Finny Kuruvilla: How do we connect the huge problem of global poverty with the practice of investing? A lot of people cynically believe that investing is simply about helping the rich build bigger barns. But Faith Driven Investor have a higher calling. We believe that we should responsibly and biblically manage our money by, yes, wisely allocating our resources. But by doing that in a way where we’re promoting human flourishing, including perhaps especially championing the interests of the poor, the widow and the orphan. I’m going to give you four points today about how to practically connect our our world to the problem of global poverty.

Finny Kuruvilla: Number one, we need to respond to poverty with a Christian worldview. Jesus’s first sermon that he gave in Nazareth, he opened with this line, The spirit of the Lord is upon me because He is anointed me to preach the gospel to the poor. He sent me to heal the brokenhearted, to proclaim liberty to the captives, recovery of sight to the blind, and to set at liberty those who are oppressed. Now, when we hear Jesus talking about the Gospel being good news for the poor, some people react and think, Wait a minute, what about dependency and handouts? And how does all this work? The Bible is a very wise document. And to illustrate this in first Timothy five, it talks about how younger widows, those who are less than 60 years old, aren’t supposed to be financially supported by the church. And Paul tells us why. He says that those very women would become idle and given over to gossip. And so this is a great example of where we are told not to simply commit mindless giving, but to think holistically about the person’s welfare. This should give us some kind of idea that, in fact, the Bible is more sophisticated and how it thinks about poverty. This kind of sophistication is badly needed in the world today, where we have changing and tragic dynamics about global poverty. Consider this today obesity has far overtaken starvation as a cause of death in the world. Addiction of all sorts food, alcohol, drugs, sex, technology, those kinds of addictions are more bound up with poverty than ever before. And you compound that with violence in the community in many parts of Latin America. Homicide is on the rise, particularly ending the lives tragically of many young men. All of this leads to vastly different outcomes. For example, men in Iceland live on average to 80 years old. But in Haiti, men live to 33. What a tragedy. How do we deal with this? Your beliefs about poverty are going to determine your approach. So if you believe the cause of poverty is a lack of material resources, well, then your approach is going to be to give money. If you believe the cause of poverty is a lack of knowledge, then you’re going to try to educate the poor. If you believe the cause of poverty is oppression by powerful people, then you will try to work for social justice. Instead, I’m going to call us to move past exclusively secular models of poverty, of poverty. Brian Myers has said it so well. He says the secular approaches share a common perspective, which is the modern worldview. All are materialistic, often technocratic, and reflect a firm belief in human reason, technology and money as the keys to solving the problem of poverty. Their biggest common gap lies in the absence of religion and things spiritual, in their explanation of why people are poor and what can be done to help them. So how do we think about this from a Christian perspective? Myers and others have made the case that poverty is primarily at its root cause about disordered and sin damaged relationships. We all live in a web of relationships. We’re relating to our communities. We’re relating to the environment. We’re relating to God. We’re relating to ourselves. And when those relationships become damaged by sin, it makes us vulnerable to poverty. Think, for example, about the person who wants to start a business but has to go to the local loan shark who might charge two, 300, 400% interest on that loan. Think about someone who is wanting to appease a God and has to give away precious resources in the form of an animal to sacrifice. Or communities where theft and lying are commonplace. Or someone who doesn’t believe that they have dominion over creation and the creative capacities to start new, productive and flourishing businesses. All of these kinds of problems abound in the world of poverty. So what do we do? Healing these kinds of sin, damage, relationships and defective worldviews. This is very challenging work. This is not glamorous. It’s long and it’s slow. But this is where the role of the church is essential to heal relationships and worldviews requires people not just writing check. This calls forth the necessity of visitation. I am so struck by the verse, a very famous verse, James 1:27 that says religion that is pure and undefiled before God, the Father is this to visit orphans and widows in their affliction, not to write a check to orphans and widows in their affliction, but to visit orphans and widows and their affliction, and to keep oneself unstained from the world.

Finny Kuruvilla: Number two live simply give generously and intelligently. Now we all know this, but we still don’t do very well at it. When John the Baptist begins his ministry, he says that we’re to bear fruits in keeping with repentance. And he says whoever has two tunics is to share with him who has none. We need to go to our closets and ask how many tunics do we have? And to repent of of hoarding and not putting into practice the basics of what love your neighbor is. Jesus tells us in Luke 12 to sell our possessions and give to the needy and to thus procure for ourselves money bags that don’t grow old that that will be enduring. I love the quote from Mahatma Gandhi who says live simply that others may simply live. He also says, the world has enough for everyone’s need, but not for everyone’s greed.

Finny Kuruvilla: Number three, we should avoid investments that snare the poor into addiction and slavery. I mentioned earlier that addiction is so bound up with poverty, and I think most of us know this at a head level, but I want us to know it at a heart level. The power of business to snare and to propagate poverty, whether it be through alcohol addiction, through gambling, through through cigarets, through pornography. And the whole realm of sex trafficking. Through a lot of the idleness and addictions that have happened with with our phones and social media, etc.. It is it is absolutely extraordinary how our dollars expressed in business can affect the world for good or for bad. We have described in the past an example that is particularly poignant for me. Many of the cigaret companies have figured out, well, in the united states you can’t sell to minors. There’s pretty strict laws against that. But abroad there’s there’s much less restriction and much less control over that. In Indonesia, as an example, the average age to begin smoking has fallen from 19 to 7 years old. And we did some research where the largest beneficiaries, the largest shareholders of these very companies are college 5 to 9 savings plans, meaning American mothers and fathers who are saving for their children are in fact doing that by benefiting from putting into addiction minors on the other side of the globe. How tragic that is. We should obviously avoid these kinds of behaviors as faith driven investors, as Christians who want to be faithful.

Finny Kuruvilla: Number four, we should embrace investments that lift the vulnerable out of poverty. I want us to think for a moment about the biblical principle of gleaning. What is gleaning? Gleaning is where if you’re a farmer and you have a field, you’re supposed to leave the edges of your field unharvested so that the poor can come and glean on their own and thus provide food for their households. This is a very important principle. I want us to think about gleaning in the context of who the stakeholders are of a business today. We have talked about at Eventide how there are six stakeholders, customers, employees, the supply chain, host communities, the environment, and then broader society embedded within society and in host communities are the poor, whether they’re locally or globally present. What does it mean for a business and what does it mean for us as investors to follow this principle of gleaning today in our world? We at Eventide have made the decision to pursue what we call the 1% initiative. It’s just taking 1% of our capital, a modest percentage of our capital, and say we’re going to devote this to this problem of alleviating global poverty. How do we do this? We do this by primarily by harnessing the positive power of business, by taking that 1% of the capital and giving it to businesses that are in the developing world that are employing the global poor to pull them out of poverty with dignity. Last year, we announced a partnership with World Vision and its affiliate, the Vision Fund, which we think is one of the best, if not the best example of a company that’s out there in the developing world employing the global poor. And here, this $37 million is capital that we get back. It’s a modest return on our investment. But we, again, think this is so important to follow this biblical principle of gleaning. So I want to leave you with a challenge here. Will you commit 1% of your investment capital for gleaning by the global poor?

Finny Kuruvilla: In conclusion, I’ve given you four ways that we can address this problem of global poverty. Number one, respond to poverty with a Christian worldview. Number two, live simply, give generously and intelligently. Number three, avoid investments that sneer the poor into addiction and slavery. And number four, embrace investments that lift the vulnerable out of poverty. Let’s honor our Lord. Let’s honor Jesus by making the gospel. Good news again for the poor.

John Coleman: Hello and welcome back to the Faith Driven Investor podcast and our monthly Mark’s On the Market Session. I’m John Coleman, your host for today and I’m really excited about the podcast today. Obviously in the news at the moment are cryptocurrencies, crypto exchanges and all types of Web 3.0 related technologies and the incredible distress that’s sweeping through the markets right now, at least partially as a result of the collapse of FTX and Alameda trading, two of the biggest institutions in that area. This is a fascinating topic. It’s a topic where there is a ton of intersection for a Faith Driven Investor in particular. And I’m really excited to introduce the two folks we have with us today. One is my guest slash co-host. One of my partners at Sovereign’s Capital, Jake Thompson, who leads our venture capital investing segment. The handsomest man in faith driven investing and a big advocate of Web 3.0. And Jake, it’s awesome to have you on co-hosting today.

Jake Thompson: It’s awesome to be here even though you’ve just lost all credibility for everyone involved here. But thank you, John. It’s good to be with you.

John Coleman: It is in audio podcast, Jake. So they’re just taking me at my word.

Jake Thompson: Fair enough.

John Coleman: And we’re excited to welcome as a guest a gentleman who’s had just a wealth of experience in this space. Breaux Walker, Breaux is the managing director at Architect Partners. He’s a partner at RJ FinTech International. He’s effectively an investment banker in the crypto space, has deep experience both in China and the United States, and a deep history in the corporate world, in startups and in finance dating back to I think, Breaux, you started your career at Merrill Lynch, if I understood that correctly, and so very pleased to have you on today and benefit from your expertize.

Breaux Walker: Thank you, John and Jake, for having me. It’s a great pleasure.

John Coleman: Well, why don’t we I mean, just to kind of jump into it, I know will break down the broader marketplace here shortly. But what the heck is going on with FTX? I think everybody is seeing this today and their founder, Sam Bankman-Fried, and how that seems to have set off just an incredible amount of distress in the ecosystem. How do you describe what’s happening with FTX right now Breaux?

Breaux Walker: So I think the background of Sam and his group and the origin of FTX, you know, you look for origin stories in companies and you look for the DNA of the team. I think no one should be surprised, having known that this group has been thriving on risk and taking risks, including leverage, since they came out of school and probably even they were playing poker in school to pay their tuition. So I think looking at the background of this company, the fact that they were enablers and merchants of risk, their entire history should leave people wondering why they didn’t consider the risks of the organization, the exchange and structure previously, and especially in terms of the fact that there were no third party regulators overseeing that risk. So this company came up this exchange came up in this group because there was Alameda Research, their trading group prior to FTX came up as a group of traders basically that were really willing to take on a significant amount of risk to be able to make additional sort of margins in crypto back in 2018 and 19. And they just continued that trend all the way up until a few weeks ago where, you know, I think people’s eyes were opened to it and to what actually they were doing. And so I don’t think there should be any surprise if someone did just like the next layer of diligence and the next layer of kind of asking of questions. But the problem was that the euphoria of the price increases and the euphoria of the market, you know, run up really as is the case in many markets, not just crypto, people sort of neglect to ask the next level of questions. And that’s my general view of what happened.

John Coleman: And to potentially mischaracterize it. I mean, part of the problem, right, was the interaction of these two entities, the exchange and the trading company, and that, you know, the exchange kind of functioned like a bank or a trading platform where you had customer assets and those customers might be lending against those assets, etc.. But it looks as if Alameda trading wasn’t simply trading on its own book, but it was actually using customer assets to trade in these risky strategies, potentially without permission, which is one of the big topics under discussion. And that, you know, for a typical investor, that’s mind blowing because you could never consider a bank doing that, for example. And yet in this unregulated space, it appears that the lack of governance within those two organizations or by regulators allowed something to happen that created this kind of systemic risk within both entities. Is that a fair characterization?

Breaux Walker: It really is. But I think to say that this is an exclusive FTX problem is really not necessarily the case. I mean, we’ve had exchanges, reputable exchanges such as Coinbase, Gemini, etc., have their own issues, not of this magnitude. They were insider internal issues or issues that would not have ever occurred at a regulated securities exchange. So, yeah, this is a larger issue, but many of the exchanges have had similar issues because they lack regulation and oversight, especially.

Jake Thompson: And Breaux, walk us through a little bit of the scene to blow up just a couple of weeks ago. Is there some crypto Twitter? And then there’s got to be some news outlets that broke the story by the beginning of the story. Goes back much further. You mentioned back 2018, but it seems that even this past summer a lot had happened. The crypto industry that started to show some of the fissures in the foundation of this space of these exchanges. You talk a little bit about maybe how some of the other headlines we’ve heard recently, how those are connected. And if you see that being indicative of a true contagion in this space, in which case there might be other shoes to drop? Or is there almost a virus in the herd? And it’s almost on calling that we guess. Where are we in that whole spectrum?

Breaux Walker: Well, the answer to that question could be very lengthy. So trade cartel, I think the rumblings about FTX have been out there for a long time and I would just characterize it under the umbrella of too good to be true or how are they making their money when their fees are so low? And we don’t know and there’s no transparency on their other business activities. So, you know, the smartest people I know in crypto and mostly the people I rely on are people come from tradfy actually people who are come from bulge bracket investment banks like the El Al Cash and Bank of America, people who actually come from traditional finance because they’re very skeptical by nature. Traditional crypto people in general are optimists and sort of can be Pollyanna. So I think, you know, this connection between Alameda and FTX really has been known in the community for a long time. It was masked under this sort of they’re a benevolent market maker mantle. But, you know, the fact that nobody talked about openly in whispered corners of crypto, in conversations, conferences, there was a lot of discussion about, yeah, this is doesn’t smell right at all. There’s something wrong here. They’re they’re making too much money and whatnot for the fees they’re charging. They must be trading, you know, they must be doing proprietary trading somehow in some way. So it’s been known and this is one of the problems with the industry, I think, as a whole, the this lack of transparency that we pride ourselves on and we say we’re open and everything. So yeah, it has a long way to go before that’s actually the case.

Jake Thompson: Well it reminds me, having been in banking back in 2007, 2008, a lot of what was going on there, subprime mortgages, where you had this assumption, well, as long as housing prices are going up, that’s going to cover over a host of sins, so to speak. And you started seeing different applications that weren’t getting all the income information and the rest. That just became more normal than it should have. But the market made it so it was okay because it kept going up. Then, of course, the Warren Buffett quote, right when the tide goes out, you see who’s swimming naked. And it seems like there’s some of that that was going on here. But I want to differentiate, too, if it’s indeed worthy of differentiation between the governance and these individual organizations within crypto and in web 3 technology inherently. Because I think we’re seeing a lot of folks are saying, see, told you. So this crypto web 3 thing is just inherently riddled. There’s no way to really make this work. Is that what we are seeing? What exactly broken? Is that really a pockmark on web3 technology itself?

Breaux Walker: I don’t think it’s […] a web3 technology itself. I think what it’s pockmark is the acknowledgment by the Web3 community slash blockchain slash crypto that individuals and some level of centralization are still individual conflicts of interest, meaning people in the middle of these technologies or platforms or, you know, just the need for some level of interaction creates this sort of level of, you know, the ability to corrupt it. Put it that way, it’s not as automagically as we need it to be and it’s not as transparent as we need it to be. So it’s similar to like A.I., where I’ve done a lot of work, some other ones. I mean, until we find a way to have a transparent sort of AI value supply chain or whatever, there’s always going to be the ability for an individual to bias or to corrupt that technology, which in its pure sense is great and web3 and blockchain. And this is like a whole. We could talk for a long time about how, you know, when somebody designs a blockchain, obviously there can be bias in there or there can be fraud designed into it after it’s set up. Yeah, it records things, you know, transparently and automagically and all that, but it can be set up for fraud or gamed in other ways. So I think the Web3 community needs to really admit that we’re not there yet. On the dream of Web3, it’s more like with all these 2.1 and 2.2 and a lot of baby steps right now. So that’s the main problem. I think challenge we have is like just being realistic with the larger community about what we can and can’t do today.

John Coleman: One, just a lot of the symptoms you’d expect to see from a potentially dysfunctional market were there and people ignored them because it had been going up. You know, it’s we’ll get to coins and currencies maybe a bit more in a moment. But I just think about all the lending that was going on. For example, even when rates were really low and you were getting a couple percent in typical fixed income, you know, you’d be promised ten or 12 or 15% sometimes lending rates on your cryptocurrency and you just don’t get rates that high without risk. Right. I mean, they were kind of promise as an almost riskless investment. And of course, that’s not true. And we’re seeing that kind of house of cards, as Jake said, as the tide goes out, really collapsing at the moment. You know, a lot of venture capitalists have been active in this space recently and a lot of venture capitalists are losing a lot of money at the moment alongside consumers. Where have the VCs made mistakes and where do you think VCs go from here with regards to Web 3.0?

Breaux Walker: Well, I think they needed to be more responsible in terms of obviously their diligence. I mean, that’s kind of an obvious statement at this point. Let’s be real. I think some of them knew what was happening, a small percentage, I’d say, and was hoping for sort of a greater fool theory to happen or that somehow these issues would work themselves out as the prices of the coins went up, the asset class as a whole. The second thing is that, you know, they needed to be more transparent about what the tech can do today, what it can’t do, its weaknesses and all of that. So I think people like, you know, A16 and whatnot got butchered a lot by the crypto community because they weren’t quote unquote purists. But you know, the point is, I think the fallout of this and, you know, Luna and all this is like there is not a pure model out there. There’s not a pure technology that exists today because any of these so-called decentralized systems or whatever can be corrupted today. And until we figured that out, nobody can stand on their high horse and say, hey, we’re decentralized or A16 is doing these sort of centralized things because everybody is centralized today. Every single project protocol is a centralized point of failure or choke point.

John Coleman: Jake, you’re investing in this stuff right now. I mean, how are you thinking about it at the moment?

Jake Thompson: Yeah. So we are not doing a ton of web3 just because we think so much of it has been characterized by a run up that is unsustainable. But we’re very, very interested in those companies that may otherwise be thrown out with the bathwater. Breaux, you mentioned kind of Web 2.1, 2.2, etc.. I think there are a lot of what folks would call Web 2.5, right? These bridges from our current Web, it’s incredible how many more of these terms we can be introducing here, but it’s not quite the totally distributed type of model. So we’re really interested in looking at the pickaxes, the shovels of this space. Right. Talk to a company even earlier today that’s trying to put together a CRM for Web three companies. Right. Because there’s not a lot of way to access all the data that’s coming on chain, those kinds of companies we’re really interested in. And it’s so unique just thinking through the lens of VC, because one of the VCs biggest dreams is a huge category, right? Where you can bet on companies is going to be a rising tide. And even if they’re holding the boat right, the boat is going to rise for a while. And while there was for my take a whole lot of FOMO that was going on and that’s just wrong and self-centered and the rest. Right. And yet we all fall victim to it from time to time. There was a lot of very rational decisions being made of saying, well, this could be even bigger than the Internet. Let’s put ourselves back to 1993. We would invest in a few companies in a category that gets so big. Well, I have much more margin for error, so I can invest in companies with slightly less governance or some issues here or there. And that’s going to be okay right now when people started turning a blind eye, to your point Breaux, I think there are a lot of issues there, too, a lot of VCs we’re making that rational choice, because if you didn’t invest right, FTX is famous for some stories where some investors would say, well, you don’t really have any board without side investors. You have no governance, right? You have no this or that. I suggest you put those things together and maybe I’ll invest in much less colorful language. They essentially said, go take a hike, right? Where the only way you can get a piece of what seemed like a leader in a category defining space wasn’t going to have governance, and you wouldn’t be allowed to have access to it if you insisted on that. So VCs were in a tough spot, but I think that’s in the calculus that might have been more rational than at first blush.

