ONE HUNDRED GOOD DEEDS
Investment – Class 12 – Main Lesson
I’ve been an investor since about eight years of age. This is due to maintaining an interest-bearing bank account for most of my life. Shortly after we were married – 35 years ago as I write! – my wife Susan and I became property owners. Hence I was elevated to a new, exalted plateau of investment status. After some years, we saw not only our land value increase significantly, but also interest rates go through the roof – to the low 20%s even in the early 1980s!
So we made a retirement investment plan: This was to sell our property when our effective earning life was over, and simply live off the interest. We calculated a $200,000 sale at 20%p.a. would provide us with a lifelong pre-tax annual income of $40,000 – nice rates if you can get them! Alas, as said retirement relentlessly approaches, interest rates have shrunk to a mere 6% or so, and our optimistic $200,000 sale price doesn’t look feasible in a sustained flat property market!
In 1990, we realized that we might need to fall back on a Plan B – you’re reading it right now. All investment over the last decade has been in the building of a small but healthy Steiner Education publishing firm. Golden Beetle Books may or may not provide a ‘nice little earner’ for the twilight years, but unlike real estate, we will be in control; we will have a hand on the helm of our own good ship Destiny. Success or failure will be the result of our own energy and intelligence, rather than on the financial vagaries of faceless decision-makers in remote boardrooms.
Our expectations are that a small but honorable enterprise will succeed, as we are doing what we know best. I have been in publishing of one kind or another for much of my working life; and Susan and I have over seven decades between us in the service of Steiner Education.
This personal financial revelation has not been inserted merely to satiate the reader’s voyeuristic appetite in our investment affairs, but is typical of the anecdotal jewels so effective in enhancing the treasury of like skills this Class 12 Investment main lesson can bequeath.
Another narrative from the “do what you know best” archives; but of some other guinea pig this time: A local rock ‘n’ roll entrepreneur made a lot of money staging events and concerts, backing recording contracts and the like. For some irrational reason, he diversified into real estate speculation. This was an area of which he was woefully ignorant. The poor promoter found himself swimming in shark-infested waters, a dark and dangerous estuary where he couldn’t tell a minnow from a mako!
Not only did our financial rock ‘n’ roller lose his invested money, but due to putting up his other assets as collateral, lost those as well. He was sadly bankrupted; but this tough operator remained stoic right through his ‘crash’; that is until the receivers, after taking everything he owned, kindly returned his bed linen. “This is no good to us, it’s been used.” At this ultimate degradation, he finally broke down.
But the story has a happy ending; our man picked himself up, brushed himself off, and started all over again (to borrow the musical phrase) – in the music business again of course. Today he’s doing quite well again thank you – but his financial advice is timeless. “Stick with what you know, do what you do well.” If he had the benefit of this Investment main lesson when he was at school, he might have been aware of that fundamental financial principle – and many others – already.
While on back accounts and honor, a colleague of mine in control of school finances encouraged the children to open back accounts under our company umbrella After this was humming along nicely for some time, the school negotiated a loan from the bank. Alas, my financial admin. Pal used the children’s savings as a bargaining chip to help secure the loan. He hinted (without authority from the Board!) that he would take the children’s accounts elsewhere if our loan application was rejected.
Which is was! We didn’t get the loan, and the administrator lost his job. The children of course continued to enjoy the benefits of their school-sponsored thrift. This small tattletale highlights the role honesty and honor (two different but allied virtues) play in the presentation of this lesson. A person’s character is ultimately judged, not by their hundred good deeds – of which my colleague performed legion for his beloved school – but sadly by one bad deed. One has only to steal once in an otherwise unblemished lifetime to be branded a thief.
Investment is programmed n the Finance strand of the Maths stream. This is the feeling-soul strand of three, the other two being Geometry-will and Numeracy-thinking. As a ‘heart’ expression, special vigilance must be maintained in presenting moral and ethical values. The “Greed is good” maxim of the 1980s must be eschewed in favor of a “How will my (ethical) investment activities benefit me, mankind and the world?”
This warm glow of morally upstanding conduct is also central to our considerations of our 18-year-olds developmental reality; they who in their re-visiting of evolution, are recapitulating the 20th/21st Centuries – in other words, the present. Rudolf Steiner, along with Eastern Occult teachings, tells us that 1899 was the end of 3000 years of Kali Yuga, the Age of Darkness. This vision of the karmic path of humankind was based on a slow but relentless descent into the pit of materialism. Kali Yuga’s nadir actually occurred in the 1840s.
