREPRENEURS IN THIS SEASON.

by Troy Austin

I first became interested in stewardship when I submitted to a Crown Financial Ministry course 20 years ago. Having grown up in the deep south in a blue collar Southern Baptist church, I knew about stewardship: Give 10%. . . of the net, right?

This study unlocked in me a new found purpose in my closed-handedness. It led me to the spare bedroom / war room, complete with a giant shower board on the wall (I was not going to waste God’s money buying a real whiteboard) and a hand-me-down recliner in which my poor young bride, Sunny, could relax while I passionately “lectured” her as to how we were going to tighten our grip in order to most effectively manage God’s money.

A few years later, after I violently attempted to pound 1.25 cents out of every penny, I was given a gift that began to loosen the grip on the money flowing into our hands. The gift giver was a mentor of mine: a no nonsense, larger than life, NFL linebacker turned cowboy. When he told someone something, they listened. He handed me this book, The Treasure Principle, directed me to a website called Generous Giving, and told me that God owns it all. I am forever grateful for his leading me into an upside down world that has dominated my thinking since then.

I became mesmerized by spiritual giants like Stanley Tam and RG Letourneau. They were not like the businessmen I knew, read about or idolized. I almost instantaneously created a new idol: I would give away 51% of my income. I would have to tighten my grip for a season, but I would loosen later FOR God. Little did I know, I was still missing it.

Fortunately God was not shaking his head, but was patiently walking with me through numerous trials leading me ever closer to the life of an open-handed steward. He led me to attend, host, and later facilitate Journeys of Generosity with Generous Giving. He led me to work with both National Christian Foundation and Waterstone. He allowed me to meet and work with many incredibly successful Christ followers at different places along their own journeys.

The more I was around these incredible stewards, the more I began to notice that they had more joy than I did and it was not just because they had more wealth. They seemed to see more beauty in relationships and in simple pleasures. They were more grateful. Their yoke seemed easy and their burden light. While they were intelligent and informed in their giving, they did not get bent out of shape if and when things did not go as they had planned.

Fortunately, as I started walking with these people, my tight grip began to relax a little. I began to see glimpses of what these guys were seeing. I desperately wanted more, but it seemed so counter to what I had been taught. It seemed irresponsible at times. . . upside down even.

Tim Keller has been significant in shaping my views on stewardship, and he says this:

If we are Christians, we are living simultaneously in 2 Kingdoms: The right side up kingdom and the upside down kingdom. The right side up kingdom is the one we see physically. It is the one the world tells us we must build: Power, success, comfort, recognition. The upside down kingdom is described by Christ in the sermon on the mount: Weakness, sacrifice, discomfort, rejection. Remember, everything in the right side up kingdom turns to fertilizer. This does not mean we are not to live in the right side up kingdom and even enjoy it, but we cannot be controlled by it. It is not our kingdom.

He goes on to share how you know you are living in the upside down kingdom:

1.  You are a reckless giver, so much so that it could put you in financial risk at times

2.  You are exploited emotionally by others taking advantage of your generosity

3.  You do not feel like God owes you something because you have earned it

4.  You recognize that all you have is a gift of grace

Wait a minute, this is stewardship? This does not look like the stewardship I was trying to outline on that shower board all those years ago. Keller goes on to say that the standard for stewardship is the cross. . . whoa! That sounds crazy and imprudent to me. But that is the owner. . . radically generous. . . even to those who do not “deserve” it. . . even when it makes no sense to the world. . . even when it costs Him everything.

If God didn’t keep a tight grip on unlimited grace, then who am I to pinch every penny, even if I’m pinching for the “right” reasons? Generosity isn’t about gaining as much as you can in order to give more away. It isn’t even about giving away everything you have. It’s about acknowledging the free gift of love and grace you’ve already received from the one who owns everything—and in turn holding on loosely to whatever treasures he has placed in your hands.

[ Photo by William Fortunato from Pexels ]

by Stella Tai

How community development investing is changing the lives of everyday Kenyans

On a recent trip to Kenya, I had the privilege of visiting some of the impact organizations associated with Praxis Mutual Funds’ community development investments – to which we dedicate approximately 1% of Praxis funds’ assets. We arranged these visits in cooperation with Calvert Impact Capital, our CDI partner. 

The trip was an opportunity to observe firsthand how investor capital contributes to the success of organizations seeking to benefit communities. I was moved by what I saw – and privileged to bear witness to the many ways God is present in efforts to empower underserved families and communities in my home country.

What is CDI? 

CDI aims to put investment dollars to work directly in communities, in ways that meet social and environmental priorities. At Praxis, we see CDI as a sustainable way to lift up the downtrodden, protect the widow and the orphan, and restore sight (metaphorically) to the blind.

When I position CDI among the various impact strategies we implement, I think of Jesus’ parable of the mustard seed in the Book of Mark. This seed is indeed the smallest of seeds but grows into the largest garden plant, and becomes a tree that provides shelter to birds in its shade. Like the mustard seed, a CDI investment is generally small but has the potential to generate significant economic opportunity, changing many lives for the better.

CDI in Africa

While in Kenya – the land of my birth – I visited organizations spanning the agricultural, innovative finance, microfinance and fintech industries, funded partially by Calvert Impact Capital and other impact investors (Please see my blog posts for details on site visits.) The work being done by these organizations in Kenya signals that CDI is one way of turning your investment dollars into real, tangible impact.

Africa is a relatively youthful continent with around one-fifth of the world’s youths, meaning that any poverty alleviation strategies implemented now will have long-lasting effects on the people living and working in sub-Saharan African countries like Kenya.