John Coleman: When it was some of this stuff where it’s like things that were almost characterizes endearing. Then when you look back were just such clear signs of disaster. I think one of the stories out of Sequoia, right, was that they were interviewing SBF, Sam Bankman-Fried about the investment and he played World of Warcraft or some multiplayer game like Fortnite or something the whole time, and they were fawning over that at the moment. And in retrospect you go, Oh my gosh, this guy was totally unequipped to run anything of any sophistication that required, you know, maturity and professionalism. I just think that that will change as well. I think the standard that will be set for founders and for the maturity of founders and for the people that they put around them, I think has got to change. And you mentioned something, Breaux, at the beginning where some of the best people in the space are actually traditional finance people now. And I have a feeling you’ll see some of that traditional finance infrastructure begin to insert itself here if the industry wants to sustain itself.

Breaux Walker: Well, it’s interesting to see at the sort of low point or recent low point of exchanges that JPMorgan has said that they’re coming in with an exchange. I mean, this is really an obvious thing. You know, if you think about the timing and what not, some people might think, well, that’s great. But no, it’s actually that’s what we need. You know, more of that from those type of people.

John Coleman: Can I pivot a bit and then I want to come back to regulation actually at the end, because I do think that you’ve mentioned it a couple of times, Breaux, and it’s a topic that we need to address before we get into that. You know, exchanges aside, most people’s exposure to this market is actually holding points, right? They may have a coin in a wallet somewhere like Coinbase, which you mentioned. They may have used exchanges, but really they’re paying attention to the price of Bitcoin or the price of Ethereum or these other coins that they may hold. You know, I think the latest stat I saw recently was that there were 21,000 different crypto coins out there. And I was talking with a friend. My personal perspective just to get this started was that we’re going to end up with kind of five or ten really successful coins out of that 21,000 and that many of them will go away. But what’s your perspective right now on the coin marketplace, which has declined quite a lot, and what you expect for the kind of short term and long term there?

Breaux Walker: Well, I don’t know if the first part of your comment was a question about the regulation, but I really want to spend a bit of time on that because I find that’s really a major malfeasance on the part of our regulators. I mean, if people are not called, you know, in on their lack of, you know, without passing laws, but at least their direct kind of confrontation of what was obvious fraud or at least kind of obviously too good to be true kind of investment product offerings, you know, to U.S. investors, you know, then that’s really a bad thing. I mean, that’s just not a confidence builder for investors going forward. Whatever else happens to SBF or happens to the private entities involved, the fact that these guys have been able to plaster their advertisements all over sports arenas and whoever missed that in the government should be fired right away. I mean, you know, it’s one thing to let them kind of act under the radar and kind of around the edges and try and get some private investors from Canada or whatever. It’s another thing for them to advertise during the Super Bowl. And, on you know FTX, so the fact that they’re going after like Tom Brady and, you know, Steph Curry, whatever, yeah, that’s ridiculous in my mind. The guys in the government, the people in the government that allowed this to happen and allow those ads to go through and didn’t issue massive fines for people basically offering securities on national TV and Super Bowl halftime to widows and orphans and, you know, across the heartland. Yeah, that that’s just unexcusable. So that’s where the anger, the, you know, punishment definitely needs to be directed in my mind, because by any other standard in the FCC or any other regulatory regime, those are the people that are kind of in. The gatekeepers and need to be responsible. So I think that’s just a major problem that they’ve somehow like as politicians are good at doing it deflected this on everybody else. But whatever happens to all the other people and private entities, they’ve got to be held accountable for the way they let this get out of hand and out of control. To investors, all this, you know, they’re going to do whatever they can do to make money as long as it’s legal. And that’s another problem. There’s too much of this stuff is not illegal today. That’s a different but related problem. So I don’t know if that’s your question, but you triggered me kind of, John, with your first part of your question, because I just can’t believe the tough law that these regulators and government have and all of the vitriol and all of the anger and everything is directed at people who were self-interested and most of them doing nothing illegal at all. Well, is that their fault? Or the people who, you know, we pay and are sitting in places of power to protect us? You know, it’s misguided right now, in my view.

John Coleman: Well, let’s finish this topic then and come back to coins. You know, one of my perceptions and Jake, I would love your reflections is that part of the challenge here is just knowing who’s in charge of regulation right. Is that the SEC? Is that the Fed? Is that the IRS? You know, there are different agencies that are involved which causes confusion. Part of the challenge is the space is so new and rapidly evolving that regulators are having a tough time keeping up with it. And then there is a I’ll call it a reported or seeming conflict where certainly, you know, Sam Bankman-Fried was the second largest donor to one of America’s political parties last year. And his parents have worked very closely with certain key regulators, running agencies right now and things like that. And there’s just, I think, a whiff of impropriety over the whole thing where there has just been a lot of money flowing around the ecosystem in the sense that politicians have been complicit in this because of that money. I mean, Jake, you know, you’ve heard kind of Breaux’s comments. How do you think about regulation in this space? What’s the problem and what’s the path forward?

Jake Thompson: I think it’s everything that you mentioned, John. It’s so complex in a bunch of ways. And you look at some of these hearings of regulators even going after big tech companies. Right. And it’s obvious that there’s not a baseline understanding of technology, of basic terms, how it all fits together. So even the number of folks that want to go after figurehead and we’re talking about centralized finance here, it’s easy to point to SBF. But then you have other organizations that are totally decentralized, right, where the owners are, those that have the tokens and vote on governance and the rest. And it is truly decentralized, which maybe would have addressed the problems we’re talking about. But if the regulators going after saying, okay, we’re going to clamp down on this or what does that look like? Right. You are the foundation that helped the launch of token but is now distance itself is very hard to find what the head of some of those are. And I think for that reason you see the regulators really stepping in much after the fact. Right. Maybe there’ll be some movement on exchanges now. But what we are seeing is movement on the ICOs that were happening in 2017, 2018, right where now we’re seeing the fallout. It’s much easier to say here are the damages. And it is amazing. And Breaux, I agree with you. Investors are going to act in their self-interest. There is some finger pointing we can do to those who just made decisions that were not rooted in common sense. Right. The number of people who are coming back and saying, well, I lost all this money who insure this in the federal government, who is there an FDIC for crypto? Who is that again? Well, no, this has nothing like that. And so it’s just such a nation industry. It doesn’t help that, at least from my perception, the average age of those that are deeply involved in crypto, it’s they haven’t seen market cycles, they haven’t been in traditional finance, right. Sam Bankman-Fried I think is 27, 28 years old. And so there is a lot that is happening fresh as an industry. A lot of people, this is their only experience in it as is really hard to wrap your arms around it.

John Coleman: Well, and it’s one place where in traditional finance what has been the standard for some time even though it works very imperfectly as we’ve seen is self regulation. Is the financial institutions actually proposing ways in which their ecosystem should be restricted to help regulators come up with the right framework? And from my point of view, I feel like that’s almost got to be the next step where the binances of the world and the coin basis of the world and others actually begin to step up and offer more constructive recommendations on what limits the industry should place on itself and what regulators should do otherwise. You’re right, Jake, they’re either going to be hopelessly behind or they’re going to become hopelessly restrictive. Right. Which would be bad, I think, for all the participants in the ecosystem.

Jake Thompson: I think you see Gensler and others that are looking to have a pretty iron hand now and roll over this. We are starting to see this is a big encouragement to me, folks like Vitalik Buterin, who is one of the co-founders of Ethereum. Right, starting to work with another leader of Binance, the largest exchanges out there to say, what does it look like? Do you have an algorithm that can audit some of these things that we’re talking about so you can push the on button and say, Yep, your liabilities, write all the Bitcoin, say or there we can actually account for Unchained. So you’re good to go? I think it will take those who understand this with the push of the regulators, not necessarily the knowledge of the regulators to be able to put something constructive around the industry. As you noted John.

John Coleman: Well, maybe to circle back to our coined topic now, Breaux, if you don’t mind looking a lot of Bitcoin or Dogecoin. Am I in big trouble? What should I do?

Breaux Walker: No, I. I agree with your sentiment that there will be far fewer coins out there. You know, obviously, most of them have no utility or simply speculative kind of gambling tokens, put it that way. So I think the ICC, you know, it’s clear that most of them are securities. They have absolutely like I said no utility. They’re simply there for people to speculate on. So I think whether by market forces or by regulatory forces, most of them will go away and we’ll get down to a very small number over time that will grow as people find new utility for blockchain and actually do real projects that are invested in and regulated. But really, those bars are very, very high. And, you know, I think the regulators will wipe out thousands of them and whatever. So it’ll be a much smaller number and then from there will grow. I happen to be after a lot of thought over the summer when and Ethereum Maximalists and I feel like it’s good for the industry and people will like this. A lot of people and you know my wife’s company [solana] I hope that she doesn’t watch this or whatever, but I feel like that’s the bet. You know, for smart contracts, if Ethereum doesn’t survive and thrive and get stronger and faster and cheaper, although, I think the rest of the industry. Yeah. I don’t have much hope for the second and third and a quote unquote Ethereum killer by now. Three years later, you know, if you wanted to kill them, you had your chances. And it’s not now, you know, they made the POS transition and whatnot. And so I think that will have a lot of sort of projects under Ethereum and different utilities around. But I consider that to be sort of the world wide web standard of crypto going forward. And I say that because there will be there will be sort of tokens underneath and projects under that, but it will all be under ethereum or it should be in my mind.

John Coleman: Jake, what do you think this flight to quality and recovery looks like? I know you’re sitting on your board eight right now hoping for a dramatic recovery in the NFT space. What do you think is coming?

Jake Thompson: No No unfortunately, not at board eight you know, I’m encouraged by a number of projects that were seemingly strong but even had governance issues. And I’ll mention one called helium that got a whole lot of press, had incredible investors from coast to coast. And the short of it is there are hardware devices all over the country. I mean, there are a million of them now. And it creates a mesh network for 5G, for Internet access, for Internet of Things. Right. The scooter going by. And it was a really neat tokenomics model. Right. And that’s just how the tokens and the business model and all the stakeholders, how it all works together. But even that, right, a lot came out as this was starting to crumble as far as policy and advertisements, even just the amount of money that went to the founders. And I’m a believer in that project, so I say that with some grace, but I think even the excellent project like that, there was some issues, some frailties that we saw that are starting to be fixed now. I’m very encouraged by the corollary of VC, where what we used to be priced most is growth and now it’s more profitability, right? It’s more unit economics. I think we’re seeing that in the crypto space so that you will see a handful of those projects that will continue on to grow as point. Maybe some are under Ethereum, some are under tokens like Solana. I’m a big believer in that layer two space, right? Ethereum, there’s still a lot of issues in terms of making it cheaper to transact on it. And there are these solutions at all. Since you take it off the dream chain, do all the transactions needed and bring it back. I think if I were investing in a token, not investing advice, of course, but if I were investing in a token and checking out of space, I think that layer two is one of the more interesting right now. But I think the space in one year will look a whole lot cheaper than it is now. And I think that’s largely the result of a forest fire. Right. Which is painful to time. It turns out it’s healthier for the forest in the longer term.

John Coleman: So I want to pivot now. This is the Faith Driven Investor podcast and I know Breaux you have been particularly thoughtful about the crypto ecosystem and Web 3.0 as it relates to people of faith. Would you mind just touching on how does a person of faith approach this market, and what do you think is good about this for people of faith? And how should we be thinking about investing in and driving forward this ecosystem?

Breaux Walker: Well, again, another potentially very long answer, because I’ve thought about this a long time. And since I came into crypto in China, where I lived for many years in 2015, 2016. So, you know, I think there’s a huge benefit to peer to peer, you know, direct to your other Christians, let’s say, or even if they’re customers. But I think peer to peer technology has a ton of applications, you know, and I think the allure of that is part of what’s driven the crypto sort of, you know, craze and whatnot. And that is that people see the benefits, whether it’s a cost benefit or actually unlocking a relationship or transaction that wasn’t possible before because there was an intermediary that would have blocked out or made that transaction impossible. So I think, you know, there’s a lot of ways to do this. I think in developed countries, let’s say in the U.S., there’s definitely ways to use crypto and blockchain for churches, let’s say, or, you know, organizations of faith to, you know, better bond their membership and to better help their membership to exchange, you know, anything they want. I would say something of value because it doesn’t have to be monetary value, but it could be books, you know, it could be Christian books, it could be anything tickets to see, you know, a certain speaker. So I think there’s a loyalty slash community building mechanism here that is very strong. It’s very private. You know, obviously, people are worried about government. More and more people are making inroads into their lives and their privacy. And so there’s a privacy aspect here that is there that doesn’t exist, but it’s more of a, you know, the idea of tokenomics in building these coins. And you mentioned, you know, I think was it Shiba or Doge or whatever is really building a sense of community around something of value. You know, people laugh. In the beginning I laughed at Doge even. But you know, these communities feel that there’s a value or values that they share and the token was just a representation of that. So, you know, it’s like, you know, just going to Disney World or whatever, does that add some long term meaningful value or whatever in your life? It’s debatable, but people would say buying the coin and sharing the coin and sending the gift, they felt they benefited in some way from it. So there’s a lot of to be taken from the doge and that shiba coins for Christians and building communities and churches and whatnot. Same thing. Even if you’re a business owner in terms of like building loyalty with your customers, you can use loyalty in crypto and blockchain is actually a very suitable kind of application as well. Obviously talking about fintech and more of a cross-border, you know, getting funds to a minister in Venezuela, for example, I mean, in Cuba where I go a lot. So I did a lot of sort of Bible smuggling and things of that nature in my youth. And I think that was the first thing I thought about, you know, in China when I lived there, I didn’t really dare much to do stuff like that then because I had a lot more to lose as a adult with kids and stuff. But, you know, the Christians in China need our support, you know, really drastically and there are millions of them. So there’s a lot of ways to flow funds and not just funds, but Christian materials, books. They’re starving for all that, you know. So I see it as a the ability to kind of go around governments that are repressive to help people. I’ll say people, but it could be believers, nonbelievers or whatever. But that to me is very exciting.

John Coleman: Jake, I want you to weigh in on this, too. But I will say the first time I felt like I really understood the appeal of Bitcoin back when Bitcoin was the next thing, whatever point version of the web that was. Jake I’m not sure. Maybe it was 1.87 or something. Was someone from a developing market who explained, Look, Americans are going to be very slow to understand why crypto currencies and coins matter because you have a relatively just society, a stable legal system and a stable currency. And he said he was from Argentina and he said, look, with the way our currency moves and the government manipulates it, Bitcoin, as much as that it’s volatile, is still much safer than our local currency. And he said, if you speak to other people in developing markets, whether it’s because their currencies are unstable, whether it’s because they live in restrictive regimes, as you mentioned, like China, where the party has clamped down and so much of people’s lives, this ability to operate independent of them and to have a financial life independent of your government does enable greater freedom for people. And certainly, as you mentioned, enables greater. Support for ministries that might be excluded, for example. So I do tend to think there’s a very redemptive purpose for this marketplace. In addition to all the community building and everything else that you talked about, and hope it doesn’t become overshadowed by some of the challenges that we’re seeing now. But, Jake, maybe if you don’t mind wrapping us on this topic, because I know you’re thinking about this a lot.

Jake Thompson: Yeah. As Sovereign’s Capital we invest, we’ve got a thesis around inherent blockchain. Technology needs to solve a core problem. Right? And so we’ve got a whole framework for that. But I’ll mention three examples. One is exactly you guys are talking about where there’s not a trusted intermediary. Right. And you need to have something that’s truly trustless. Another one would be micro-transactions, right? Where it’s too expensive to send a certain amount across the traditional infrastructure, but crypto allows do that very easily. Third, want to be where creators are creating and can be involved in some of the upside of what they’re rather than platforms taking that like we see today and the subprime what you guys are saying about how we support the church in the body of Christ globally, I think uses all those in really compelling ways. But I’d say even more motivating for me is not necessarily specific uses because I think the space is going to grow so much over time. Right. Like any startup, you kind of invest in the people first because you don’t know what the company, what the industry is going to look like. And I just get really excited about followers of Christ who are entering the space to be a faithful presence in a place that has been defined probably more by greed and a very sincere desire to love and serve. Right, but not necessarily having a strong core of why we’re doing that, what that means, but also a naivete to and believers are going in there looking to love their neighbor, to understand what God has for his creation by being able to be in places like there’s an entire group of folks who are CEOs of household name projects within crypto. And there’s a WhatsApp group has hundreds of people that are in those types of positions that you wouldn’t always know. And I just get excited about that faithful presence being out there as a space of all. So I encourage anyone to get involved as they feel called to it.

John Coleman: Well, I want to wrap today. This has been a fascinating and vibrant discussion, Breaux. We always end by asking people just what God is teaching them in their lives right now through Scripture, and wanted to give you an opportunity just to let people know what’s in your heart from what God has been teaching you lately.

Breaux Walker: Yeah, that’s a great question. So I met with a couple of friends yesterday and I’m working on helping them also with some crypto advisory and whatnot. And we prayed, you know, after talking about all the crypto stuff or whatnot. And for me, you know, and not to tie this back into crypto because I know you didn’t ask that question directly, but I think it is direct as I told the Christians in crypto group as well, you know, I really want to leverage this technology and and whatnot to really spread God’s love and that could be sending blankets to communities or food or whatever. Again, back to what I did a lot of in my youth. And so for me, it’s like the God is love message and how can we use the crypto and blockchain to really spread that love? That’s kind of what I’m praying a ton about now is not just the message, but how to manifest that, how to use the tools at my disposal, at our disposal to try and turn that into action. You know, kind of what the Lord would do if he were here with crypto and blockchain is how does he use it to spread as much love and blessings to people in need? So that’s kind of what I’ve been focused on for the last few months.

John Coleman: That’s a good word, Breaux, and a good way to end the podcast. We’re really grateful to you for spending time with us, Jake. We’re mostly grateful to you for spending time with us as well.

Breaux Walker: [….].