The beginning of the 20th Century is supposed to have been the birth of a new Age of Light, Strange than that wining 14 years humanity plunged itself into the “War to end all wars” – followed a couple of decades later by a war to eclipse even that! Anyway, a perceptive teacher should be able to sense this new – spiritually at least – luminous era in the souls, collectively and individually, of his/her 18-year-olds.
This yearning for the light is no-where more effectively met than when confronting good-and-evil issues in a lesson. One can look in vain for a moral dimension in most school maths programs; the predictable outcome being the use of spiritually profound number knowledge to create atomic bombs! In Steiner Education however, the nurture of the heart forces – in any subject – is central and sacred. IN this light, broad-ranging class discussion should take place on the new, morally reassuring Ethical Investments – still sadly a minority segment of the market.
Here people with money to invest are guaranteed which kinds of enterprises their hard-earned will support. In investing in a large bank or finance company, the money disappears, to perhaps resurface as a cigarette factory expansion, or a clear-fell native forest woodchip operation. In this context “Right Livelihood” can be discussed.
This is the 5th Path of the 8-Fold Path of Buddhism (the Venus Path). The 5th is appropriate for special consideration in the 5th year of high school – the Venus Year! The Gautama already understood 2500 years ago that the well-being of earth and man is dependent upon people earning their living in a morally “right” way – that harmed no-one and nothing.
Being the Venus (the 5th planet in the astrological solar system) Path, Love is the ever-present guidepost in determining what is and what is not ‘right’. One simply cannot harm what one loves, no matter what the sophists say. This Ethical Investment segment is placed in the broad overview of money-making opportunities.
Perhaps each student can research one of the following for a presentation to the class: banks; finance companies; real estate; futures; objects d’ art; collectibles; shares; gambling; private business; one’s own business; insurance companies; building societies – and more.
An important point of this research should be the safety-risk, low-high return factor. Generally the higher the dividend, the greater the risk. This can be demonstrated by two extremes, lotteries and government bonds.
A lottery ticket has an extremely high dividend, perhaps $25,000 return for the purchase of a $1 scratchie! Alas there is an equally stratospheric risk of no return at all; most p=punters losing most of their dollars most of the time. The Chinese government recently launched a massive scratchie campaign, in a country where gambling (a “Western decadence”) is actually prohibited.
Scratchie income is actually a form of tax in China, as normal tax is so difficult to obtain, much of the economy being ‘black’ as it is (based on cash and/or barter). Officials refer to the extraction of vast sums from the addicted multitude as “tax with a smile”. In Australia I participate in this painless tax extraction by buying just one scratchie a week. This is to make it easier (but not too easy!) for my karmic guardians to one fine day deliver me from penury with an unexpected $25,000 windfall!
Government guaranteed bonds are the opposite form gambling, low risk, ow yield. This gambling element has even entered the vocabulary of its highly respected antithesis, share trading. The term “Blue chip” shares, as issued by solid, traditional companies, is derived from the casino gambling chip with the highest value. Blue chip sock indicates a combination of reliable dividend income and capital value.
The moral-money issue should be nothing new to the 18-year-olds; after all, they have been propagandized with it for the last four years, especially in the Finance strand. This began in Class 8 with Personal Finance (see my book What is X? Why is Y?), then Small Business in 9; Economics 10 (both in Of Pine and Palm); and Accountancy-Business Principles in Class 11 (earlier in this book).
As well as investment options, a glossary of finance should be given, with explanations of terminology. If the arcane argot of an industry is known, a lot of the mystery evaporates. For instance a “bull market” is energetic, with prices rising; while its “bearish” counterpart is a run of falling prices where churlish investors crawl back into their caves! What is the Dow Jones Average? A daily index of US stock exchange prices based on the average price of a selected number of securities, that’s what! Who were Dow and Jones? Early 20th Century financial statisticians, that’s who! I bet those two were the life of the party!
All financial institutions keep an alert eye on the Dow Jones, because when it scratches, the rest of the world gets a rash – in some cases terminal eczema! The other important world stock exchanges are Japan’s Nikkei, Hong Kong’s Hang Seng, London – and even Sydney, Australia’s premier exchange. A stock exchange is where publicly traded shares are bought and sold through share brokers. These compete in an open auction system to obtain the best price for their clients. Stock exchange members purchase a seat, and observe strict regulations designed to protect the public interest. For example “insider trading” is a criminal offense. Companies must also be scrupulous in providing up-to-date reports on business dealings to their shareholders, the exchange and the public.
