Faith-Based Investing, A Comprehensive Overview
Jerry Bowyer Chief Economist of Vident Financial, Editor of Townhall Finance, and President of Bowyer Research
- Published Apr 10, 2020
Below, please find a lightly edited transcript of the presentation above.
Hi, this is Jerry Bowyer and we're talking today about the question, “What is faith based investing?” This is an overview of the topic of faith based investing. Although we're going to focus a little more on some aspects than on others. So faith based investing is as the title implies based on faith, and I think there's a tendency for Christians to equate faith based investing with Christian investing but that's an overly narrow interpretation of the actual phrasing because there is after all a Muslim version which is shariah-compliant investing. There are Sharia Equity Funds. There's Sharia Finance. There's Islamic Finance. There are some funds that are based on Judaism their Jewish faith based investing and they're based on the Torah and the interpretation through the talmud this one secular. I want to talk about this for a moment because there's a tendency to think that unless something is explicitly Islamic Jewish or Christian that it's not religious that it's neutral. And so the stuff you learn when you study for a CFA or when you study finance in college, modern portfolio Theory is allegedly neutral finance because it's just math. Well, no, it isn't neutral ever; there is no neutrality; secularism is a faith to and if you're just dependent on human reason, then you've got a God in your system.
Human beings probably you would be your God and you've got your own idea of an ultimate Authority human reason as opposed to Revelation. So secularism is a faith and what we think of is neutral is not in any way neutral and I've done some other teaching on this and other places to show the religious that is secular religious roots of say modern portfolio Theory secularism is a religion without a Transcendent God. All right, and then of course, there's Christian.
Faith based investing and that's based on the Bible the leader the leadership of the holy spirit in your life prayer and probably to some degree on Christian tradition. That's the one we're going to focus on today. This most of you are in that category. So we're talking now about Christian faith based investing. Let's take a closer. Look at that. I want to make a distinction between personal Behavior and the portfolio side of things when you're involved with Christian.
Faith-based investing you are still under an obligation and a joyful obligation to have motivation of glorifying God what everything that you do is to be for the glory of God and everything Downstream from this is going to assume that you understand that what you're doing you do for the glory of God not yourself. You do it with honesty and you do it with Integrity. So all of the stuff that you've learned about a Christian about how to be a Christian in your life about how to have sexual integrity and business honesty about how to tell the truth and not tell lies about not stealing about living up to the standards or trying to live up to the standards of Christianity that's been covered a lot because that's not really so different for Christian and finance than it is for Christian in any other profession. This is true of you no matter what you do whether you're the CEO of a major Financial Corporation or whether you're the whether you're a stay-at-home mom.
All has to be done to the glory of God and with honesty and integrity. I'm not going to talk about that a much because that's been talked about a lot that doesn't vary with your occupation or your profession. So I am going to talk a little bit more. However about the Investment Portfolio side of things meaning. How do you actually invest? It's for the glory of God and you manage it with honesty and integrity you do it with excellence. But how do you actually invest the money that's placed in your care. If you're a Christian financial advisor, or if you are the actual investor and God providentially has put that as he was a steward over that so I'm going to make another distinction. We're going to focus in on the Investment Portfolio side of things as I said, not the personal Behavior. Not that it's not important. It's just you know this already probably and if you don't there are dozens and dozens of books about how to be a good Christian. One of them is the Bible. I want to make a distinction here between the Investment Portfolio return risk goal, which is based on wisdom and Prudence as opposed to the moral issues that arise when it comes to investing in a world of sins. Let me just go back to this for a second.
People come to you if your financial advisor and they say get me a good return at a low risk, and that's a reasonable thing for them to ask for if they have reasonable expectations, but you can't make bricks without straw. There's always risk and returns are never guaranteed but they ask for you to give them a good return at a reasonable risk and you use wisdom and Prudence for that. We don't have clear or at least if we do I haven't found it clear Biblical commands to use say a valuation approach when it comes to getting return as opposed to a momentum approach or as opposed to minimum volatility or investor sentiment. I find observations about these things in the Bible about the nature of crowds, but I don't find clear commands it unless you want to argue that you know that there are commands or this counsel about diversifying and I think that's reasonable.
Well, but that still doesn't tell you nearly enough about knowing which stocks to buy or which countries to buy in or stocks as opposed to bonds or when to buy them and one to set when the sell them. So we're not dealing with commands here. We're dealing with wisdom and Prudence you develop it over time. And so this is an area where you can say, I read the Bible and this is the biblical way to invest and everyone who doesn't invest this way are their sinning now, I happen to think that this conversation has not gotten
Nearly as much attention as it deserves in the Christian financial industry. This is where most advisors are spending most of their time either here or actually dealing with clients, but this is what clients come to us for if you study the New Testament teaching on investment and I've done a white paper on this which is available. It's pretty clear to me at least that this is what investing is for. It has a main purpose.
And it is to get people to return the the steward is supposed to get a good return for the owner for the master. And that's what investing is for. Now. There are moral issues that come into play the moment you go out there in the public markets or even private markets when it comes to to get that return but the moral issues are ancillary to this things have a purpose. The purpose of marriage is because it's not good for the man to be alone.