John Coleman: I know you guys have done a phenomenal job helping to demystify what’s been a relatively confusing space today, and we’ll see how this continues to develop. But it is really exciting right now. It’s a really interesting space and we’re grateful that you came on and shared with our listeners how to navigate it. Thanks so much.

John Coleman: Welcome back to the Faith Driven Investor podcast. This is John Coleman and I am here with my partner Luke Roush today, freshly coming off a very good Christian economic forum in Beaver Creek, Colorado. Luke, it’s great to see you. How did you like last week?

Luke Roush: It was great. It’s always a special time of community with folks from here in the U.S. and also around the world. So it’s a reminder of just the scope and scale of God’s church and special things that can occur when we convene and share ideas, knowing that the answers to humanity’s biggest problems don’t come from humanity, but they come from God’s word and fellowship in prayer. So it was a great, great couple of days there in Beaver Creek.

John Coleman: Amen. And it’s a ministry of Crown Financial Services and part of the great work that they do. And I was only introduced to it by you all last year, so it was my first time. And I mean, I just find it really enriching every year. And one of the most enriching parts is Luke mentioned are the great people that you meet there, one of whom is on the podcast today. So we are really privileged to welcome Don Simmons. Don established Simmons Capital Group in 1988 and became one of the first fee based registered investment advisors in upstate New York. He is a legend in the faith driven investment and wealth management space and has recently written a book called The Steward Investor Investing God’s Resources for Eternal Impact. And we’re really privileged to welcome him on the podcast today and talk to him about some of the principles in that book and in the life he’s crafted in investing. So thanks so much, Don, and welcome.

Don Simmons: Thanks, John. Glad to be here.

John Coleman: Well, Don, I want to start with this exciting new book, The Steward Investor. You’ve obviously been quite thoughtful about the topic, but just give us a little bit of background. What is the steward investor and what’s the core thesis of the book?

Don Simmons: Yeah, you know, I’m not really a writer. I guess I’m an accidental author in that this book kind of just spilled out of me last year when I took a leave of absence from work, and it spilled out around really the issue of as Christians, do we really believe what we say we believe? And as a professional money manager, the question that really came to my mind is we frequently say that God owns it all, but there are implications to that, especially in regard to how we invest. So the book really dives into our current understanding of stewardship being primarily about financial competence, which is true whether you’re a Christian or not. And I try to get into more the issue of stewardship being about ownership and being a fiduciary for God who truly owns it all. And that has very direct implications on how we invest. So the book was an attempt to address this issue of investing as a steward, not just making money and then giving it away, but in the making of the money. How do we honor God and bring forth eternal impact in our investing.

John Coleman: And Don, I love how you touched on this idea of stewardship is present even outside of faith driven circles. But certainly for Christians, there are distinctive elements of that. You know, as you looked at the realm of stewardship in the mainstream world and then think about it in the faith driven world, what are some of the similarities with the way that the rest of the world views stewardship? And what do you think is distinctively Christian in our understanding of stewardship?

Don Simmons: Yeah, unfortunately, John, my experience having attended some of the largest impact investment forums in the world, the Global Impact Investing Conference that is held annually in London in the U.K. my primary finding or observation is that Christians are at least a decade or 15 years behind the secular space relative to thinking about investing in ways that accomplish multiple bottom line outcomes, not just a financial return. So how are we similar? We’re similar in the sense that Christians are finally starting to grab a hold of this idea. But we’re still very young relative to the secular world in terms of multiple bottom line impact through investing.

Luke Roush: Don, one of the things that I love about just you’re witnessing in your work is that you haven’t just written about it, you haven’t just talked about it, but you’ve also done it. And one of the first funds that we encountered when we were starting our work a decade ago was some of the work that you guys had done through IBEX. I’d love to have you maybe just speak to that a bit and what that part of your journey has been that kind of guided you to where you are today?

Don Simmons: Yeah, my involvement with them goes back to about 2008 and all I can say is that their work particularly in the least reached unengaged part of the world relative to the Gospel I think is second to none. So much of what I wrote about in the book is from my experience in How can we invest for God’s glory among the least reached, the most impoverished and quite frankly, the most corrupt countries in the world? Unfortunately, I wasn’t able to tell many of the stories that I’ve been involved with simply for security reasons. So I tried to use some of the stories in locations that are not as restricted where security isn’t that critical. But what I learned during my time as the chief operating officer for them was that this kind of investing needs to be done in a way that seeks to optimize a number of different outcomes as opposed to just maximizing financial return. And so optimizing outcomes across both economic, environmental, social and spiritual transformative elements is really critical. And so many times as investors, we start with how do we maximize return and then how can we add to these other things? Well, an optimization approach says all of these pieces have to be addressed simultaneously. And it’s like moving a set of levers or dials. And as you dial one dial one way, it affects the performance in other areas. So optimization is about getting the best outcomes, not the maximum outcome in any individual category, but the best outcomes across all categories. And that’s you know, it’s really exciting when you can do that. And some of the stories that I tell in the book just exemplify the wonderful transformation that’s occurred in communities. And our hope is across entire countries because of the businesses that we’re planting.

Luke Roush: Well, and one of the things that I really appreciated about the IBEX story is the way that you and others in that fund waded into what many folks would probably call the messy middle. Right. It wasn’t philanthropy. It wasn’t even sort of zero interest lending. But it also wasn’t always kind of at market risk adjusted rate of return investing, which there’s flavors of that within FTI as well. And I think that one of the things that IBEX did well is trying to wade into that middle ground of this is work that needs to get done in parts of the world that are quite dark and we want to be able to introduce market mechanisms to how we supply capital, but we want to do it in a way that also maintains focus on non-economic outcomes. So maybe just speak to kind of that and what that journey look like over time.

Don Simmons: Yeah, and we’d love to have this discussion about market like returns or concessionary returns. And I want to be frank that I am a capitalist. I believe in investing. I believe that profit is the lifeblood of a business. But as a follower of Christ, I’ve come to believe that maximizing financial return is not my top priority. And so I believe that it’s appropriate to have funds like sovereigns and others that are participating in the public marketplace with traditional investments seeking high returns in ways that honor Christ. But my book is really challenging to the Body of Christ because most of us want to migrate toward the financial return because that benefits ourselves. When I look at managing money for God, I have to think about, well, what are his objectives? You know, he commands us to go and make disciples to the ends of the earth. He calls us to be the salt and light of the Gospel and to bring forth the great commandment, loving our neighbor as ourselves. And many of those times, you can’t do that in these difficult places and start with a financial return mindset. In fact, the kind of investing that we do as a professional, I would say you can’t possibly get the appropriate return to justify the level of risk that we’re taking. So if that’s the metric that I start with, we might as well just abandon it. And I simply disagree that as Christians, we need to be in the marketplace, we need to be planting businesses in very difficult locations. And often we have to be making decisions to plant businesses where they may not likely succeed in the way that we normally think, because the infrastructure isn’t there, the trained workforce isn’t there, there isn’t reliable electricity or Internet. There’s high corruption. It’s hard to start with a financial return mindset and be successful in those environments unless your priorities are how do we reduce unemployment from 80% down to 20%? How do we care for those who’ve been exploited because of human trafficking and making sure that they have jobs that can support their family without returning to that enslavement that they had been a part of? These are difficult questions, but I want to push the envelope with Christians to think that part of our role as stewards is to address those issues. And it’s not about donations being sacred and business being secular. We can address those concerns in the making of the money, in the way that we invest. I think in a way that’s more impactful than just through donations.

Luke Roush: I think it’s a great push on. It’s a good challenge for us and for just the entire movement. So I’m grateful for you pushing on that.

John Coleman: And Don, I’m a story guy, so I wanted to touch on, you mentioned there are a lot of great stories in the book where you’ve seen this in action. I would love to hear one of those stories, if you don’t mind, to put color around the concepts that you’re talking about, where you just seen the ability to create a company or some other type of asset in these places that you think has had a remarkable impact.

Don Simmons: Yeah, and this is one of the stories that’s in the book that perhaps may be my favorite because of the involvement of my own daughters in this story. We had made an investment in a project in Nepal, what would be termed a freedom business, which is a business that is specifically set up in order to help provide jobs for those who’ve been exploited because of human trafficking. And so I took two of my girls to Nepal with me to visit a handful of freedom businesses in Kathmandu and get a feel for this tragic problem. After visiting a number of freedom businesses. We took a hiking trek up into the mountains where human trafficking had been most prevalent in this area. And it was about the third day of trekking after a six hour jeep drive across muddy roads that you thought you were going to fall off of the cliff. But then we started hiking and on the third day, my 18 year old daughter, Kristie, looked at me and said, dad, why are there no girls? And before she finished the word girls, she looked at me and said, Oh, those businesses that we visited in Kathmandu are for the girls that are no longer here, because in those small villages there were no teenage girls. There were no girls over the age of about seven because they had all been sold into human trafficking. And it wasn’t until one of the last days that we had a deeper conversation. We had been staying at what are called homestays. They’re like a little youth hostel in each village, and these youth hostels had been set up by a very wise business group for the specific purpose of helping to create an industry among these impoverished villages where trekkers could stay at these homestays and it would generate revenue, locals could sell chickens to the tourists or candy or water, and it created really a vibrant economy in these villages. And on the last day, we stayed in one homestay and there was a girl who was 14 years old. She was the first teenage girl in these villages in many, many years. And it’s because her family owned a homestay. And so for me and the impact on my daughter, to see that and also to ask myself if I lived there, would I have sold my daughter because there was no other way to provide for the rest of my family. So it’s just wonderful to see how business in that case has almost eradicated the human trafficking in that part of the country in about a decade of work. Just an incredible story.

John Coleman: Wow. Don. That is remarkably powerful. I was reminded of something similar, not quite as intense. I was able to take my oldest son, my nine year old, on a mission trip recently, his first in the developing world. And it’s just so powerful to be exposed or in my case, to be re-exposed to the way that other people have to live and to really put yourselves in their seats and to understand how difficult some of these choices are and to understand how deep the need is. To serve others in these parts of the world. And the idea that you can do that not just through nonprofits or through charity or through missions, but also through building redemptive enterprises in these countries, I think is inspiring. I know we want to pivot a little bit to how you advise people on this and maybe to kick that off. It can be overwhelming looking at opportunities like you just described for the average investor who’s in a 6040 public portfolio to think, how do I get into this? How do I start making an impact? You know, as you talk to folks and they want to do more of what you just described, what are the first steps that you often advise people on is they want to deepen the impact that they can have with their financial stewardship.

Don Simmons: I think the first question is whether a Christian’s portfolio should look any different from a non-Christians portfolio. If we’ve come to believe that stewardship is about financial competence, we may think the answer to that is no. We should do the very best that we can to make as much money as we can so that we can give money away. And I simply have come to disagree with that. And I manage several hundred million dollars for people in traditionally traded investments. Most of my clients are not Christians, but when I manage my own money and at least ask the questions of other Christians, how should my portfolio differ? As a follower of Christ, I have to either consider that maybe there should be some screening on my traditional investments so that my investments align with my moral and Christian values. But I have never been one who looks at my faith as do’s and don’ts, so I’d rather not be one who just excludes things, because that’s what my faith says. I’d rather be proactive. I call it proactive values investing. PVI How do we find investments that clearly align with our values that are seeking great commission outcomes, that are seeking to disciple people in the Muslim, Hindu and Buddhist part of the world? That’s a very different approach, and it requires a comprehensive management of all of the portfolio so that you can balance the risk and return with traditional investments to offset perhaps the higher risk and lower returns of these missional kinds of investments. And it’s yeah, it’s not easy. I think that people will need a guide for that. Unfortunately, the financial services world is one where regulation prevents most financial advisors from even talking about these kinds of things because their private placement, non publicly traded investments. And if you operate within a broker dealer FINRA regulated system, you can’t talk about a private placement investment in Ethiopia because your broker dealer doesn’t approve that. So my hope over the next few years is to be a voice into the financial services community. How do we release financial planners to provide this kind of advice? And that’s where I hope that FDI, Kingdom Advisors and Crown and others can start to address the compliance and regulatory issues and just the structural issues of financial advisor firms so that they can provide. That’s my publisher, really. Before publishing the book, when he had the manuscript, he said, Don, you’ve persuaded me. I need to invest differently, but who’s going to be a guide? And at that time I said, Well, there’s really not a guide. And over the course of a few months, I was persuaded by the Lord that somebody needed to set up an advisory firm to do that. So we’ve just gotten FCC approval, and we’re fully in business now to help people manage their money holistically, to include a comprehensive, risk adjusted portfolio that aligns with people’s values and simultaneously brings in these unique private placement investments that proactively bring forth missional and redemptive outcomes.

Luke Roush: So for the financial advisors who are listeners to the podcast and are likely very interested in this topic, what are the on ramps for them to be able to engage with you or be able to? You know, we talk a lot about how do we leave the ladder down for others? So like, what does it look like for you with your work to either leave the ladder down for others or to be able to engage with advisors who are interested in this space but aren’t really sure kind of what the first three or four steps looks like.

Don Simmons: Yeah, that’s a tough question, Luke. I think FDI can play a big part in that, that perhaps we may need to have a discussion group that’s specifically on this topic for advisors that gets beyond BRI, which is wonderful, but how do we start to engage at a deeper level of proactive values investing? Certainly they can connect with me at my website Steward Advisors Group dot com or the book web site, the steward advisor dot com. Mark Weston in Birmingham has an R.I.A. that is called Eversource. They are also starting to dip their toe into the water. Rachel McDonough has been involved with FDI and Kingdom Advisors. She’s got a business set up to help to train and coach advisors in this area. So the good news is, compared to five years ago, I would have said there was no advisors doing this kind of stuff. Now I can say, well, there’s three names that are starting to explore this, and I would hope that in ten years we have 100 RIA firms that are doing this.

John Coleman: Don That’s awesome. And it’s an encouragement and it mirrors what we’re seeing where the number of investment managers has dramatically expanded in public and private markets over the course of the last five or ten years. And the quality of those investment managers is continued to improve as well. Their ability to access great deals, to navigate those well, to be a good fiduciary for their clients. And I think that explosion of interest in faith driven investing and the ability to action it through great advisors and investment managers is really essential to move the industry forward. I’ve seen what you’ve seen. I came out of the mainstream investing world and you know, I would say the mainstream values investing world has at least a 20 to 30 year jump on Faith Driven Investing right now, I mean, it’s huge, but there’s a lot we can learn from that, right? And there’s a lot of ways in which we can catch up as we’re navigating a distinctively Christian approach to those topics. I think, you know, one thing that strikes me as I listen to you, Don, if we can back up maybe and focus a little bit more on you, is talking to you that you’re the kind of person who often becomes a pastor or a missionary who has a deep and deep passion for this. And yet you became not only a business person, but a financial person, which many people view is very far from the mission field. Talk to us a little bit about your history and just how you came to this field and came to believe it was your calling.

Don Simmons: Oh, you know, it really starts in college. I was a computer science major, so I kind of am a math geek. But by my junior year, I had determined that I didn’t want to sit behind a computer debugging program, so I needed a social outlet. So I ended up with a double major in computer science and psychology counseling, just the opposite figure that’s as far away from analytics as you can get. But as it turns out, being a financial advisor requires both. You have to be really good at the mathematics, and then you need to be able to communicate that with people and ways that they can understand. After college and I was in ministry, I worked for several years as an area director for Young Life, basically, which is an outreach to high school students, not a church youth group leader, but just to the kids that are at the high school. And when I look at my career now, the last 15 years, being involved in that business as Mission BAM or B for T business, for transformation movement. For those of you who understand young life, I just say this is just young life with business people. It’s the incarnation of ministry in the marketplace. It’s going to where people are. And so, you know, what I love about financial services and business, if we dispel the idea of a sacred secular divide, there’s no sacred or secular vocation. And we also have to remember that donations are not sacred and investments are not secular, that our investments are just as sacred as the donations that we make when we’re managing it all as God’s fiduciary. In the book, I call it Gods oikonomos. That’s the Greek word for household manager. A fiduciary or an oikonomos owns nothing that they manage. And personally, as I understand my role as God’s steward, I own nothing. Therefore, everything should be managed for His glory and to point people to him.

John Coleman: That’s awesome. Don, and you know, in that context, I also know you’re an engaged husband and father of four. I think I have four as well. And you do act. To fully participate in service offerings around the world. Talk to us a little bit more about how your faith plays into just your role as a husband and father, and also just how you, outside of your core business, seek to engage your faith in service.

Don Simmons: Yeah, I have a hard time drawing lines between personal and business, hence the reason that once my kids are 16, they’re kind of on the rotation to go on these adventures with me to strange parts of the world, you know? To answer your question, John, I just think that everything that I do is in service to the Lord. So it’s critical that I have a number one responsibility to my family and raising them up to understand matters of faith. Of course, as they become adults, they have to make their own decisions. But I want to plant as many seeds into them while they’re young, not just by sending them to church or Sunday school or camp, but for them to see in real life. How does this play itself out as a business owner, as a dad, as a husband? You know, my faith, just like I started that conversation, if I really believe what I say I believe, then God has to control and influence and invade every aspect of my life. So to me, it’s hard to draw a line between the two. It all kind of melds together.

John Coleman: That’s awesome. Don I think what we might do now is pivot to a very fun part of the program, which we call the Lightning Round. So we have explored a bunch of in-depth topics. Now we want to try and get your 30 to 60 second responses to a couple of fun topics. And I am going to start with a fun little fact that I learned about you in preparing for this show. Apparently you like to fly a 1948 Aeronca sedan float plane in 60 seconds. How the heck did you start driving a float plane? And what’s that like?

Don Simmons: I grew up on a lake, so I love water and boats and swimming. When I was probably about 30, 35, I got an interest in flying very quickly, got my private pilot’s license, and in order to stay current, you have to take extra classes every other year. My first class was flying a seaplane and I fell in love with it because of my love for boating and my love for flying. The problem is, is that you can’t rent sea planes. So if I was ever going to really enjoy that passion, I was going to have to buy a seaplane. And a 1948 plane is less expensive than most people’s car. So that’s how I ended up with Aeronca sedan, which was the float claim to have. If you lived in Alaska in the 1940. it can haul a lot of people and it’s got big windows, so it’s great for sightseeing.

John Coleman: As a financial person, before Luke takes the next question, I am struggling to think what the underwriting for renters insurance on a 1948 Sea plan would look like. So I can’t imagine that the sea plane renting business is not very active.

Don Simmons: That’s why you can’t rent them. You either need to buy them, usually in partnership with other people. So I bought this with a friend who restores airplanes and he completely restored it. It’s. It’s beautiful.