The CDI sites I visited were not focused on simplistic solutions that build dependency, like giving handouts, but on building infrastructure such as food supply chains, providing solar power to rural farmers, and creating business opportunities by financing motorbikes. By focusing on longitudinal change, these organizations can create changes that last for generations and contribute to the creation of long-term solutions.

This philosophy lies at the heart of community development investing – making small, sustainable investments that empower economic inclusion and opportunity that will continue to grow and positively impact families and communities for years to come.

Due to the unbanked and off-the-grid reality for many people living in both urban and rural communities in sub-Saharan Africa, traditional solutions to economic inequality do not work. That’s why CDI has the greatest effect when supporting organizations that think outside the box.

For example, Watu Credit used existing technologies to build an adaptable lending system that’s right for Africa and the youths who need the jobs. Another example of innovative solutions that I saw in Kenya is how Yehu empowers community lending groups that provide business loans for those in rural communities who are not qualified to receive traditional loans.

Investments must be agile and responsive to the needs on the ground. Patience – and no small amount of faith – is necessary while deploying impact capital, with investors understanding that it’s going to take time for the investment to produce results. These are innovations that can potentially scale very quickly but can be compromised if they are not backed by the right kinds of capital.

Joyous collaboration 

I witnessed inspiring collaboration between community development investors and recipients on the ground. As a woman of faith, I remember the words from Matthew 22:39, where Jesus said, “Love your neighbor as yourself.” Community development investing is a great example of how we can love our neighbors with the resources God has blessed us with. 

Article originally posted here by Eventide

by Shaun Morgan

The U.S. population is just over 330 million.

The world population is approaching 8 billion.

Even though we live in this giant world filled with billions of people, our functional worlds—the worlds made up of the people we interact with on an almost daily basis—are much smaller. In this way, we experience two worlds with two different orders simultaneously.

The Two-World Tension

Friedrich Hayek, an Austrian-British economist and philosopher, famously called these two worlds the “micro-cosmos” and the “macro-cosmos.” (1)

The micro-cosmos is made up of our immediate tribes—our families, close friends, and loved ones. We have a clear order of responsibility within this world. We are naturally inclined to be kind, generous, patient, and even sacrificial towards these people. 

The macro-cosmos consists of the world beyond our immediate tribes—the people we barely know or do not know at all. Strangers. Our order of responsibility is murkier in this world, and we feel a tension between wanting to act on our natural human inclinations to care for others but wondering if the burden is too overwhelming or even inappropriate to extend beyond our immediate communities.  

The Good Samaritan

One of Jesus’ most well-known parables and one that is accepted across many cultures is the parable of the Good Samaritan. Jesus tells this parable in response to a question from a lawyer. Wanting legal clarification on God’s command to “Love your neighbor as yourself,” the lawyer asks, “Who is my neighbor?”  

The good Samaritan’s neighbor was a complete stranger who needed help. It’s likely that the story was told with an intentional emphasis placed on the geographic and cultural differences between the two.

Though profound and revolutionary to the tribalized culture at the time, the parable points to an even greater reality that is instinctively familiar to every human heart. 

Embedded in all of us is a yearning to see the needs of others met. Indeed, we experience deep satisfaction when we can help. And this empathetic desire extends from the people within our most immediate tribes all the way to the strangers we encounter on the street.

Our Macro-Cosmic Neighbors

The two-world tension mentioned above is the modern-day version of the who is my neighbor question. In a world that is simultaneously growing in population and becoming increasingly connected, we are constantly having to ask the question, Who is my macro-cosmic neighbor?

Our macro-cosmic neighbors are all of the people in our periphery that may only be tangentially affected by our actions. As our world becomes more connected, however, our actions have a broader reach to even more distant neighbors. 

Your neighbor is the factory worker who knits together the shirt on your back, the farmer who grows the vegetables you eat for dinner. She is the cashier at the store who works double shifts at minimum wage so her grandmother doesn’t have to, the single parent who struggles to find time to work enough hours to buy groceries and help their kids with their homework.

Your neighbor is the co-worker who needs you to be competent and trustworthy in your work so they can be competent and trustworthy in theirs, the customers you serve at your work who rely on the product or service your company offers to add value to their lives. 

And your neighbors are all of the people who are affected by the products and operations of the companies you invest in.

The way we love these macro-cosmic neighbors will look functionally different than the way we love those in our micro-cosmos, but our innate sense of empathy does not end with our immediate communities.  

Getting to Reimagine

We may want to avoid thinking about the macro-cosmos because the feeling of never being able to do enough can be overwhelming. 

But what if there are two sides to the empathy that is embedded in us? Empathy causes us to feel pain for people who hurt, but it also causes us to rejoice when that pain goes away. 

So, as we look for more ways to care for our macro-cosmic neighbors, it could become an exciting pursuit of the pleasure that comes with imbuing a sense of loving purpose into our actions that seek their well-being and less about avoiding the shame of not doing enough. 

Perhaps Jesus’ answer to the question Who is my neighbor? was less about bestowing an arbitrary burden on his listeners and more about unveiling a slice of wisdom that reflects how they were wired to care for their neighbors both near and far. 

Perhaps we’ve got it all wrong. Maybe it’s time to rethink our paradigm. Instead of thinking that we have to love our macro-cosmic neighbor, why not rejoice in the fact that 

we get to love the stranger.

We get to love our most distant, macro-cosmic neighbor.

Which means we get to reimagine how we live, work, play, spend, give, and, yes, invest with a special purpose of loving our neighbors in both worlds.

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Note

(1) F. A. Hayek,The Fatal Conceit: Volume 1, The Collected Works of F. A. Hayek (Chicago: University of Chicago Press, 1988), 18, Kindle.

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Photo by Adelin Preda on Unsplash