Now there are also things you don't do when you're married. You don't for instance watch pornography because it ruins marriage but that's the point you don't get married to not watch pornography you get married and then you avoid pornography because it ruins the marriage. The moral restriction the negative moral command is there for the purpose of reinforcing and protecting the positive goal and in my opinion we've gotten a little too focused on the on the guardrail and less on the road that we're supposed to be traveling on so I'm going to put in a little vote here a little one-man vote for I'd like to see more of this. I'd like to see more discussion about this but as you see I grade that out which means we're going to focus here, which is where most of the conversation has been and it's perfectly legitimate to have it because when you go out there into the marketplace every aspect of human life is streaked through with sin. There is sin everywhere in the world even places where it doesn't seem like there's sin and
The moment you go out into markets you end up dealing with sin issues. In fact, even before you do that you end up with sin issues because you bring part of the sin issues do the markets with you. It was sinful before you even invest it because you and I are sinners already. Okay, so I'm going to talk about some strategies that I've seen and some I've seen a lot of and some I've seen very little of when it comes to dealing with the morale issues.
The one I hear about the most is avoidance now sometimes people seem to confuse avoidance with faith based investing in general. In other words, you say faith best based investing and they say oh yes, I'm going to screen out certain wicked companies or wicked countries or wicked bonds or whatever and it gets to be the point where this is almost equated within the Christian world. This is one issue among many. I would also say that this is an area where there is a blessing.
The blessing is of somebody doesn't think that they can't in good conscience invest in something maybe a store that sells tobacco products or pornography or something like that. Then this creates an opportunity for them to not violate their conscience, but it also has in it a danger which is to add commands on to God's commands and impose your conscience on everybody else. The New Testament talks a lot about the issue of meat sacrificed to Idols matters that are debatable.
And that where we have to resist the temptation to impose our one approach wait a debatable issue. I understand that for some people you think this isn't debatable but it's empirically debatable because it's debated. I think these are issues are debatable between good people. Why because I see good people debating though. It seems unavoidable to me that these are debatable issues. So this can be a blessing to clients in terms of conscience, but it also has a certain danger and
Every virtue has a certain danger associated with it. I'm starting to see more of embrace as a strategy which is not what are we against but what are we for. So here it might be don't buy Apple because people download pornography on their iPhone, or it might be here's a company that's curing multiple sclerosis or here's a company that's purifying water where so these are highly laudable goals, and so the focus on one side is on some people would call this negative screening and then the would be positive screening whatever you want to call it. This is mostly focusing still in the moral issue. This is not necessarily about wisdom and prudence. This is about how do you deal with a world of sin. This is very admirable. It's a good thing to make this available to people I think biblically it is going to be a good thing to invest in.
And even sometimes if you don't get as good a return because it's just a good thing to do. I would say there's a gleaning principle that's in play here. And so that's good. But this can quickly become just another self-righteousness rat race or this can become who's most woke and who's most virtuous and and what can happen is you can gravitate towards not the things that are actually morally best but the things that signal virtue the most the things that are the coolest sounding and sound like they're the best even if they're not necessarily the best some things might not be as cool sounding but might actually be better. So ever again where there's a virtue there is an accompanying a version where there's a vice. All right. Now, here's one that I'm really lobbying for this because I don't think this has gotten nearly as much attention as it deserves and frankly. It's personal and speaking just for myself now.
My default zone for dealing with the moral issue is not to avoid the Sinners or hang around with a really good people but to hang around with the bad people and influence them when I say bad people. Yeah, we're all bad people. But my Approach here, I'm trying to imitate Jesus, is that you dine at the table of tax collectors and prostitutes and you can eat their bread, but that's not the only thing you open your mouth to. Do. You also open your mouth to talk to them about what they're doing.
And you influence them in the right direction and I've got more material about this coming out a white paper in the works. There are many many ways to do this and I think it is much more doable than people think and some of the people who don't agree with us on any issues whatsoever. I've already shown that this can be actually a very successful strategy for for dealing with companies that are doing something you don't approve.
And then finally we look at disengage, this is probably the one I see the most which I think is kind of unfortunate.
People who don't have since screens, not negative screens. They don't have positive screens. They don't engage. They either don't vote proxies or leave that to some proxy service and they basically turn off from the whole conversation and I've talked to a lot of people in this category and they feel alienated from the moral discussion. They feel judged and they have questions about it about whether it's even possible to do some of these things or whether it is in fact a principle and whether or not you can really avoid sin entirely and if so, is it really a moral absolute whether to try to avoid it or not? So some people are asking legitimate questions and they're thinking this through some people are thinking they've written off the conversation and they just say I don't want to hear any of this. I'm I'm tired of it and I'm just going to go do my business and I don't really care because there's an apathy thing that goes on here and I would say what I'm observing is that there's a tension between more legalistic for of avoid some folks from this tradition become the more these people become apathetic and disengage and the more disengaged. These people are the more these people turn up the heat to say, why aren't you listening to me? It matters what's in your portfolio doesn't just matter in terms of return it matters morally so in some sense, even though these are kind of opposites, the legalistic form of avoid and the apathetic approach, the split between them takes on an energy all its own between apathy and legalism. And by the way, I'm not saying this is always legalism or this is always legalism every one of these has a legalistic and not legalistic form. But what I see mostly is a split between these two groups. I think I don't think it's legitimate to say I don't care about the moral issues. I do think it's legitimate to ask questions and I think that there are people here who are processing this and really genuinely trying to process it and what I hear from a lot of people is I don't know how to answer the question I do care but I'm not equipped to deal with this. I'm not theologically educated. I've got people who are making conflicting claims. There are there's knowledge issue which which companies really are sinful how sinful as sinful enough 5% for of tobacco versus 10% of tobacco and at some at that point a lot of people just freeze so I would really encourage people who've disengaged from the conversation to not disengage. Maybe they disengage from the conversation with some other people but don't disengage from the conversation with the Bible and continue to pray and continue to think this through because it really does matter what's in your portfolio. It matters for return but it also really does matter morally and if the conversation hasn't been so good up until now while that's up until now Christianity is about new beginnings and we have a better conversation going forward.