Luke Roush: Wow, that’s awesome. I want to pivot it over to just mentoring and just the importance of it’s something that you’ve talked about, love to understand your quick take on why this should not just be a priority for some but should be a priority for all.

Don Simmons: Yeah. I mean, mentoring younger people has always been a passion of mine, but specifically starting this new business at age 59, I’m thinking very differently than I did when I started the business at 23 in that I’m trying to identify successors, maybe people who can take the reins of this business in five years or ten years whenever the Lord has me start to slow down. So it’s not just in terms of business that I want to mentor people, but it seems like most of the conversations I have today with young folks who are are millennials or Gen Z. They’re already passionate about this holistic integrating faith into everything, but they need the wisdom and experience of those of us who have gone before that. So it’s not just the passions, but how do you tie that with the reality and you only get that with experience.

John Coleman: So, Don, I’m going to give you one last lightning round question. You’re a well-traveled person, often to relatively off the grid places. What’s been your favorite place that you’ve visited and why?

Don Simmons: Yeah, I think my favorite. Is Kyrgyzstan simply because of the deep friendships that I made there. And it is a country that is just spectacular with beauty. I was mentoring a printing publishing company there for many years from 2010 when there was a overthrow of the government for maybe the next ten years. And we would have our board meetings as camping trips out to the mountains between Kyrgyzstan and Kazakhstan. Frequently we’d have our campsite and campfires at about 10,000 feet of elevation. Just a spectacular, spectacular country. And the people are wonderful.

John Coleman: Yeah, I had a chance to spend a little bit of time in Central Asia, in Afghanistan, in Mazar I Sharif, which is up in the northern part of the country. And it is I mean, Central Asia is beautiful and desolate and different and everything you could describe and I know all the countries are quite different as well, but it’s one of those places that most people haven’t had the chance to be. And it’s one that I hope people get to at some point, because it’s often overlooked.

Luke Roush: And I was actually always curious where the name IBEX from IBEX Fund originally came from. But now I know because that’s actually where you find IBEX is above eight or 9000 feet in Kyrgyzstan, Tajikistan, Afghanistan. So that’s I assume that you saw them when you were over there.

Don Simmons: Oh, absolutely. And a great icon for a great business, thriving in difficult places.

Luke Roush: Oh, yeah. That’s awesome. Hey, one last question for you. We always like to wrap each podcast with some part of where God’s word is speaking to you lately. And so how would you just speak to what God has taught you lately through his word.

Don Simmons: You know, I wrote about this in the book about the Lord’s Prayer and specifically about give us this day, our daily bread. You know, the longer that we’re in our careers, especially one who’s a financial service guy, we should typically be approaching age 60 at a point of financial independence. And one of the things that I’ve learned, probably because of the involvement in so many businesses that struggle, is that I pray every day now for my daily bread, not just for my family’s needs, but for the daily bread, for the businesses that I’m involved with that are struggling. And my wife, Amy and I have made a commitment for the last 15 years that we need to live in the same level of faith as those who are dependent on us for financial support, either through donations or by the investments that we make in their business. We heard one wise man many years ago talk about matters of faith and that when you’re in your twenties, it may be a lot to give $1,000 to something that requires a lot of faith. But for those of us who are farther down the journey, we need to have the same level of faith. It probably just means we need to add more zeros to those things that we’re praying about. So to answer your question, Luke, praying today for the daily bread for myself and those that we are partnered with, because I believe God has provided enough resources in the world, they’re just not properly distributed. And in America we tend to hoard them for our own needs so that we think we can be financially independent, when in fact we really need to be dependent on God on our nest eggs. Hmm.

Luke Roush: Don, we’re grateful for you sharing wisdom with us and our listeners today. We’re grateful for the gift that you’ve given to a community with the book steward investor, and I look forward to reading it in more detail in the coming months. It just arrived last week and so excited to get into it and grateful for your example in a really positive and redemptive direction over the last decade plus. So we appreciate you.

Don Simmons: Thanks. Luke and John, this has been a lot of fun.

John Coleman: Welcome back to the Faith Driven Investor podcast. Today we have a very, very special session as we are pleased to welcome Phil Clemens. Phil was formerly the CEO of his family business, the Clemmens Food Group, which had more than 3500 team members around the world. He has worked in a variety of businesses, served on a number of boards, and I’ll say also is just known in the community as someone who’s incredibly supportive of others. He’s constantly looking to invest in others and just has a genuine kingdom mindset. And we’re really excited to learn from him today, both about his approach to investment and to thinking about faith led businesses and also the way in which he’s approached family legacy, family business and encouraging other families that are in entrepreneurship and running businesses. So, Phil, thanks so much and welcome to the show today.

Phil Clemens: Glad to be here.

John Coleman: Well, Phil why don’t we get started just with a brief biography. We reviewed a few of the details just now, but who are you and where do you come from and what is your experience been over the course of the last few years?

Phil Clemens: Okay. Well, my parents were less and Kay Clemens. My dad was in the business before me. I’m married to Linda. Next year, we celebrate 50 years in marriage. We have three daughters. Our oldest daughter actually works in the business. Our second oldest daughter is a missionary. She’s married to Paul College there with Mission Aviation Fellowship, and they were in Indonesia for 12 years and now they work in member care and they have four sons. And then my youngest daughter Ruth is married to Brant College. She was a schoolteacher. She’s a stay at home mom now and she has three boys. So we raised three girls and now we have seven grandsons.

John Coleman: That is a houseful, I bet, at holidays.

Phil Clemens: It is. It is. It’s fun.

John Coleman: That’s awesome. Phil and tell me you’ve had a pretty long history in your family business. Tell us a bit more about that, how it started and how you work through the ranks there.

Phil Clemens: Well, when my parents got married, they lived right next to the business. And at the age of ten, I was a middle son. I had two other brothers, one older, one younger. My parents gave us the option to go to work at the family business or do more chores around the house, both for the same pay nothing. So I decided I’d go to work at the family business. So the first two years have been get paid. At age 12, I got on the payroll at $0.75 an hour and work part time up through all of high school till into college. And then I began full time while I was in college. And when I got out of college, I actually asked to be interviewed with the business to see if I wanted to stay there. I didn’t want to feel that I was entitled to a job, that it was something I wanted to look and see. Did they want to hire me and did I want to work there? And I actually had interviewed quite a few places and the company business was the lowest pay, but the greatest challenge. So I went to work for the family business.

John Coleman: Well, they got a discount and they hired well, Phil, because you eventually went on to be CEO and chairman, although you stepped out of that role in 2015. And I want to pivot in a moment because I know you’ve been very thoughtful about investments and the impact of building faith aligned businesses, but just give us a brief overview of what you’ve been doing since 2015 as we circle back to that later.

Phil Clemens: Well, you know, I was always taught that you spend your first 20 or 25 years learning the next 40 or 50 years earning and your final years in returning. So I’ve been in the returning phase and for the last seven years I’ve been involved with about 12 or 13 boards. Some are faith based, others are family businesses and trying to help them. Some I actually go on boards where I become salt and light and try to share my testimony with others in business. So it’s been a real time of returning to others.

John Coleman: That’s awesome. Phil And we’re going to circle back a lot to this concept of family business because it’s something you’ve been really thoughtful about, both in your own business as well as those of others. Before we do, though, you know, this is the Faith Driven Investor podcast and we think a lot about the ways in which people can integrate their faith into the way that they invest. Would you mind talking for a moment just how you think about that topic?

Phil Clemens: Yeah, I think, you know, as a business person, we invest our time, our talent and our treasure. And some of it’s the capital investing financial capital. And how do we get a return on that and how do we become a good steward of what God has given us? And one of the things we have done as a company is we believe in tithing our profits and not only tithing our profits, but we share about one third of our profits with our team members. We believe it’s really important for the team that helps to generate the profit, that they get a fair amount of that profit. And so we encourage the company to continue to invest globally, but also invest back in our community and back into our people. We think that’s really, really important. And from a stewardship standpoint, I think some day God’s going to ask us, what did you do with what I gave you? And we’ll look at and even give answers of how we actually invested back in our community and to our people.

John Coleman: Phil that’s awesome. And, you know, one of the things you brought up, you’re describing a bit what some people would call stakeholder capitalism, right? Where you’re thinking about shareholders is one of many groups that you’re considering, whether it be the community employees, in this case, your own faith in God. How do you balance those tensions between the economic returns of the business and these other stakeholders that you want to account for?

Phil Clemens: Well, we think it’s really important that we actually put ourselves last. We believe putting God first, putting our employees second, and then the shareholders come last. You know, a lot of businesses do just the opposite. They say shareholders get the first amount and then we give some to our employees and maybe some to charity. We believe it’s just the opposite model that God has told us. If we put him first, he will bless us. And I think he blesses us to be a blessing to others.

John Coleman: That’s awesome Phil. And as you think about the way that that’s impacted your employees, you know, one of the things we observe is that we have a conviction at the firm that I work at, that healthy cultures create competitive advantage, that investments in people actually do have a really positive return on investments and that caring for people will actually lead to greater economic success for the business. Have you seen that in your own business and how has that manifested for employees? What does it look like for you to invest in employees?

Phil Clemens: Well, yes, we have absolutely seen it. And, you know, you don’t do it to get the economic benefit. That’s just a consequence of God allows because of a choice you’ve made. And to me, when you invest in your employees, I can give you a story after story of how we’ve blessed our employees from time to time. And oftentimes when we bless them, we ask them, Is there somebody that you should be blessing because you’ve been blessed? And I will tell you, there’s times when we’ve give significant bonuses to our team members, and I hear stories of how they turned around and gave their entire bonus away to somebody else who was hurting because they had a chance to bless somebody else because they have been blessed.

John Coleman: Wow, isn’t that amazing? And that’s such a great reflection of scripture and really the core element of the great commandment, right to love God and love others. And you see that as you express that, that it makes it even easier for others to express that in the way that they live. I want to pivot now to the specifics of a family business, which is obviously quite a unique context, as opposed to just a general business. What do you think are the unique challenges of running a family business?

Phil Clemens: Well, every family business has three unique circles where other businesses only have two circles. In a normal business, you have the business circle and you have the ownership circle. In a family business, you add one other circle, and that’s the family circle. And what’s really critical is you need to know what hat you’re wearing. You know when to wear a family hat, when do you wear an ownership hat and where do you wear the employee hat? And unfortunately, many family businesses, actually, they only wear one hat. They wear a family hat, and that trumps everything. But unfortunately, when you enmesh those together, it ends up with a lot of confusion to family, to employees, and to others and actually to yourself.

John Coleman: One, it can make it a bit more personal, I would imagine, to, you know, with in a typical business context, we obviously try and express love for those with whom we work, but they’re not actually family. Whereas, you know, the potential for hurt feelings or for things to be taken personally in a family business seem to be much higher. How have you navigated that over time, especially as you walk that balance between owner, employee and family member?

Phil Clemens: Well, I would tell you that in my years of employment, I’ve probably have terminated at least a dozen of our family members. And I have to realize when I terminating them, when I was wearing the boss hat and as soon as I terminated them, I immediately took off the boss hat and put on the family hat because they’re still a family member. And how do I relate to them as we go through it? And one of the things that I have a rule that I set up is what I call my communion rule. And that means I may terminate you as an employee, but if I come to church with you on Sunday and we have communion, if I can’t take communion with you, I’ve done something wrong. While you may not want to take me with me, but that’s okay if I can’t have communion with you. I’ve done something wrong and I need to go and confess something to you.

John Coleman: Wow. That’s an amazing heart check, Phil. I’ve never actually heard someone describe that. You know, that would be useful metric, I think interacting with anyone, if you’ve treated anyone in a way, you feel like you can’t take communion with them. It’s probably a gut check that you’ve done something wrong in that relationship.

Phil Clemens: Yeah. And oftentimes those damage relationship and they damage every one of the circles. They damage family relationships, the ownership relationship and the business relationship.

John Coleman: You know, one of the other unique elements of a family business is that the shareholders or owners of the business aren’t some disembodied third party or large group of investors. Employees see the family every day, and that probably creates unique opportunities and tensions. How do you make sure the family and the employee base are really aligned?

Phil Clemens: Well, I should tell you that our family is really large. Let me just give you a little bit of history from our family. My grandparents had 14 children. For those children died before their first birthday. So they raised ten children, five boys and five girls. So living in our family today from my grandparents are about 850 to 900 family members.

John Coleman: Wow.

Phil Clemens: 380 of them are shareholders of our company. So less than half of the family are actually shareholders. 23 of those actually work in the business. So how do the 23 relate to all of our team members? Is they don’t relate to the entire family. But, you know, from time to time, we eventually invite the entire family to be with our shareholder base because we want them to see our team members as part of the family.

John Coleman: Phil I had no idea how big your family was actually in more than 300 shareholders. That is remarkably complex for a family business.

Phil Clemens: When our shareholders actually go right now from the second generation to the sixth generation.

John Coleman: Unreal. What does it look like to have a shareholder meeting just tactically? How do you think about that and what are the conversations look like?

Phil Clemens: Well, we try to really focus on the business, not focus on the family, but we also look and say, what does it mean as owners? How do we look at this business and again, really have them understand a mindset that they’re an owner, but they really only have ownership. They don’t actually act as an owner. So it’s a very different mindset. As an owner, I can go do with it whatever we want. Well, if we really believe God owns this business, He owns that business and we just have ownership in it and we’re stewards in it. So we really want our shareholders to see the business as a stewardship business, but also when they get shares given to them from their parents or grandparents, that they really see this as an heirloom, something that they can take care of and gain a value to pass to the next generations.

John Coleman: So there’s a real cultural element to it, just the mindset that your family has about its ownership stake in the business, and then there must be kind of a tactical component to it as well. So do you have almost like an executive board within that shareholder base that really leads most of the day to day decisions in the business? Or how do you think about that and how is that group selected from such a large group of family members?

Phil Clemens: Well, what’s really interesting, we do have something we call the Clemens Family Owners Board. That’s a group that speaks for all of our shareholders to speak as one voice. We actually have a board of directors to oversee the business, and it’s always been our intention to have the majority of our board members be independent directors and only have a few family members on the board. We want to have the board held very high accountability to our management team.

John Coleman: I mean, that’s best practice. Even if you think about public companies where you’re generating real independence for the board, that’s going to feel risky to some family members. Though I would imagine appointing independents, how do you select those folks and how do you get the confidence of the family as you’re picking those people?

Phil Clemens: Well, we have real criteria. We look at we want to make sure that they are going to be in align and embrace our mission. Now, our mission of our company is very unusual. It says this We aspire to operate in a way that honors the Lord Jesus Christ as demonstrated through ethics, integrity and stewardship. So when we go and interview potential board members. We want to say we have a very unique mission. And we’re going to ask, can you embrace this as we go forward, because it clearly is not politically correct in the 21st century?

John Coleman: Yeah, that’s a very distinctive mission. I mean, we I often say as I write about things like purpose, culture and mission, that a really good culture and a really good mission will turn off as many people as it excites. Right, that people

Phil Clemens: It does.

John Coleman: Know they want to join and no, they don’t want to join by looking at it. And if it’s something that’s kind of so broadly acceptable that everyone kind of thinks they want to join or be part of it, it’s probably not very distinctive right now. And so what I love about that is you’re so distinctive about the values of the business and so clear with everyone who joins about the expectations coming into the business.

Phil Clemens: And what we do, we actually take a look at that. Our core values is our foundation. And our core values are ethics, integrity and stewardship, which is right in our mission statement. But we also give them very simple definitions ethics. I’ll do the right thing. Integrity, I’ll do what I say. Stewardship, I’ll build a foundation for the future. From that core value, we build our mission and therefore we add the Lord Jesus Christ into it because that’s who we’re serving. And we want people to know that we’re going to be held to a higher standard because of having him at our mission statement. We don’t try to wear it on our sleeves as a banner. It’s just this is who we’re going to be accountable to.

John Coleman: Well, it’s in some ways, it is a great accountability mechanism. I know I work in a business that has got explicitly as part of our mission. And I was in a debate recently with some of our team members, and one of the team members said, you know, are you comfortable with this decision with people holding us to a higher standard and think of us as a representation of Christians in this area? And it was kind of a dagger like you really do have to hold yourself to an exceptionally high standard, probably higher than most people would, because you feel the burden of reflecting on your creator and of your savior. And that’s a higher burden, I think, than any fiduciary burden that exists.

Phil Clemens: Absolutely. But let me just tell you one story real quick about I was teaching a leadership class at our company, and part of it was about our mission statement and one of our team members who is new out of college, a real potential rising star. So the reason I came to work for this company is because of your mission statement. And so I asked the question, are you a Christ follower? She said, Absolutely not. She said, When I was growing up, I was raised Catholic. When I went to college, I threw away all my religious beliefs. But when I came out and I saw what this mission statement was, I was attract this company. And I said, so let me ask you this. How do you think you honor Jesus Christ? The Lord Jesus Christ. That’s very easy. She goes, She said, We have our core values. The first is ethics. I’ll do the right thing. If I come to work every day and I’m doing the right thing, I think that’s going to honor Jesus Christ. If I come and I keep my promises with integrity, I’m going to honor Jesus Christ. And if I do stewardship, which I build a foundation for the future, I don’t have a short term mindset of a long term mindset. I think that honors Jesus Christ. And I believe honoring Jesus Christ is a good thing to do. Even though I am not a Christian or a Christ follower. I just think that’s something that’s really amazing. And I call this person a pre-Christian. She’s moving towards it.

John Coleman: Isn’t that amazing? You it shows not to go off in too much of a tangent, but it just shows what a powerful figure Jesus was that even in the midst of cultural debates about Christianity and different perspectives on that, I think the figure of Jesus and what Jesus stood for so very clearly in terms of loving others, in terms of caring for others, in terms of acting with integrity, is almost unassailable. And people see that and they’re drawn to it. I mean, that’s nothing original to say, but you really are drawn to it and it’s such a good reminder of that. When we talk a little bit about, you know, you’ve mentioned the ways you interacted with employees, etc.. How long were you CEO of the business? Remind me.

Phil Clemens: I was CEO from 1994 until I retired in 2015.

John Coleman: Wow. An incredibly long tenure. And what I’ve heard is you actually spent a ton of time on succession planning within that. And again, with the complexity of family ownership and presumably family leadership in the business, what does succession planning look like in a family owned business like this versus, you know, a publicly traded business or some other form?

