Thoughts on investing

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Years ago, I read something about investing as a Christian that has stuck with me. There are two general rules that should guide our management of our assets.

1) Our investments should be active. We should not just be sitting on cash or other assets like a miser.
2) Our investments should be working for good. In other words, we should have our assets actively working in ways that are helpful rather than detrimental to humanity. That is one way Christians show what loving your neighbor is all about.

Granted, these rules open up a big can of worms and a lot of moral questions, and I used to give my perspective more but I have figured out that there is leeway in how Christians might apply the rules to their investments. I will leave the specific applications to you, your conscience, and God. But here is an example from my own life of what these rules mean to me.

In the years leading up to the stock market and real estate crash, I had some cash in the bank and an itch to become a real estate investor. So I started buying property and reselling it. For a while, things went quite well. I was buying lots of land that I considered a bargain and immediately relisting them at a premium price. The reason I could sell at a higher price was because I was offering owner financing, which meant the buyer could easily borrow the money from me rather than paying expensive closing costs to a bank.

One day, we were wandering around looking for real estate to buy and I found a neighborhood that had three 5-acre building lots in them. I liked the neighborhood and location and even though the price was not exactly low, I bought all three.

I sold one those lots for a profit within a few months but the others would not sell. Then the crash came. All of a sudden, nobody was building homes. In fact, home building basically went extinct in the Atlanta area. And as a result, I have held onto those two lots for all these years.

I am going to go ahead and give you specific numbers in this post instead of being vague like I normally would be. I paid $95,000 for one of those lots. It is beautiful and backs up to a pristine state park, but no one has even been interested enough to make an offer for years. I dropped the price slowly over time and last week, sold it for $48,000 which was what it was worth based on comparative sales in the area. Now I know that sounds crazy to some of you, especially when you consider that I really didn’t have to sell right now. But I sold it with no regrets.

From what I have observed, that is not what most people would have done. The more conventional approach people take to investments gone bad is to try to hold onto them to wait for the price to come back so they can at least break even. There is a big problem with that mindset though and I want to explain why. First of all, yes, I lost almost $50,000 on that investment but I did not lose it last week at the closing. I actually lost it when the market crashed years ago and that is when my net worth was affected. From a net worth perspective, selling that property did not change anything. It just meant that as of the sale, rather than owning a piece of property worth $48,000, I had $48,000 in cash that I can now invest into something else.

When deciding whether to sell or not, the only question that I needed to answer was simply this: could that $48,000 be put to better use invested some place other than in that land? That really is it. If I let the price I bought the property (and the big loss) affect my decision to sell in any way, that would be a mistake. It would basically become an emotional rather than logical decision.

I looked at the area and what was happening with real estate. In general, prices are increasing 4% a year at the moment. That is probably a good prediction going forward for a while so I only had to ask myself whether I wanted that money invested with a 4% annual return or whether I could do something else with the money to beat a 4% return. Truthfully, it was sort of an easy decision. A 4% return is pretty anemic, especially when compared to the return I get on invested capital in business. Sitting on land that is appreciating so slowly is basically the same thing as sitting on cash like a miser does. It is not a very active use of money.

Now I am not saying holding onto sleepy land is wrong for everyone. For some, depending on what assets they have, their diversity in their portfolio, their age, and other factors, it might make perfect sense to hang onto land that is appreciating at 4% a year. But for me, it is not the right thing to do.

So I sold. I took the loss and that is OK. Because here is the way I have to look at it: the assets God lets me manage need to be invested in the best ways possible. Investments that are performing poorly in light of my particular situation need to be reallocated regardless of how painful it might be to take a loss.

From a practical standpoint, what I am advocating here is very logically-based rather than emotionally-based investing. Emotions will get you into a heap of trouble. Find ways to insulate your emotions as much as possible when making financial decisions. I am a big fan of the robo advisors that are getting to be so popular for investing in the stock market because they are designed to remove the emotional component as much as possible. In fact, I now use robo advisors for all of my stock market investments.

For those interested, outside of my parents, the person who has probably shaped my outlook on investing more than anyone else has been a Christian financial counselor named Gary Moore. That is where those two rules I mentioned at the top of this article come from. I hate using caveats when recommending people but I will warn you that if you are conservative, much of what Gary Moore will say will make you mad. He is in many ways the anti-Dave Ramsey. I don’t buy everything he says but I do think he is very thoughtful and worth reading. For many reasons, his view of how money actually works is far superior to what Ramsey preaches. The Christian’s Guide To Wise Investing would be my starting recommendation.