My favorite MBA class was a finance elective on investments. We studied equities, fixed income, and other types of financial investments. I learned terms like alpha (𝛂 – a performance measure of excess returns over a benchmark index), beta (𝛃 – a measure of systematic risk of a security or portfolio compared to the benchmark market as a whole) and diversified investments (a collection of assets that achieve the highest returns with the least risk). We studied the inverse relationship of bond prices to interest rates (when interest rates rise, bond prices decline). I learned about different levels of tax rates depending on the investment duration. This finance class opened my eyes to a new world. Being in my twenties and owning few investments, I was then able to avoid many novice investing mistakes.
The most beneficial part of the class was reading the classic financial book, A Random Walk Down Wall Street by Dr. Burton G. Malkiel, professor of economics at Princeton University. He advocated the efficient-market hypothesis which contends that on average with all costs included, actively traded public equites do not achieve alpha, over the long term, against a diverse passive portfolio. I still remember the book’s image of a blindfolded investor throwing darts at a NYSE stock listing page. This way of choosing a diverse portfolio of equities has the same probability of investment returns as that of investors who spend their time and money actively trading a stock portfolio. Malkiel’s theory still rings true as passive funds have outperformed active funds in eight of the last ten years since the 2008 great recession.
In a recent Financial Times (FT) Person in the News article, Cathie Wood: A Tech Investor doing God’s Work (Michael Mackenzie, March 12, 2021), I learned of a successful speculative technology fund, Ark Investment Management. What caught my eye is that the word ‘God’ was in the title of the article. It is uncommon for a European financial news organization to link religion to an investment fund manager. What does God have to do with investments?
Ark has recently received massive investor inflows; their holdings grew from $3B to $60B in just one year. The flagship fund, Ark Disruptive Innovation, specializes in startup technologies: artificial intelligence, autonomous vehicles, DNA sequencing, fintech, robotics and 3D printing. These new technologies will be a key component within future portfolios and during the pandemic, have greater returns than value equities.
Cathie Wood, the founder and CEO, is a “devout Christian who starts every day by reading the Bible while her coffee brews, and who relies on her faith during testing moments, such as the many market upheavals she has experienced over a four decade career in finance.” She named her investment company as “a direct reference to the gold-covered chest described in the Book of Exodus.” Cathie does not shy away from her beliefs; she speaks up about her Christian faith and the financial markets. “Wood is unrepentant. She dismisses talk of a bubble, and is open with investors that her bets are long term.”
I only learned about Ark through this FT article. Wood’s actively traded technology fund goes against Milkiel’s efficient-market hypothesis (although some of Ark’s investments may be within an inefficient market thus negating his theory), but her union of financial competency and faith resonates with me. The theology of work penetrates the financial markets as Christians are called to use their God-given gifts to steward God’s resources. The world needs innovative technologies and Ark’s strategy is to allocate capital towards long term growth. God does not discriminate between all moral occupations that serve the community; all are of equal worth.
“As Wood sees it, it’s all God’s work anyway. ‘It’s not so much about me and my promise. It’s about allocating capital to God’s creation in the most innovative and creative way possible.’” Some of the commenting readers felt that her religious views should not be in the FT’s article. I disagree. Her faith permeates her investment company. Neglecting this aspect of her life is the same false theology as placing religion only within a church building. God calls Christians to a whole life, not a partitioned life. Cathie Wood integrates her faith into her work. Four decades of many market upheavals opened her eyes to something far greater than her. “Each of those times was a time of deepening my faith.”