Phil Clemens: Well, you have to be very intentional in succession planning. Our owners have come along and said we prefer to have a qualified family member leading this business. Now, if we don’t have a qualified family member, we won’t have the most qualified person in the business deleted family or not. So as I was looking towards my own retirement, I wanted to make sure that I could take to our independent board between three and five highly qualified family members. So I went through a process. It took almost 15 years of meeting with anybody who wanted to see what leadership was all about. And I met with them on a quarterly basis where they read a book. I talked to something I called Lessons in Leadership. What do leaders have to know? How do you really build your character? For instance, I spent a lot of time on, you know, about the cost of leadership. So often times people want to understand all the benefits of leadership and what are all the perks that come with it. I want to tell you what this if you don’t understand the cost, you’ll never appreciate the benefits. And I want to let them know that there’s a big cost to leadership. And if you’re not called to be there, you won’t be effective. And are you really called to be a leader and challenge them? Don’t just try to get a job that you think is going to be one that I can brag about and say, here’s what I’ve done, but one that you’re really saying, this is what I’m called to do because it’s not going to be easy.

John Coleman: That’s remarkable, Phil. And, you know, as you’ve put that challenge before people. How have they responded and what is that mentorship of the next generation look like over a period that long?

Phil Clemens: I think if you go back to the Old Testament, the Old Testament talks about telling the story and be able to tell it wherever you’re going. And I think it’s really important, as you mentor, the next generation. They don’t understand all the struggles that happened in the early days. They don’t understand how we got to be where we are today. And they need to know what are the struggles? What are the things we did right? I think one of the things with family business is you’ve got to tell the story, warts and all. Tell them what you did wrong and how did you learn from it. And again, let them know that you’re not perfect, that you’ve stumbled, you’ve done some things wrong. But here’s how we’ve corrected it and here’s how we go forward in doing that. And that’s really part of the whole mentoring process. And to sit down and say, Here’s lessons I’ve learned. I’ll tell you where I screwed up and stuff that I didn’t do right. And I want to prevent you from going down that trail.

John Coleman: Well, you’re describing a really thoughtful succession process, but also a complex one. And you’ve got a complex ownership structure. As you mentioned. You’ve got this whole third circle of accountability versus a typical business, and the business has been around for a very long time. Over that time, you must have gotten pressure to sell the business, either from parties coming in to try and buy the business or from family members who thought it might be time. Why has it been so important for you to maintain that family ownership structure?

Phil Clemens: Well, we actually look at this as being our legacy, and the legacy is an heirloom. And, you know, any time you receive an heirloom from the prior generation, you can do one or three things with it. You can put it on the mantle or put it there for everybody to look at and just see what it’s like. The other thing is you can say, well, this heirloom doesn’t mean a whole lot to me. Let me see if we can sell it and see what it’s worth. Or the third thing is you can treat it as a real stewardship issue. It’s been handed to you. How can I make it of more value to pass it to the next generation? And that’s really what we try to do is try to say, this is an heirloom, it’s our legacy and we would really like to pass to the next generation. Yes, we could sell it, make a lot of money. But that’s not what life’s all about. Life’s about how do we treat our employees? How do we treat our animals? How do we treat our customers? How do we treat our community? How do we become salt and light in so many different areas? And so the business is really it’s not ours, it’s God’s. And how do we take care of it for him? Because some day we will give an account for what we did with what he gave us.

John Coleman: I want to touch on one thing you mentioned, because it’s another unique element to this business that doesn’t exist anywhere, which is the treatment of animals. Obviously, this can be a tricky sector and I’m sure that some family members are more sensitive to that than others, as are people in the community, in the pork business, obviously you’re dealing with live animals and there are slaughterhouses involved, etc.. How do you, as a business and a family, think about the proper care of animals in that perspective?

Phil Clemens: We actually go back to the Bible, talks a lot about it, and you take care of God’s creation in the best way possible. And we try to have the best animal welfare programs in the world providing space, providing proper diets, proper medical care for our animals. We try to really treat them really in the best way possible. And I will tell you this, when you treat the animals in the best way possible, they do actually produce a much better meat product. So it’s a full circle that comes around. But we look and say, I’m going to actually answer to God, how did I take care of his creation? Did we treat those animals with respect even though we’re going to harvest them and we harvest 22,000 hogs per day, so we harvest a lot of hogs and we take care of a lot of animals, but we want to take care of them in a proper way.

John Coleman: That’s remarkable, Phil. I want to circle to another concept I’ve heard you all talk about before, and maybe you can articulate it for us, which was this transition from a family business to a business family. And obviously this starts to lead into just the way in which you consult other families now. But what does that mean exactly? And what did that mean for your company as you went through that transition?

Phil Clemens: Well, let me just explain part of the process this way. When you look in the mirror each and every day, you know, you look and say, what do I see in the mirror? Well, it looks exactly like me, but it’s exactly the opposite. The same is true of a family business versus a business family. Now, let me describe a family business, and most of them are family businesses here, especially in the United States. Family members feel they’re entitled to a job. They’re guaranteed a job. Sometimes a parent say, we mandate you come to work in the business. And that’s what a family business. I have a job because I have the right last name and I become the employer of last resort. If I can’t get a job anywhere else, the family will hire me when I come to work at a family business. The rules are very different for family members than they are for any other employees. Whether it’s wages, benefits, anything, they’re just different for family. When it comes to leadership, the family always chooses the leader. Now, on some families, it goes to the point in time it’s got to be the oldest bloodline family member. Some it has to be only a male. But family businesses can also choose an outsider to lead their business. But the key is the family always chooses the leader. Finally, the main goal of family business is family harmony. We all need to get along. And I tell you this, when you have 380 family shareholders, that’s not going to happen. So family harmony is really hard to achieve. That’s why the average family business only last 25 years, only one third go to the second generation, only 12% go to the third generation, less than 4% go to the fourth generation. Wow. Now, when it comes to a business, family, family members are encouraged to come into the business, but they have to be qualified. They don’t get there because of the great last name or because they’re an owner. They get there because they’re qualified to come into the business. And when you come into the business, the only hat you can wear is employee hat. You can’t wear a family hat. You can’t wear a shareholder hat. Only a family hat. When it comes to leadership in the business family. It’s always to the most qualified. If that’s family, it’s great. If it’s not family, that’s okay. Also, because it’s the most qualified when it comes to work rules. Work rules are the same for everybody. You don’t get special privileges just because you’re a shareholder or family member, you know? And the business is there to help the family owners. In a family business, it’s kind of like the family comes in and it’s like the IRS knocking at your door. I’m from the IRS. I’m here to help. Well, in the family. I’m from the family. I’m here to help you run this business. That’s not a help at all. So the main goal of a business family is profitability. And as a result of being profitable, you can work on family harmony. Two models, exactly the opposite of each other. The unfortunate part about it, I would say 80 to 90% of family businesses in the United States operate under the family business model. They’re going down a pathway of unsustainability. But to make the change to a business family is extremely hard. It is not an easy process. And we went through it. I had to terminate some of our long term family member employees. I had to terminate our largest shareholder as we went through this process again, but still put on that hat. They’re still a family member. There’s still an owner. They’re just not in the business.

John Coleman: That’s got to be a remarkably hard process, as you described. And then to immediately switch hats from kind of owner or employee or CEO having to terminate these folks to a family member, comforting them and trying to rebuild relationships is not a seamless transition. You know, you’re consulting a ton of other family businesses now and you’re giving back partially by trying to help families be more thoughtful about the way in which they run their business. Where do you see that go wrong for families right now, or what are some examples that there are folks running, family businesses listening now we’re investing in them. What are some of the most common errors that you see?

Phil Clemens: Well, I think that one of the biggest errors is the title of entitlement. I’m entitled as the owner. I get to do what I want to do. I get the call, all the shots. It really is all about me, even though they don’t say it in that way. But that’s what really happens. And they go down a path. It’s a great destruction. Let me just go back to one thing that I try to share with the people I consult with is let me tell you economically what happened to us. And we did not do this for economics. We did it because it was the right thing for us to do. Our stock gets valued by an outside agency each and every year. In 2000, we went through this change. Our stock was valued at $30.62 a share. Our share price in 2022 is $2,065 a share. It’s been in a remarkable growth. We didn’t do it for the economics. But when you do things the right way, you do get rewarded.

John Coleman: That’s an awesome reminder. Phil, one of the things you’ve emphasized throughout, I think implicitly is this idea of being a servant leader and even listening to the way in which you approached your job as CEO and as chairman. Think about animal care, employees community. How do you personally keep a focus on a servant leadership mindset when you’re in that position, and particularly in a family business or in an owner operated business where, you know, there are all kinds of temptations with the economic benefits, with the way in which people treat you, it’s easy to lose sight of the fact that you’re actually serving others. How do you stay grounded in that context and continue to be a servant leader?

Phil Clemens: Well, let me start with the economics and then go back to the mindset. One of the things that we did in our company is we have a very strong profit sharing plan and bonus programs. Our bonus programs start with our hourly employees before any management can get a bonus. Hourly employees have to get their full bonus. And when it goes up the line that the supervisors or the other people get their bonuses, but the officers do not get any bonus until the people underneath them get a full bonus. And we’ve had years where the officers got zero bonus and everybody else in the company got full bonuses. Again, that’s putting yourself as the last one in the line rather than the first one. You know, the average business, the CEO, he’s the first one to get a bonus. And if there’s anything left over, then we’ll give it to others. We do just the opposite. And again, it’s because we have this servant leader mindset. One of the questions I like to ask people, how can I help you? Or How can I serve you? And it’s surprising when, as the CEO, when you come down and say, How can I serve you? They look and say, Oh, you’re the boss. I need to serve you. No, no. How can I help you? Because if I can help you, in reality, we help everyone. And how do we do that? And it’s a real mindset of when the person said we actually should change our name from the chief executive office to the lead servant. And to me, that’s what we want to be, is put others first. And when you put others first, it’s surprising how you get actually rewarded. But you don’t do it because you’re getting rewarded. It’s just the right thing to do.

John Coleman: Once again, what we see time and again is it creates an exceptional culture. And again, I firmly believe that culture is the greatest competitive advantage in business. It’s the hardest to replicate. You can’t flip a switch and create a culture and creating a business that people want to work in, where you’re getting the best talent, where they’re staying, where they’re dedicated to your mission, can create extraordinary performance and excellence in the business. But no one works for a leader who comes across as selfish or narcissistic and wants to be that dedicated to the culture. It just doesn’t happen. You almost have to have a leader who’s humble, who’s willing to elevate others, and who’s a servant leader to create the kind of culture that can outperform.

Phil Clemens: Absolutely. Let me just give you one story that just happened last year. Our current CEO told me he said we had an employee, a long time employee came up and said, I’d like to sit down and talk with you. I’m leaving the company. And the CEOs thought, okay, what did we do wrong? Why does he want to talk to me before? Why is he leaving? He came up and he said, Well, I need to move out of the area because I have some close family relatives that are sick. But he said, I want to come up and tell you how much this company has meant to me. Before we had one of our employee meetings, you ask everybody, is there anybody we can be praying for? And he said, I raised my hand. He said, My wife is very sick. And you said, Can we stop and pray for her right now? He said, You won’t know what that did for me. When the CEO takes time to pray for me and my family, he said, it’s the hardest decision I ever made to leave this company because this company means so much to me. But I’ve got to take care of my family.

John Coleman: Isn’t that extraordinary? I mean, that’s extraordinary. And you just love it because you feel as a leader. One of the things that’s closest to your heart, I think, or at least I know this on my end, is you want the people under your care to flourish. You want the people that you’re entrusted with leading to flourish, to enjoy their lives, to be fulfilled, to have a sense of purpose and meaning. And again, to hear that from someone. And to hear that that’s clicking and that they’re invested in it. It’s just one of the greatest rewards I think that you can have as a leader.

Phil Clemens: Absolutely is.

John Coleman: So, Phil, we’re going to do something fun now. We’re going to transition to the lightning round. We could go forever. And this is a super interesting conversation for The Lightning Round. We like to keep it punchy. We answer in kind of 60 to 90 seconds. Some of the questions will be a little bit fun. Some will be a little bit deeper. And then we always wrap up by asking people, what are you learning through God’s word right now that you’d want to share with others? And we prep people for that because some of us like me are bad at remembering verses. So give us a minute to collect your thoughts if you if you want to, about what you’re going through recently. But to kind of start the lightning round with a fun one, you work in the pork business or you’ve worked in the pork business. I imagine you, like me, are a fan of various pork products, whether it’s bacon or pork sausage or pork chops. Do you have a favorite pork product and how do you like to prepare it?

Phil Clemens: Bacon By far, bacon makes everything taste better. In fact, we gave our shareholders all a sweatshirt there that says Bacon makes everything taste better because it just it adds flavor to everything.

John Coleman: I’ll tell you, the first time I realized that was the first time I had chocolate with bacon in it. Bacon, chocolate. And I thought, oh, my gosh, there’s nothing that bacon doesn’t make better. Yeah, it’s true. On a more serious note, we’ve talked about a bunch of different lessons today. If there was one. One key message you could deliver to the CEO of a family business right now who is a family member, someone running a family business. What key piece of advice would you give them?

Phil Clemens: Develop a thick skin. People will say things to possibly hurt you. Just allow things to go right on through. Don’t dwell on them. Develop real thick skin.

John Coleman: As one of three brothers and a father of four, I just can’t imagine that siblings and family members would ever say anything hurtful to one another. Phil That never happens in our family. That’s.

Phil Clemens: It happens. It happens whether you’re a Christian family or not. That’s for sure.

John Coleman: It’s for sure. You know, this is such a unique area. One of the questions I have for you is, is there a good book or two that you would recommend to people thinking about family businesses?

Phil Clemens: Well, there’s a couple actually a book that’s not about family business, but I think it’s really good. Andy Stanley wrote a book called Principle of the Path, and the principle is direction, not intention determines destination. And so you really have to examine what direction am I going in, because every path leads to a destination and am I going to my desired destination or not?

John Coleman: Well, you didn’t know this Phil, but you won me over, Andy he’s my pastor. I go to Buckhead Church in Atlanta and I remember the original sermon with the Principle of the Path. And then I read the book and man, Andy just has such a magical talent for synthesizing complex topics, for making them simple and for making them. You hear it and you think, Oh my gosh, that’s obviously true, and it can help you reorient your life. And that’s such a talent, I think, for a leader which which I think Andy is, is to take the complex, make it simple, make it powerful, and make it such that it’s practical for people’s lives.

Phil Clemens: And his new book, Better Decisions, Fewer Regrets, you know, asking those five different questions, they can really help you in business to say, how am I really doing in business? From integrity to wisdom, just all the questions he asks are really, really important.

John Coleman: All right. One more fun question, one more serious question, and then we’ll turn to what you’re learning from scripture. You work in a pretty interesting family business. You’ve talked to a lot of family businesses. What is the most interesting family business that you’ve encountered?

Phil Clemens: I would say this every family business is unique, but each one is the same. And I would say that the family business said probably one that I worked with, which is really dysfunctional. They were in the cabinet making business and the father was one that. Just would not let go. And they just. If you talk about ways they could screw things up in different ways, they just couldn’t get out of the way of killing each other. It’s really a shame, but I think that’s probably one of the most unique businesses. How that people can treat family within a business is just unbelievable.

John Coleman: What’s the and we’ll do one last question. What is the best piece of advice you’ve ever received?

Phil Clemens: I think the best piece is engage brain before you put your tongue into action. You know, so often times we think we’re really smart. We can answer real quick. But if we stop and think first before we talk, it’s really, really important.

John Coleman: Here’s the danger. Phil, everybody listening to this is listening. In the past few years since I started hosting knows that I probably don’t do that often enough on this podcast. So that’s good advice for me to make sure I’m thinking things through before I spit something out, maybe to just close this out. Phil, I mean, you’re obviously such a thoughtful believer in your walk right now. What is God teaching you that you might want to share with others?

Phil Clemens: Well, I think God’s teaching right now is one of the greatest gifts he’s given us is choice. You know, the old saying is, you can choose your choices, but you can’t choose the consequences of your choices. Once you choose them, they make you. And if you go all the way back to Genesis chapter two in the Garden of Eden, he gave Adam and Eve a choice, and he said, There’s a consequence if you don’t make the right choice. And if you go to the Bible, there’s so many times that God has given us choices. You know, if you think of Jeremiah, he talks about, I have plans for you, I want a hope and to succeed. That’s a consequence of he says in the verses right after that, who you’re going to choose to follow. And that goes back to Joshua. Joshua, 24 Joshua asks the people, Whom will you serve the God of your fathers or the other gods around you? He says, For me, and my household, we choose to follow the Lord. And, you know, unfortunately the nation didn’t follow. But you look at Jesus, he says, Matthew 24, he says their choice Are you going to serve God? Are you going to serve money? You can only serve one. Which one are you going to choose? And there’s consequences for choosing either one. And I think to me, I’m constantly drawn to God. Why did you give me all these choices? Well, he wants us to be thinking. And how do we learn to make the right choice day in and day out?

John Coleman: Man. Phil, that’s such a good word and such a great way to conclude the podcast. It’s obvious talking to you why so many people respect you and seek you out for advice on these topics, and just a reflection of the great leadership that you’ve had through the years. So thank you so much for coming on today and sharing what you’ve learned with the listeners for the Faith Driven Investor podcast.

Phil Clemens: It’s my pleasure to do it.

John Coleman: Welcome to the Faith Driven Investor podcast. This is your host, John Coleman, and we are bringing you our monthly marks on the markets. This is where we feature great Christian investors across the spectrum offering perspectives on current market environments. We are actually recording this right now just before the holidays, so there will be a longer delay than normal. We usually release this just a few days after recording, but we’ll be releasing this after the New Year. So happy New Year to everyone. We’re recording this just on the eve of Christmas right now. And we are hopeful that many of the themes that we talk about will be just as relevant a couple of weeks from now as they are now. I’d like to welcome today our two guests, Jake Thomsen, who leads venture capital investing for Sovereign’s Capital, and Ben Hames, who’s the CEO of Eight Ventures, Private Wealth in Atlanta.

Jake Thomsen: Excited to be here. A lot going on in the marketplace and in tech. So I’m honored to be with you both.

Ben Hames: Well, it’s wonderful to be here, John. Love the work you guys are doing through sovereigns. And I look forward to a good conversation today.

John Coleman: Well, today we have a very interesting topic in mind. We want to talk about the great tech reset and whether there is, in fact, some sort of reset going on within technology. Obviously, over the course of the last year, growth in technology stocks in particular will have declined. We’ve seen a slowdown in growth, equity and venture capital markets on the private side. And then there have been very high profile examples of disruptions within tech companies like Meta, like Twitter, which we’ll dig into a little bit more deeply coming up and across the board. So the first question I have for you all and I’ll start with Ben, maybe for the public markets perspective and just hear from Jake how that’s playing out in private markets. But is the current decline in technology stocks likely to go further?

