Thursday, February 21, 2008

The gospel for stock market junkies

One of the recurring struggles among people who are part of the evangelical Christian tradition is finding the balance between faith and good works — knowing where each of them fits in and what they're for. Since I've been trying to read three chapters of the Bible every morning to get my bearings before jumping into what are typically full days, I read over something that reminded me of this.

Now, the "full days" have been dedicated to learning about stock market investing and exploring various angles for the individual investor to take when selecting stocks.

The price of a company's stock takes thousands of factors into account. One way to split up these factors is to consider 1) the book value or intrinsic worth of the company, and 2) the other things like projected growth, macro-economic concerns, takeover speculation, and a host of other factors that are not directly tied in to the numbers that the company is posting.

The stocks of most healthy companies will trade at prices above their book value. But when they're hammered by a bad economy or growth slows down, they won't go down to zero if they're solid companies, because people called value investors will swoop in and "support" the stock at a price at or somewhere near its book value. It's like a safety net, and these value investors keep stock prices at certain levels so they don't go down too far.

In good times and when a company's prospects look good, its stock will trade above the price set just by the raw numbers, whether the numbers are already in the bag or just strongly projected. At every point though, it's supported by its raw value, and every other gain in price is tacked on as extra.

I see us like stocks, and our spiritual well-being like the price of a stock. What God does for us is He gives us that solid book value. To get our balance sheets and cash flow in decent working order, so to speak, we must have faith and accept the Lord's gift of forgiveness. Then we're fixed, and our intrinsic worth is affirmed; there's no taking that away. We may be battered by the storms of life but we don't sink down past a certain level, because God sees value in us.

That faith can be enough to get by, but just as investors want to see a stock take off, I think it's in our interest also to grow, and not just rest on our laurels like some stocks languish at seemingly constant lows.

Faith gives us something like the value investor-supported base and ensures we don't sink past a certain low, but doing good deeds gives us growth and dynamism. On top of that, our good deeds often feed back to strengthen our faith, just like a company making constant process improvements and aggressively pursuing business will see the results feed back into the bottom line and strengthen the base of its value.