Ben Hames: Yeah, great question. You know, I think we all understand the enhanced risk of what was effectively free money. It’s been a very cheap time to hold long term assets over the last two years. And with that, there’s a loss of discipline. And so if you look back, you know, a year or two years ago, you see some very lousy valuations, particularly tied to non-profitable tech. As you know, as I’ve been going through year end meetings and planning meetings for 2023 with clients, you know, we talked about what we did well, what we could have done better. You know, certainly look in the mirror as a manager and trying to look at those things and very much of a Warren Buffett annual letter style to look at pros and cons, what we did well, what could have done better. You know, one of the things that you really needed to do in 2022 is the rates reset and begin to normalize is to have avoided the big pitfalls. One of those was non-profitable tech, which has just been crushed. You know, our Cathie Wood followers out there have felt the [….] of it. You know, Ark innovation, ticker symbol ARKK down 80% alphabetized. And that’s really what it is. It’s a collection of interesting ideas, futuristic companies, disruptors, you know. But when you cut down to what the EPS, I think their 2022 number is, you know, almost $6 a share loss. Right. And this is trading at 160 plus. You know, now we’ve lost 80%, but still worth 30 something dollars a share and we’re losing $6 a share. Right. You know, you did the math on that. It’s just so dramatically different when you start to imply a real cost of capital. So, you know, again, you know, as I talk to folks, sometimes clients who are interested in those kind of investments, you know, over the last few years, it’s really been a, gosh, how do we even think about the value of these things? Right. This could be a great idea. This company could in fact, be a disruptor in the market. But we’re just out in space in terms of these valuations. You have a lot of companies who don’t even sniff a profit in the near term and they’re trying to tens of billions in valuation. So yeah, yeah. I think the big thing in 22 is I think about it is just really being exposed. If you were, you know, pretty heavily invested in non-profitable tech. So, you know, I’ll say one other thing and in wrap, yeah, as we think about, for example, the tech crash around 2000 and look at where we are today. I mean, you really do. You are anchored today by big, stable mega tech companies, companies that we live by. And really, those valuations are pretty interesting. Now, you know, I always go back to Warren Buffett like a good Christian, go into C.S. Lewis in investing, you know, we look into everything he has said in his annual letters and parsed those and learned from them. But, you know, if you like, if you like the stock, you know, this company at 40, you should love it at 30 and you should be banging in the desk to buy it at 20. And so, you know, I look at Google, I look at even Meta, which is, you know, interesting and risky. This stuff is beginning to look interesting. Make Tesla, you know, we’re now at 22 times next year’s earnings, I think. So again, those that love that much higher prices should really be interested now.

John Coleman: Yeah, you are right. That’s one of the things I see that’s different than the dot com bubble, which we can talk about a little bit. You know, we saw precipitous declines, but at that time, so much of it was really speculative technology, right? There wasn’t this floor of companies with genuine business models like Tesla is a good company. Amazon’s a good company. You know, Meta is a good company in its own right. At least you could argue it is improfitable, right. Some of these are profitable. And it does feel like a lot of the air has already been let out, although it certainly could face further declines Jake. How is that playing out in private markets right now?

Jake Thomsen: Yeah, so the private markets really follow public so much in the out of from what you guys are saying. I think that the SPAC segment about those tech companies is probably the closest to the dot.com. And I think we’ve seen a lot of that air let out, as you mentioned, John. And I think you’ve been you’re talking about Google and others. It feels to me that there’s an upward pressure on a lot of these companies that are inherently still very high quality. They’re cutting a lot of costs. Right. Google is expected next year probably to cut 10,000 people that an average salary of $300,000. That’s $3 billion. That’s going to go to the bottom line almost overnight. And so you think about that upward pressure or below that long term valuation multiples and yet interest rates are still climbing. Right. I think what we saw in the dot com bubble was as soon as everything popped, started getting a little bit higher quality in the fundamentals and then interest rates started going back down to call it six and a half percent, 1%. That’s where we really saw things starting to come back. So that’s what we’re watching for on the public side, because it does inform everything in the private markets in the later stages in private markets, ten, you’ll call it series B, C, D plus really mimics those public markets. What we’re seeing really interestingly on the earliest stages of seed especially is there’s still so much dry powder out there, so much that’s sitting in funds, still $200 billion or so that there are many fewer deals being done on the seed side. And yet the valuations are staying pretty steady. So it’ll be interesting to see from my vantage point are racing to come back and public markets recover before all that seed capital is deployed and those valuations start to normalize a little bit, too. But that’s the big unknown right now that we’re watching. But certainly seeing a lot of those valuations that have come down seem to be pretty steady below the long term averages. And that makes for a pretty compelling market to be investing in.

John Coleman: You know, you touch on one topic that I’m interested in, Jake, and I’d put this to either of you. I remember the very first time I visited Northern California to look at tech companies back in graduate school. I visited one of these companies we’ve named, which shall remain nameless, and it was just overwhelming the amenities when you walked in the door, right. There were, you know, recycled rainforest wood floors, and you were never more than a hundred feet from a full kitchen. And, you know, all this sorts of stuff that tech has become just notorious for profligate spending, incredible benefits, great if you’re working there. But the culture was one where money flow freely and there were a ton of fringe benefits. Now we’re really seeing the first round of layoffs with this new era of tech, even at the big and profitable companies like Meta. Is that going to change culture? You know, do you think these layoffs are going to be consistent throughout the industry? Do you think cost saving now becomes something that tech companies look to to generate profitability? To your point Ben and what does that do to the culture of Silicon Valley and the culture of technology?

Ben Hames: Yeah, I mean, I think it’s really part of this reset where you do have a real cost of capital now and you have a new focus on the bottom line and earnings per share. You know, not to suggest that 2021 for Meta is, you know, should be the baseline of what we would consider normalized earnings. But, you know, at the moment, it varies in a moment, day to day. But, you know, we’re trading at about eight times 2021 earnings for Meta. We start thinking about companies that get in the mode of manufacturing earnings, what you can do with the levers of expenses and hiring and whatnot. I mean, this is about many measures, a very cheap company if they want to continue to do what they’ve done. And it does a little bit more about Meta, though, in which I think it’s such an interesting investment case right now. Yeah, they have that problem of this is, you know, a industrialist who’s been very successful at everything they’ve done and now they want your money to go and, you know, have a number of venues drive it. So they’re kind of transforming themselves as they transform into the the metaverse dominant player into something different. Right. So there’s a lot of concern that goes with that. And expenses have been through the roof in that transition. So again, that that’s part of the thing that makes this is such a difficult case to analyze in terms of future investment. But again, I think you’re seeing those companies, you know, Google, Meta begin to cut costs, to focus on that. And I think that bodes well for tech investors.

Jake Thomsen: Yeah, I jump on that and say it seems like a lot of these companies are going to follow the playbook that you see Microsoft and others playing where you get to a certain level of maturity and you can start to wring out some of the costs. And Wall Street really respond to that. And this is a time in the cycle where some of these companies are looking for that impact for shareholders. So I do think we’re headed that way. Even the dynamics, the fundamentals are back ten, 15 years ago when you had 10% of graduates in Silicon Valley were computer science majors. Right. These days, it’s more like 50 to 60%. You’re starting to see that supply, which sure, there’s a bit of a long tail to get in the system. But once they’re in there, there’s just a lot less competition for them. So I think you’re going to see more of these maybe almost in a ratchet effect where bringing it down is part of the cycle. I don’t know if they’re necessarily you’re going to come back, but I do think it’ll impact culture because a lot of folks didn’t sign up to be at these kinds of almost feels like PE style bring out the costs. Right. To figure out how to increase the bottom line. A lot of these tech folks, they signed on a very different company. So be interested to see how that change in culture impacts retention. A lot of developers of top tech companies.

John Coleman: Well, and I want to zero in on the people side of this, Jake, because you and I have talked about it before. I’m just consistently struck when I look at technology companies, particularly bigger ones, how few people within the companies are actually engineers. So, you know, there are a number of different positions. I can’t for the life of me understand a lot of titles within the companies and just understand what people do. And I think this idea that tech might be radically overstaffed, so not by ten, 20% overstaffed, but potentially 50, 60, 75% overstaffed, really came to a head with the Twitter acquisition by Elon Musk. Right. I mean, in the first three weeks, he took that organization from 7500 people to 2700 people right in the course of three weeks. So we’re not arguing necessarily that that was done well or that that’s the right way to do things. But I know a lot of folks in Silicon Valley have been watching to say like, oh, my gosh, are we really operating at more than twice the number of people we need to do well and have we so overstaffed on non engineering or non-technical people that we’re actually diluting the impact that those folks can have? What do you think about that? Because I actually believe it could be true in a lot of tech companies that they could be twice overstaffed what they need to be to be effective. But maybe, Jake, starting with you and then to you, Ben. And what do you see? Do you think that might be the right case or do you think that that’s swung too far, that what happened at Twitter was ineffective, there couldn’t be as effective in other places?

Jake Thomsen: That message resonates for me, for public companies and later stage companies and analysts acknowledge, too. Of course, we’re talking about big numbers of job losses in the rest, and it’s really easy to talk about them as numbers. Right. So just wanted knowledge and honor that these are individuals and families and that’s hard. So I’ll start with that. But what we’ve seen is a lot of these tech companies, you grow to a certain size if you’re a public tech company. And there’s a sense where complacency is forgiven, right? Where there’s not the same scrappiness. Right. Elon got it. This was like, hey, we’re going to work long hours and we might even work on weekends, right? Which had a lot of people up in arms because getting back to the roots of really hard work and this is completely anecdotal and unfair because I know it’s incredible individuals at all of these companies, but I think about the developers at top tech companies, public companies that I know they’re probably putting in 30, 35 hours a week. Right. That in some cases includes video game time, right. At these really, really fun jobs. And the developers I know and all the startups will be back are putting in at least double. Right. This is a totally different culture. So I think there is some element of that culture in that what some might call bloat that you simply can get rid of and a company is going to be okay. But there’s also very rational side of that that I’d say where tech companies tend to be these lean startup mentalities, right? Build, measure, learn. You don’t always know what the market wants to go build something, see how reacts. Where do we reinvest then? And when capital is cheap or free, it makes a lot of sense to overstaffed, to go seed something, to see where it goes. But once capital starts to increase in its cost, then I’ll set the ROI of those kinds of endeavors, whether they’re moonshots or everyday efficiencies that starts to go down. So I think there’s a very rational case to be made where when capital’s cheap, you kind of want to air…. The bloat in tech and then now there’s coming back down from more expensive. You’re going to see a lot of those that they just no longer make sense. Status positions.

Ben Hames: Yeah you guys are great in sight Jake you have a lot more experience on the ground with those companies and operators. But I will say, you know, I reflect on what had been some bizarre business news stories of the last couple of years related to this, you know, one being the collusion among tech companies to not poach from one another, which is such an, you know, an odd time, you know, but then also the later variety of that story has been the hoarding talent, you know, that you would have these counter-accusations between these big hard entities where they’re, you know, you don’t need these people. You’re hiring all these extra folks and taking them from the market and harming the market in general. You know, again, a very strange time. You know, I will say a lot of the broader discussion in the economy right now and certainly with markets where we have a severe recession going into 2023. You know, I think a big part of that is hiring. We’re talking a little bit about layoffs in the tech space, and we’re just focused on tech in general today. But more broadly speaking, you know, hiring is still happening at a pretty robust clip. I think in 2019, the average monthly new hires was 164,000. Latest numbers from November. 264,000. So the hiring is still rapid in the face of this bad hype campaign. So, you know, again, we’re getting some headlines and some of the tech layoffs and these big companies and again, some new fiscal discipline that I think most tech investors will welcome. But as of right now, I think there’s 4 million more job openings that are unemployed Americans. And this is a big part of the recession discussion, the inflation discussion, but still persistent inflationary pressure on the wage fraud. As you look beyond tech and across the economy, significant tightness in the labor market.

John Coleman: Well, and that’s why it is so interesting right now. Right. Because typically when you raise rates like this, it does cause a recession. There’s a chance we’re in a recession now. There’s a chance that we’ll see that deep end next year. But thus far, it really hasn’t played out in employment. Right. The labor markets are still relatively tight. Consumer spending seems to be relatively strong right now. There are certain segments that are very interest rate dependent that have obviously got hit very hard. You know, new home building or mortgages, etc., are in a difficult spot right now because of rates. But there hasn’t been the kind of real economy hit that I think you would expect after such dramatic rate tightening yet. And the question is, of course, whether that does hit. I don’t want to spend too much time on this necessarily, but it’s hard to talk about technology right now without talking about the private company, Twitter, and obviously the activities of Elon Musk as of this recording. Musk has done a survey on Twitter about whether he should be CEO and has decided to step down. There are a whole host of implications because Musk is really at the top of a number of the most innovative companies in the world. Right. SpaceX, Tesla, Neuralink, and now Twitter are all in very different areas. And he seems to have his hands on a lot of those spaces. Right now, Tesla stock is cratering as a result partially of people believing that he’s distracted. Twitter obviously took on a lot of debt, maybe just starting out of the gates. I mean, Jake, what’s your impression of what’s going on out there? And is Elon still, you know, a genius? He’s going to be able to turn all this stuff around or has he finally met his match in what he’s taken on here? What’s your read on what everyone’s talking about right now in Silicon Valley?

Jake Thomsen: Yeah, the only thing I can say with confidence is I’ve considered canceling my Netflix subscription and just read Elon’s tweets over the last few weeks because they are oh, my gosh, they are golden at times. And it is it’s you know, you would not expect a public company CEO to be engaging in some of those ways, but it’s anybody’s guess. You know, some folks will say, why is he wasting all this time here where he has all these world changing companies that he should be leading and really focusing on? And I think there’s a case to be made that Twitter is our de facto public square. It’s worth the focus of somebody really, really smart. And I do think that he’s working really hard to extricate himself from Twitter. He’s trying to hand over some folks that, at least from what some people are saying, weren’t that interested in taking it on Twitter. He doesn’t have the heir apparent at this point. But I would say, you know, it turns out empirically there are really only three categories or three times where a public company CEO deeply drives an outcome in terms of value creation. The first one is when they are the ones that are setting culture. Right. And there’s more research on this happening in the faith driven sphere, especially. The second one is when there’s a major transition. The third one is when the company is a very innovative company and the CEO is driving that innovation, all of Steve Jobs. And so it’s such a good question. Longway we’re just getting my affirmation of your question because he’s such a smart, gifted guy who probably does drive to [….] that a lot of these companies are delivering, especially the earlier ones like the Neuralink’s and others that are potential categories in the future that need him in the earlier days more than maybe Tesla does or others that have a bevy of engineers and leaders. But it’s certainly a notable time watching a leader like Elon.

John Coleman: Yeah. What do you think, Ben? I mean, you’re watching this, you have talked about Tesla before

Ben Hames: I’ll try not to get too lost in the weeds of that momentary headline, such Elon is really good creating. You know, I hope in the rearview mirror a year, ten years from now, Elon Musk will be a champion for free speech. And I think he is positioned to do that. Maybe he does that more effectively as the owner and not the guy who’s, you know, fighting with tweets. It’s hard to do, right? It’s hard to do well over an extended period of time. You know, if I am a significant Tesla investor, I probably would love the idea of him not continuing to operate as he has in these first few days and weeks. So, yeah, remains to be seen.

John Coleman: Well, you know, he’s got good teams there. I think everybody knows that. SpaceX, Tesla and Neuralink are now, or at least SpaceX and Tesla seem really deep. I’m less knowledgeable about Neuralink, like you said, Jake. Part of me thinks, gosh, you’re getting to Mars, creating full autonomy, creating human computer interfaces like why?

Jake Thomsen: And doing the blue chips. One of these things does not belong. Yeah, exactly.

John Coleman: But you’re right. I mean, this is look, if you think about the culture, this idea of a public space, of speech, of what’s acceptable, of how we should communicate with each other is a cultural touchstone right now. And and certainly his instincts have been very strong historically about what was needed in the moment. And those companies seem to be creating durable values. And you look at SpaceX. Not only are they going to Mars, but they have the broadest satellite network in the world now. I mean, they’re delivering Internet to Ukraine right now and to hurricane stricken areas. It’s just fascinating to see what that will look like in the future. Moving to another pretty notable entrepreneur right now, Mark Zuckerberg. You know, Mark made this massive bet in transitioning Facebook to meta, moving away from social network to creating the metaverse. And I think he’s bet billions of dollars or tens of billions of dollars on creating the metaverse. And so far, Meta has really gotten punished in the public markets partially as a result of the downturn, but partially because a lot of the hoped for success in the metaverse, at least within the context of that company, has not materialized. Jake, I know you’ve invested in the space. Is the metaverse dead or are we going to see some sort of resurrection here? And is Zuckerberg on the right track, or do you think there’s actually needed a pivot right now on how we think about it?

Jake Thomsen: I don’t think Metaverse is dead. I would probably, as a meta observation, so to speak, I’d say this is a reasonable bet from his perspective, because you see, the long arc of innovation is that some of these these hardware’s over the last 30 plus years have gone from desktop to laptop to mobile. And a lot would say that augmented reality, virtual reality may be the next on that path. Right. And they’re increasingly ubiquitous, they’re increasingly immersive, they’re increasingly part of our lives. And so it’s not crazy to think, especially when glasses come out right, where you’re almost RoboCop style. You bring the glasses, you can see through them. But maybe the three of us can be sitting in a room engaging with each other. Right. For instance. And people oftentimes think of virtual reality, just little clunkier, fewer use cases. But as Oculus comes out with its pro headset, which is already announced as Apple comes out with the headset next year, I think we’re going to see continued interest in this. I don’t know if it’s truly going to be the integral part of our lives that Zuckerberg hopes, but I think it’s a reasonable bet because what he’s doing is he’s standing against the innovator’s dilemma, right? Where you get to be such a big company and something is working and that thing that is working, all the stakeholders have an incentive to just keep focusing on that and then eventually somebody leapfrogs you because you’re not thinking ahead. But he’s investing downstream of consumer behavior, and that’s a really important thing that startups can do. But oftentimes public companies can’t necessarily. But because of the voting structure, which is frustrated, some folks is able to. So I think the metaverse holds a lot of promise. It probably doesn’t look a lot like what most folks think it would. And from Meta’s perspective, I think it’s a reasonable bet, at least in the medium term.

John Coleman: What do you think, Ben? What’s your metaverse avatar right now?

Ben Hames: Yeah, that’s what I wanted to get into. I was hoping we would go there. Yeah, I have mixed comments here. You know, first and foremost, you know, more of us living more in an alternate universe and taking advantage of kind of products that will be offered in the metaverse strikes me as a dystopian situation. But from an investment perspective, you know, there has been this trend, as Jake outlines of, you know, further and further entrenchment into our lives and more time spent aiming and interacting virtually. I mean, my goodness, just think of Zoom and and its competitors and how that’s reshaped work life. Yeah, it’s going to be interesting to see. You know, again, I think if I could just talk a little bit about the investment case for Meta. You know, there’s part of me that has to keep in mind the ability that they would have to just retrench and go back to the tried and true model that they have and pull those levers. And all of a sudden you have something that’s really valuable, not that risky, and trading at a pretty cheap price. And so, you know, again, I sort of view it as a this may be a disaster for Meta in terms of the foray into the metaverse and the big expenses, but it may in the NBA blip and they go back to the old Facebook and advertising and making a whole lot of money.

John Coleman: Yeah. And you know, the other Elon twist here that’s interesting from my perspective is, you know, it’s been a taboo topic forever to have social media companies charge their users. Right. It’s been an advertising model. The user has been the product, they sell data, etc.. And Elon has kind of opened Pandora’s box, so to speak, on trying to charge people for the blue checks, which Jake noted $8 or $11 if you’re on the Apple store. And one thing I’m interested in watching is if that does get some traction, which seems moderate so far, whether that impacts the core business models of some of the other social companies and whether they try and adopt that much the way that media companies have, you know, media companies, for a long time, it was thought that online information was going to be free. And now paywalls have gone up around the number of media companies and even substack, which is something in between social media and a media company obviously charges for newsletters or has authors charge for newsletters. So I’m fascinated to see where that ends up as well and what the charge model will look like moving forward. To speak of a more precipitous and obvious decline before moving into something really interesting and hopeful that’s happened as of this recording very recent news, Sam Bankman-Fried is on his way back to the United States, where he faces potential jail time or I think he may have already been transferred to the pen in New York. News today was that his two counterparts, Caroline Ellison and one of his co-founders, have turned on him and so have pled guilty to their charges and are theoretically cooperating with authorities and FTX obviously just suffered a precipitous collapse. Kind of same question with the metaverse, with the collapse of FTX, with the collapse of so many coins around this web 3.0 was supposed to be the next big thing between bored apes and cryptocurrencies in these exchanges is that dead is web 3.0. Do we need to find a web 4.0 now? What’s next Jake?

Jake Thomsen: Yeah, I say it’s not dead but is indeed hung over. So it feels dead, but it’s going to pull itself out of bed.

John Coleman: It’s mostly dead, as they say in The Princess Bride or.

Jake Thomsen: Yeah, that’s true. They are doing this, but it’s getting nursed itself back to health. And I delineate two different parts of this, right? One is the core web. Three, the blockchain technology part aside from crypto. And to me that feels like such a logical progression to say it is inevitable. Is it based on word? But did you use a taxonomy like web one was? We read the internet, right web two is we read and write right blogs and Facebook and the rest. Web three is really about reading, writing and owning. We own our information, we own our content, we own our contributions. We benefit from contributions to social networks. Right. And that that is something consumers are going to want. It’s going to be consumer demand. So those companies that are building on a web3 blockchain technology are going to be the ones that do very well in the future. So I don’t think it’s as a category. It’s dead. What I do think is we’re not going to talk about it quite as much in the same way we don’t talk about Internet companies, we don’t talk about AI companies, we talk about tech companies because those things have become such an integral part of those technology stacks. They’re just part of companies. Now, I think we’re going to see the most innovative tech companies built on web3 infrastructure. They won’t be a Web three company, they’ll just be a tech company. So I think that’ll stick around. It’ll be maybe a little more muted longer term in terms of crypto, which is the juicy part of the sector. I’ll tell you that the analogy that resonates for me is it is a force that was in need of a fire for its own long term health. It’s really hard in the meantime, but you got to you got to have that pruning of the ecosystem so it can really grow. And as we talked about before, they’re just thousands of thousand points that probably shouldn’t exist. I think a lot of those go away. Even the really good coins that weren’t the main ones, but some of that, old coins in that were really good business cases. I think they had a problem of governance, right, where you would have some of these founders that made their money before they really created values, they cashed out and weren’t aligned long term because they were in the tokens rather than the equity. What I do think is FTX this whole debacle is going to put a focus on governance. Then investors will say, All right, I like this project, but we’re going to make sure we align these interests. And that’s going to enable these incredible founders with good technologies, good products to actually come out of the rubble. I think there will be a handful of some the best web3 crypto companies that will come out this time. But it’s not a space that I would necessarily recommend anybody go and start pouring lots of money into right at this point.

John Coleman: When I like your description, Web 3.0 is about what we own and part of the FTX debacle, right, was people thought they owned something that was actually being traded and owned by Alameda Research. Right. Which was FTX was practically personal family office. And that was all of this is allegedly, of course. But, you know, that was a real betrayal of the underlying infrastructure of that and people becoming nervous about what they actually own.

Jake Thomsen: Well, I’ll add to that that the Web3 enthusiasts would say, well, the big problem is that was a centralized exchange. So the problem, web3, is that could have been defi decentralized finance, where you didn’t have somebody like SBF that’s calling all the shots and you would be unable to do that because the math would be unable to do that. Right. An algorithm can go buy a penthouse in the Bahamas, right? Only a person can. And so a lot of folks would say if that were truly set up on web3 infrastructure to then trade web3 assets, then you wouldn’t have had the FTX debacle.

Ben Hames: You know, it’s interesting you bring that up because I hear a lot of versions of that with regard to crypto and what’s happened in the last year, which, you know, again, maybe there’s some merit there, but it strikes me as very similar to the arguments we always hear about communism. It’s never been practiced. Is it true to its form? Is there have been done well and if it were, it would create a utopia. But you know, you think about all the things that and I’m you know, I’m out there and have been for a long time. I’m not a fan of crypto, you know, all the things that it was supposed to solve, you know, it really has failed with flying colors quickly. Yeah. Yeah. You see, you know, there’s an effort to differentiate, right? Is it Bitcoin is the thing. You know, I’m in that crowd. I can’t get past. I don’t know why it’s worth anything. Right? I mean, was it overvalued at 60,000? It now is worth 16. You know, again, we kind of go back to some of those valuation discussions we had earlier thinking about valuing companies by that op ratio or you know, we haven’t talked about some of the alternative valuation methods, but, you know, the rule of 40 or some of the things that people would use in the tech space, you know, where we have some tools where we can try to assess and apply value. You know, to me, the fact that blockchain technology is a valuable technology and will continue to be more valuable in the future, it just implies no particular value to crypto, right? I mean, it’s a non sequitur that bitcoin is worth $500, much less 17,000 because blockchain technology is valuable. Yeah, that’s the case I would make is though, you know, I just can’t get comfortable with this at any price.

John Coleman: Well, and Jake, since Ben did just call you a communist, I think you get to respond.

Ben Hames: Well.

Jake Thomsen: And is a good thoughts, comrade. But I mean, you know, those are all great thoughts and and the right kind of question that we need to be hold in the industry, too, over time. I suspect I see all the innovation come out of bull markets there, and I do think there’s more value it created over time. It’s got to have an actual problem being solved, whereas much of it doesn’t yet. So a little bit to be determined and it’s a fair, [….]. Absolutely.

John Coleman: So I want to kind of close we’re going to close formally on asking what you guys are learning through scripture right now that you want to share with others. But as we pivot, you know, we’re thinking about a great tech reset, right? There’s been a collapse in these markets. They’re undergoing layoffs like the dot com bubble. What came out of that was much different than what went in. Right. We came out with a more stable base of real companies that were growing after that. As you guys look at what’s happening today and we reset valuations in technology and also potentially where people are focused, what are you most excited about in technology right now? So maybe, Ben, start with you, but are there areas of technology that you’re excited about investing right now?

Ben Hames: Yeah, it’s I think it’s really hard to pick the winners in this space. And so partially, I’ve sort of hedged the bad in this space by making some broader plays. But I really like cyber. I think that’s a part of the spin that is going to grow. You know, I think, you know, we’ve recently seen in business news there’s a large zeal for all going on and the banks are are working together to determine how to refund those defrauded and that sort of thing. But again, it’s hitting us on all fronts. That’s the space that I want to be in and want to be exposed to have been and continue to think that’s an important place for folks to have exposure.

John Coleman: Jake, what do you think? Where are you guys focused as you look at early stage tech companies right now?

Jake Thomsen: Yeah, I’ll offer a bit more. General answer and more stage focus. And that’s really in the series A. As I mentioned, that’s not an area that I’d start to see the valuations coming down. A lot of companies that raise, call it 12 to 18 months of capital in the last year. So they’re coming up maybe mid 2023 to raise capital. Do you find a company that is capital efficient actually solving a big problem with a greedy creative leader? There are a lot of companies that unfortunately are holding period of time I think PE is going to take out a lot of the other ones that are at really good valuations. So I think the playing field is going to be winnowed a bit and these are going to be types of companies that longer term are going to be successful. And I think the valuations make that even more than seed and more than later stage. Really compelling, particularly because seed and series A they tend to be the highest performing in terms of internal rate of return for a very early stage. So that’s what we’re really looking at over the next six, nine months in particular.

John Coleman: That’s great. And I would just add two thoughts from my end. One thing that’s really caught my attention lately is artificial intelligence with chat GPT coming out and proving some of the power of that technology and that we actually have crossed the threshold at which that technology has consumer applications and is good. Right. You use chat GPT. And for its current use case, it’s actually a remarkable piece of programing, a remarkable piece of technology that’s likely to unlock a number of other things, both good and bad. But AI is on my radar, and I still think we’re going to see a lot of innovation in health care right now, particularly remote delivery of health care, telehealth, virtual health care. You know, that was a hot item during the pandemic because people couldn’t get physically to their health care. But it just seems like a lot of the stickiness of that model is starting to manifest in the market. And I just I think there’s a lot of innovation to continue to happen in this space of more bespoke health care delivery, particularly things like telehealth, which is one thing I think will make people’s lives better, but also could present some interesting investments. You know, we always like to close this because it’s the Faith Driven Investor podcast, and I know you two are both great men of faith with you offering just your thoughts on what God’s teaching you through Scripture right now that you might want to share with others. And so if you don’t mind, Jake, we might start with you and then Ben, you can close us out.

Jake Thomsen: I’d be happy to set the bar very low. So we’re going through a study. This is actually at work with our investment team, going through a study now. And what we highlight recently, Joy and I was just very struck reading of scripture about joy of how elusive, sometimes true deep joy can be. And there’s a quick framework of this that joy involves. Step one just recognize the way that Christ is in the day to day, right, of all the various blessing that we have. Number two, trust him in those moments where it’s not necessarily easy to see how things work out. And number three, thank him. Right. Almost a discipline of Thanksgiving and how if we can do those things consistently, it cultivates joy in our hearts. And this has been a big blessing to dive that top and joy in the season. Even with everything go on the markets where it’s easy for our heads to be steady and the rest, and yet our hearts do still go up and down with market.

John Coleman: It’s a good word, Jake. Pastor Ben, what do you think?

Ben Hames: Well, that I’ll it’ll be tough to follow that. You know, I will reflect on something that Erin and I had recently. I of course, Erin’s my wife. We were recently reflecting on. We have for 20 plus years now practice the Sabbath. I guess it’s been about 20 years to study. While we were in seminary, we determined that we should continue to honor and practice the Sabbath in a way that is sort of countercultural, even within Christian circles. And yet we were, as we reflected on 20 years of doing that. You know, I can recall that early along at certain points, you know, I guess on occasions feel somewhat restricted, the things that we said that we wouldn’t do on Sunday, you know, as we look back through the seasons of our life now 20 years of marriage and now I have a ten year old and a six year old. This has was such a gift, right, to have this sacred day that will you know, we won’t lead our ox into the ditch. We’ll do the work. We do all the things we need to do to have that day set aside and to disallow ourselves or to imagine that God intends for us not to work and have others work in our stead on that day. You know, in a busy world, in a stressful two or three years here with COVID in these things, that has been such an incredible gift for us and just, I think, imparted such peace, such time for worship, for family time when we just said this is what we can do. I mean, I’m reminded of an old Hebrew parable where, you know, there is a gentleman who is walking in his field on a Saturday and he sees a fence that needs repair. And he has this idea that he won’t even be able to repair it because he saw it on the Sabbath. Right. But, you know, just that that kind of idea that we’ve tried to live out and then no doubt very roughly and poorly by some measures, certainly of some of our Jewish friends that do so well. But I would just commend, you know, some type of Sabbath to all my friends and those I would care about. It’s something that’s just been very life given. For us as a family.

John Coleman: Amen and Amen. Well, Jake Thompson, Ben Hames, we are really grateful for you spending time with us today on the Faith Driven Investor podcast. I know I feel like I’m leaving with a better perspective on technology in the marketplace and certainly the wisdom that you shared on your own faith journeys has been important. So thank you all for joining us today and we hope to see you again soon.

Jake Thomsen: Thank you, John. Thanks, Ben. Good to be with both.

John Coleman: Welcome back to the Faith Driven Investor podcast. This is John Coleman and this is our monthly Mark’s On the Market podcast, where we talk to experts in the industry who are also people of great faith about what they’re seeing in markets and highlight some of the best Christian minds in faith driven investing. Today is a real treat because we certainly have some of the greatest Christian minds in Faith Driven Investing in Bob Dole and David Spika. Bob is the Chief investment officer of Cross Mark Global Investments. David is the President and Chief Investment Officer of Guide Stone Capital Management. Both have extraordinary careers in the industry. They have a record of success and we are so grateful to have them on today. So welcome, Bob and David.

Bob Dole: Thank you John.

David Spika: Thank you. Happy to be here.

John Coleman: Well, we want to dive right in. You know, we’re entering the month of February here. Before we look at this month and 2023, talk to us about your big takeaways from the market in 2022. And Bob, maybe you could kick us off.

Bob Dole: Sure first word that comes to mind is, wow, I mean, what a year it was in so many ways, mostly on the negative side. You know, when you do these ten silly predictions every year and we actually did say stocks and bonds would both be down in 2022, but never thought it would be by the magnitude. It’s the first time in 50 years that stocks and bonds were both down three quarters in a row.

John Coleman: Wow.

Bob Dole: I think that’s a superlative. I’m also struck by the amount by which value outperformed growth and the environment that transpired. You would expect that, but the magnitude was amazing. The final thing I would say off top of my head is how well international stocks did versus U.S. stocks. All those problems internationally and of course, international markets, most of them went down, but they went down less than the US.

David Spika: Yeah, I don’t want to trump you, Bob, but I had seen that we saw stocks and bonds both down more than 10% for the first time since the seventies in the 1870s.

John Coleman: Whoa.

David Spika: Yes, indeed. I don’t know what bonds we were trading in the 1870s, but something was being traded. So it’s been a long, long time. The thing that struck me about last year, though, was how ill prepared we all were for what occurred. If you go back and look at what the market expected for Fed rate hikes in December of 2021, I think we thought the Fed was going to raise 25 basis points two or three times. We ended up going up 450 basis points. Nobody is prepared for that. Nobody was prepared for 9% inflation and that caught everyone off guard. And I think what it taught us is that we can’t get too confident in our expectations and our predictions. We have to be willing to pivot and to humble ourselves and say, I was wrong because things often turn out differently than we expect.

Bob Dole: Well-said.

John Coleman: Well, and speaking of pivoting, we have flipped the calendar year, Bob. It was a crazy year in markets in 2022. It’s shaping up to be an interesting year in markets this year and in the business community. One of the trends that we’re seeing really prominently right now is layoffs among technology companies, including many companies that have never broached this before. Firms like Amazon, Google and Meta have had large layoffs, succeeding all those announced at Twitter previously in the Go Private there. And a host of other tech firms have made similar moves. David, I want to start with you. What does this tell you about tech companies in the U.S. And do you see these layoff announcements, apart from the human implications which will come to you as a positive or negative for the future of those companies?

David Spika: I think what we need to recognize is that what’s happening in the economy, whether it be in tech companies or financial service companies, is we’re seeing the job market start to weaken. Now, there’s two things that have created the situation we had over hiring during the pandemic, particularly the financial services sector. And we’re also going into a weaker economic environment. Labor has got to weaken and that’s what has to happen. The Fed can’t engineer a better supply chain, but they can engineer weaker spending. And that’s exactly what we’re seeing with these layoffs.

John Coleman: Bob, do you have any thoughts on the layoffs that are happening?

Bob Dole: You know, first of all, I agree with David. What I add to it is, look, these companies are facing top line growth is slowing and inevitably they’re concerned about profits and profit margins. And where is the economy going? How long will this weakness last? And so they have to trim their costs. And for a lot of tech companies, the biggest costs, labor. And so we’re seeing these announcements probably more to come. I guess what I would add is tech companies don’t have a lot of people compared to a lot of other industries. So the reason the job market, so far has remained strong as the big employers, retail, restaurants, they’re still looking for employees. They can’t find them at the wage rates. And so we see these tech layoffs and they are big and they’re important. But relative, the size of the labor force still not affected things all that much.

John Coleman: Yeah, we’ve been talking in our firm a little bit about the movement in technology potentially being structural in that they had become extremely overstaffed, potentially. I think Twitter was the canary in the coal mine there. There were a lot of folks who weren’t performing functions that were critical to the operations of the business. And a reckoning was going to happen at some point. And David, you know, to your point about this being really a cut primarily of the over hiring from the pandemic, I think a lot of these layoffs that have been announced, even though they’re quite broad, are actually just returning to something like 2021 or 2020 staffing levels. You know, this hasn’t cut deeply. And from my point of view, it is, again, will come to the human implications. But just from a leadership of the company point of view, it’s encouraging them to see them emphasizing discipline as part of their management toolkit. Now, where they haven’t had to do that quite as much in the past.

David Spika: And John, on that point I saw recently where BlackRock, even though they’re laying people off, has stated that they want to keep employment levels flat this year. So they may be replacing higher wage workers with lower wage workers as a way to manage their costs. Bob’s right, 70% of their costs are labor, so that may be part of what’s going on as well.

John Coleman: Let me zero in on one topic here and maybe, Bob, you could lead us off. When we talk about layoffs. Obviously, there’s a financial component to that within companies, but there’s a human component. We may be heading into something like a recession. It may not be as deep as some people think, but it may. As Christian investors and business leaders. How do we think about layoffs and how do we think about treatment of employees in times like a recession when these reductions become necessary?

Bob Dole: Yeah, great question. I think we start with the observation that, look, business cycles are part of life and you get expansionary phases where you hire, hopefully not over hire or perhaps they do this, we just comment it and then you get the other side of it and you’ve got to trim your costs. And labor is one place that it goes. I love employers that have variable part of the compensation, so they may end up laying off fewer workers and spreading the difficult news across the workforce more so we pay attention. That sort of thing, of course, is how do you handle as a company the policy of a layoffs, You know, how do you treat your workers? Is there a period of time where you hold them over? Is there a method by which under certain circumstances you can come back? What is the safety net that might be put in place? Are we treating this people as human beings rather than just numbers? And that’s, in my view, part of the values based investing. How do companies approach the layoffs that can often be necessary?

David Spika: Now, something else to note is that we have a responsibility to God and to our clients to deliver the best products and services we can. So if you go back to the old Jack Welch model, what did he do every year he got rid of the D players. Now, that sounds very callous, but in an environment like this where the job market is so strong, this is an opportunity to help some of the folks that really aren’t a good fit in your firm, find a better opportunity someplace else. And the good news for them is there’s 4 million excess jobs today. Bob pointed this out and we’re three and a half percent unemployment. It’s not like when we go much higher than four and a half or 5%, My gosh, that’d be a big move. So this is not like what we saw in oh eight where you’ve got 10% unemployment. But at the end of the day, as Bob said, this is an important part of the cycle. Recessions are necessary to prune the economy of excesses. And it’s just unfortunate. But yes, how you treat people when you go through this process is indicative of whether or not you’re following the Lord.

John Coleman: And I want to pivot back to this idea of inflation and recession in a moment, which you guys are starting to talk to you. One thing I add, Bob, that I just saw today, to reaffirm this idea that you can use variable compensation reductions or comp reductions instead of layoffs, was Intel actually took that approach today where they announced 5 to 25% compensation cuts across the board, depending on seniority, which presumably helps them manage this downturn that they’re in specifically in the economy’s in without having to enact such dramatic layoffs. And that can certainly be a tool that companies utilize. I want to pick up now on this idea of recession and inflation. We talked about six months ago. At the time, inflation was running very hot and there were very few signs that we were in a recession. Now inflation is cooling and there are more signs of a potential recession or that we might be in a recession. What is your read on inflation and recession right now? What do you think is ahead for the Federal Reserve? And David, perhaps we could start with you.

David Spika: The Fed met today. We heard from Chairman Powell. He was very clear that they still have a 2% target for core inflation. We’re a long way from 2% on core inflation. Given that and given how strong the job market is, the Fed has to continue to tighten financial conditions. And one of the problems they have today is that the market is not helping them. So stocks are up eight or 9% since November and the ten year Treasury is down 72 basis points in the same period of time. That’s loosening financial conditions. The markets rallying today on the Fed’s remarks, I guess presumable because they only raised 25 basis points. Bottom line is the Fed has work to do. Chairman Powell was very clear on that. His reputation, his legacy is on the line. And the only way we can get inflation under control is by reducing consumer spending. And the only way we can reduce consumer spending on a sustainable basis is by bringing employment levels down, increasing the unemployment rate. It’s just how things work. And historically, inflation has only been tamed through recession. So we fully expect a recession at some point, maybe in the second half of this year going into next year.

Bob Dole: So I 1,000% agree with David. So let me just say a few things to emphasize that maybe a couple of different ways. I want to emphasize David’s first point. The Fed’s target is 2%. We are a long way from 2%. So if the Fed insists on 2%, I do not see, as David said, how we avoid a recession. It may be a mild one for a bunch of reasons, but avoiding a recession is really difficult now. The other path the Fed could choose is to say at some point, you know, maybe two’s not the right number, maybe three. Okay. And if we get to a three handle, say three and three quarters, they might say, oh, let’s round it down to three. And if they do that, we could have the proverbial soft landing, but their credibility will be shot. And David’s right. You don’t bring inflation down without cooling the economy, especially the labor market, which shows lots of signs of being pretty strong. So kind of the slide I’m envisioning I put together in December was 50% chance of a mild recession, 30% chance of a soft landing, 20% chance of a more average or more difficult recession. I don’t see how we avoid it. We could debate when it’s going to start, but the markets acting like, okay, maybe inflation is not a problem because we’re bringing it down. Maybe the Fed’s almost done. Maybe the economy’s okay, let me go out and buy high beta stocks. It may not have a whole lot of quality, and I’m not sure how long that can last if in fact, we are going to have a recession.

David Spika: So let me add one more thing to that. Great points, Bob. I agree completely. You might need to get two guys that argue with each other. John, Bob and I are on the same page.

This is way too friendly. Yes,.

This isn’t very entertaining is it? So maybe we’ll talk football or something later. But we have seen by virtue of Fed policy, the largest decline in the money supply as measured by M2 ever. There is no way that doesn’t have a meaningful impact on the economy, regardless of what the Fed sees as their ultimate goal. There is no way you drain that much money out of the system without it having a meaningful impact in the economy.

Bob Dole: At the risk of beating a dead horse. I want to add to that. Yes, the money supply is shrinking. The leading economic indicators have rolled over significantly. We have the most inverted yield curve in 40 years. The PMI is are almost all below 50 here and around many places around the world. And remember, the Fed raised rates, as David said earlier, at the fastest pace in U.S. history except for Paul Volcker. And we know monetary policy operates with long and unpredictable legs. So I think what the Fed did in 2022, we’re going to feel the effects of it in 2023. So it will probably both be wrong and the economy will sail forward. But I don’t see how we avoid a significant slowdown, if not a recession.

Bob Dole: When they both are wrong. But we can still be friends. Bob, how about that?

Bob Dole: I hear you. I hear you.

John Coleman: Well, let’s see if we can spark a little debate with the next one. I wanted to turn to this topic of ESG, and Bob, maybe we can start with you. You know, ESG has been this prominent trend in investment management for some time now. It’s close to a third of the assets in the world claim to be ESG in some way. And 2022 mark, one of the first years of sustained pushback against that, notably against BlackRock, which has become kind of the figurehead for the movement in many ways. And there were effectively two sets of pushback on that that were. Prominent one was for many state based institutions, saying, look, actually all that should matter is fiduciary duty. We should not take into account things that we think are unrelated to performance. And then a second set of pushback was just around the values inherent in ESG, saying that those were inherently progressive values or they were values that people disagreed with. People are of different opinions now on what the future of that holds. What is your view on ESG and how Christian should think about ESG or more broadly based values investing in their portfolio?

Bob Dole: So I think what we’re discovering is we don’t know what ESG is. It’s different for almost every investor and every money manager. And that’s why, among other reasons, we at cross mark, we never talk about ESG because we don’t know what it is. We talk about values based investing, which in our view is a subset of ESG, not a broader concept. And the standard we bring is what is God said? You know, we could talk all day about what we think and how we would like the world to look. We try to say, you know, God in his word gives us some black and he gives us some white and it gives us a lot of gray. And that’s why it gave us minds to think through and try to figure those areas out. So I think the ESG moniker is appropriately undergoing scrutiny, confusion. And look, it will take different forms. There is no ESG standard. That’s part of the problem. And so I think the debate is going to continue to rage. And a lot of people will say, let me figure out what my values are and let’s see if we can manage money that way and get rid of this broad ESG moniker. I know there’s some ESG factors that we think are great for values based investing and others where we want to actually reverse the sign. So it’s a very confusing subject, but one that we’re all trying to wrestle to the ground.

David Spika: Yeah, ESG has become a dirty word because of the association with the climate change agenda. And as Bob said, we at guide stone don’t practice ESG. We don’t want to get caught up in ESG. What we do is faith based investing. We want to invest in a way that has a positive impact on the kingdom. Only 15% of evangelical Christian investors invest in faith based investments. We want that to grow. We think that a tremendous opportunity to introduce Christians to faith based investing. We know about tithing, but they don’t really understand the opportunity or really the obligation they have to invest in a way that honors the Lord. And so there’s a big educational process that firms like cross mark and guide stone are in the process of doing and creating and going out and teaching folks about faith based investing about biblical values investing and how it’s different than ESG. And I think that’s on us to make sure Christians understand they have that opportunity.

John Coleman: Yeah, and we think the same. I think I would agree 100% with both of you. You know, the Bible actually consistently has a lot of commands about how we live our financial lives. It’s obvious that God cares about how we steward capital in the Bible and in church history. ESG is a particular set of values. Like you said, Bob, some of which are aligned with biblical values or Christian values, some of which are not. Right. And I think what’s incumbent upon us now is for us collectively to develop a more nuanced set of views about what Christian values look like manifested in a portfolio. And David, then to your point, to encourage people who are Christians to take into account their values when they’re allocating capital as much of the world already has through ESG investing, but Christians have kind of lagged behind. I think.

David Spika: Amen.

Bob Dole: As David said, it’s an educational process. I think we would all agree. Most Christians think about how they earn their money. You know, they’re not going to rob a bank every other week to put food on the table. And at the back end, how they spend their money and where they give their money, they give that thought to from the faith. But this in between that and that’s investment part. Boy, a lot of people, they’re not even aware of that possibility. So it’s a fun education process.

John Coleman: So I’m going to pivot us now from a very fine and catchy topic like ESG to a very nerdy topic like bond markets. And David, I figure you might be able to kick us off here. You know, you guys mentioned at the beginning, 1870 was an interesting statistic that I didn’t know, but bond markets absolutely got hammered last year. And for the first time in a long time on the other side, fixed income, even money markets are starting to yield again, Right, Because the Fed rates are going up. Even I now see CCD advertised, which I haven’t seen since I was a kid, probably be prominent. What is your outlook for fixed income right now and how do you think about that in an investor portfolio in 2023?

David Spika: Well, John, thank you for giving me an opportunity to explore my nerdy side. I don’t get to do that as often as I would like. But I will tell you this at guide stone we’re big fans of Bonds. Today. We have seen for the first time ever back to back negative total return years for the Barclays Act. Never seen that before. Bonds consistently produced positive returns. Today you can get four and a half percent or more in short term, high quality bonds. Think about it. Most investors, what do they want to earn? A particular retirement? 6% or so. Wow. If I get four and a half percent in the safest part of the market, that’s a great opportunity. The thing that happened last year that scared a lot of people off was the rate volatility. As the Fed was raising rates, rates were going crazy. The MOVE index, unlike the VIX, was going crazy and that had a big impact on bond prices. And I think people got scared off a little bit. But we’re near the end, close to the end, obviously, of the rate hike cycle. You’re already seeing the longer end come down for rates. That’s positive for bond investors. So you buy these bonds at some point, you get an opportunity to go further out on the yield curve, benefit from current yields that are the highest we’ve seen in 15, 20 years and benefit from the capital appreciation that will occur as rates fall when we get into weaker economic times. So we’re big fans today and think investors really need to be taking a hard look at the bond market.

Bob Dole: So, John, as you know, I’m an equity investor, so I start with the phrase bonds are boring but boring is but boring is a good thing.

John Coleman: You’re breaking David’s heart over there. I see him tearing up just a little bit.

Bob Dole: I have to disagree with him once.

David Spika: I’ve been called a lot worse, Bob, Trust me than boring.

Bob Dole: So to continue with David’s history, he’ll look back. The last hundred years I focused on the ten year Treasury. 20% of the years you lost money in a ten year Treasury, only 3% of the time Did you lose money two years in a row. Three years in a row. We went back 250 years and there are no three year rates. So I think we can take it to the bank, maybe a little strong, but close to it. That will make a couple of bucks in fixed income this year. So how do we feel about fixed income? Have some. Unlike a year ago when one and a half percent ten year treasuries, it was a place to stay away from 3.5 a whole lot more interesting. And as David said, shorter maturities, you can get four approaching five. So we want to have some. And now the question in bond portfolios having length and duration from the shortest that we ever had to more neutral, now we’re playing the credit game with fear and trepidation, but that’s part of how we’re trying to add a buffer to above the benchmarks.

John Coleman: That’s great. Well, Bob, maybe they get back on firm footing with your territory. One of the biggest hits last year was to growth stocks. You mentioned high beta stocks earlier. We saw this in private markets and growth equity and venture as well. You know, 2022 was just brutal for growth equity for growth stocks in markets, at least partially because they had gone up so aggressively over the prior 15 years and even in the last 12 to 24 months. What is your outlook for growth stocks this year and how do you think about venturing growth, equity or even public growth equity in a portfolio?

Bob Dole: So first, to extend your observation last year, to oversimplify it, but not by much long duration, things were the worst place to be. When interest rates go up, the last thing you want to own is a long duration bond. When interest rates go up, the last thing you want to own is a long duration stocks, and those stocks got absolutely pummeled. Doesn’t mean they’re bad companies, a lot of good companies. But their stocks just got crunched because the discount rate went up as as interest rates went up. So fast forward to today and then back to my observation, how much value beat growth last year. So we want some of both in our portfolio. You put a gun to my head. I think value will be growth again this year for a whole bunch of reasons. But in the portfolios I manage, I want some value. I want it to be higher quality, predictable value given the economic landscape that Dave and I just posited for this year. But I want some girls too. I just don’t want to pay ridiculous prices, so maybe growth more at a price to get some balance in my portfolio.

John Coleman: David, this is your chance to get a little revenge for that boring comment. What do you think?

David Spika: Yeah, I’m still thinking about that one, so I’m going to be a little bit off the Bob train. We like growth and let me tell you why. Growth stocks, as Bob very articulately described, do better in a stable to falling interest rate environment because they’re longer duration assets. We believe we’re going to have a stable to falling interest rate environment this year. Secondly, investors pay up for growth when growth becomes scarce. And we believe that the economy is going to slow down earnings. Growth has already started to slow down. Growth will become scarce, so investors will pay out for growth. And finally, for long term investors, which I hope we all are for buying equities growth companies is where you get innovation, right. And you talked about venture capital and you talked about private equity. Obviously, you’ve got to be a long term investor because you can’t even get your capital for ten or 15 years out of those. But that’s where the innovation comes in. So to have a portion of your portfolio in those types of companies is really going to benefit you longer term and give you the opportunity, invest in really exciting parts of the economy, whether it’s AI and machine learning or whatever the case may be, that you can only access through growth stocks.

John Coleman: Yeah, it’s only a matter of time before we’re just using chatGPT, I think, for this podcast. So there is a lot of excitement.

David Spika: You could get rid off Bob and I and AI is going to be making up better stuff and we have.

John Coleman: Right, they might keep you, but my job is definitely in jeopardy here. You know, Bob, maybe pivot back to you and let you start. You do these ten predictions every year that are fascinating. I’m not going to ask you for quite that many, but to almost round us out today before we come to some lessons you’re getting through scripture right now. I wanted to get each of you just to give me your three best predictions for 2023. Bob, what do you think?

Bob Dole: Because you prepped as I looked through my ten and I singled out three. If singled out means three, I don’t know. But it is. Inflation falls substantially this year but does not get down to the Fed target. So good news but not good enough news. Two earnings falls short of expectations. We talked about earnings recession earlier. You know the number for the 2023 S&P 500 peaked at over $250 a few months ago, is now in the two twenties. I’m going to get down to $200 and three. The average equity manager beats the index this year, while last year, after eight years where more than 50% of managers lagged the benchmark. I think this will be the second year in a row, and there are a whole lot of reasons when interest rates are stable, when they’ve gone up, when interest rates are more market set rather than artificially set fundamental research matters. And so that’s the third one.

David Spika: Well, John, let me give you my three. I’m going to say the Fed takes the Fed funds rate to at least 5%, Stay it to the end of the year, and that pushes the economy into recession. Secondly, I think bonds beat stocks this year. And thirdly, I’m taking the chiefs over the Eagles in the Super Bowl. Sorry, Bob.

John Coleman: There we go, we got Mahomes guy here.

David Spika: Hey, Patrick. Mahomes is my guy. Okay.

John Coleman: So I’m worried about that. I’m worried about the ankle.

John Coleman: David, He looked okay, but that ankle’s making me nervous a little bit that I’d have to pick the Chiefs as well. Bob, you’re a little surrounded at the moment

David Spika: I’m outnumbered. We’ll talk. We’ll talk two Mondays from now, guys.

David Spika: Yes, we will.

John Coleman: Well, hey, this is the Faith Driven Investor podcast and the Faith Part of that’s really important. Y’all have touched on that a bit. But we do like to just in the podcast asking each of our participants about what they’re learning from Scripture right now that they think might be relevant to others. And David, if I could start with you, just be curious. Anything in your personal devotional life that you’re learning right now that you want to share with others?

David Spika: I love this question, John. Thanks for asking. In our small group, we’ve been studying the life of David, and one of the things that really stands out about David is even though he was anointed by God to be the king of Israel, he didn’t try and force it. He didn’t try and overtake Saul. He had chances to go and take over and to kill Saul and become king. But he didn’t because God wasn’t ready for him to do that. So he showed patience, he showed humility, He showed obedience to God, and he waited until God was ready to put him in the throne. And I think that’s a great lesson for us to learn in this business, particularly in an environment like this. Let’s don’t try and get ahead of things. Let’s make sure that we’re doing what honors the Lord every day, practice that humility, practice that patience and truly honor him and do what’s in the best interest of our clients.

John Coleman: Bob, what about you? What are you learning right now?

Bob Dole: Yeah, mine’s a simple one. God is sovereign. I mean, we know that factually, and I would say experientially, I’m just grabbing a hold of that and apply it. Some of the things we’ve talked about the economy, layoffs, people are going to lose their job and that’s not fun. But, you know, God knew that was going to happen because he’s sovereign over all things, all people at all times. And so I take comfort in that on the good days in the not so good days, that we can look to him as the God who wants the best for each of us. And if we accept his sovereignty in recognizing he has our best in mind, the days get a whole lot easier to live.

John Coleman: Amen. Amen to both of you on that one. And certainly, Bob, that sense of trust and. Sense that there is someone who cares about us and that we can take a very, very long term perspective with regards to our salvation. And also how all these things are going to work out is quite comforting in times like this. This is Bob Dole, CEO of Cross Smart Global Investments. David, Speaker, President and CEO of Guide Stone Capital Management. Gentlemen, as always, incredible insights. We’re really grateful to you for sharing them and they’ve been a great benefit to us today on the Faith Driven Investor podcast. Thank you very much.

David Spika: Thank you, John. Enjoyed it.

Bob Dole: The privilege.