As well as the capital cities, there are exchanges in large towns like Ballarat and Newcastle. The Sydney exchange began in 1871 with 10 stockbrokers, but trading in stocks and shares had begun in the 1840s.
The stock exchange serves a useful purpose above filling an increasingly large slot in the evening news. Through shares issued by existing companies, and the floating of new companies, the exchange provides a means of raising capital to finance business enterprises. For the punters it provides a medium through which investments may easily be converted to cash. The holders of ordinary stock units or shares in a company are, in effect, its owners, sharing in the risks and rewards of the enterprise.
Thus the holder of 1000 shares in a company which has a total of 100,000 ordinary shares on issue has a 1% interest in the company. If it loses all its capital, w/he will lose all funds invested. But if it earns profits and pays a dividend, say 10 cents a share, w/he will receive $100 – 1% of the total dividend of $10,000.
Ordinary shares also give their owners the right to vote on certain matters at the AGM, such as the election of directors. This supposed shareholder power is, in practice, strictly limited, especially with large companies. Not all shares are listed on the stock exchange; shares in proprietary companies can usually be sold privately, but only with the consent of the board. The Par Value of a share is the face value attributed to it. Companies can however issue shares at a price greater – ‘premium’, or less – ‘discount’. The Market Value changes frequently, depending on factors like past and likely future earnings of the company, the outlook for the industry – and even of the economy as a whole!
Market Capitalization is the worth of a company as calculated by the stock market. It is obtained by multiplying the number of shares on issue by their share price. The Price/earnings Ratio is calculated by dividing current price by earnings per share.
It shows the number of times market price covers earnings, and is a handy tool for comparing profit performance relative to price. It is an indicator of the market’s anticipation of future earning, as well as the quality of the company’s performance.
Earnings per Share represents the portion of earnings attributable to each ordinary share. This is calculated by dividing EPS (above) by share price; it is the reciprocal of the PE ratio. The Net Tangible Asset Backing(‘net worth’ or ‘asset backing’) is the theoretical value of net assets attributable to each ordinary share on issue. It is calculated by dividing the shareholder’s funds, intangible assets etc. by the number of ordinary shares on issue. The Dividend Yield is another measure of relative value of a share. It is the dividend return from an investment, and is calculated by dividing dividends per share by share price – it is expressed as a percentage of the market prices. For example a share selling at $2 and paying a dividend of 10 cents would have a dividend yield of 5%. Shares which are valued mainly on the basis of expected growth in future earnings tend to have low dividend yields.
One reason we don’t teach in-depth stock exchange information prior to Class 12 is because, again according to Steiner, younger students have not fully developed an independent capacity for judgement. This arrives at about the 18th year, and one needs faculties of judgement and critical analysis when embarking on the white waters of gambling – yes, gambling. All investment is respectable, Establishment-sanctioned gambling.
Investment, like a bet on a horse race, is an attempt to foresee the future and profit by it. In a strict definition, this could justifiably be called the Class 12 Gambling Main Lesson! The alternative term, “Investment”, is really a euphemism, just like the Chinese designation for their burgeoning but nominally illegal track industry, which they call “equine intelligence testing”! After all, one’s chances of reaping a win with gilt-edged stocks is about the same as betting on a short-odds favorite.
While on definitions, that for investment could be that of exchanging income during one period of time for an asset that is expected to produce earnings in future periods. Throughout the history of capitalism, investment has been primarily the function of private business. The trend for governments to exploit the investment milk cow have markedly increased over the last century. From the standpoint of the individual, investment is mainly in tow forms, by means of production, and purely financial. Our lesson deals mainly with the later. In relation to the economy, purely fiduciary investments appear only as title transfers, and do not constitute an addition to productive capacity.
Of course one can be as careless in investing in “sure things” as betting on 100-to-1 outsiders years ago people were swindled out of their hard-earned by being sold shares in the Sydney Harbor Bridge! Not so extraordinary I suppose, if one considers that major infrastructure projects these days are often owned by private companies. You can buy shares in tunnels, tollways – and bridges of course.
Investment, meaning ‘to clothe’, is not a new art; the first records we have of trade – investing in goods for resale – came from Egypto-Chaldean-Babylonian civilizations. The word Babylon is still a term used for societies obscenely engaged in crass commerce. In the same period, the Han Chinese (the generic southerners, not the Dynasty) established their well-earned reputation as skilled entrepreneurs.
Hong Kong is today the financial center of the Orient. This is rivaled only by Tokyo, its Anglo-Nippon complement being London.
The concept of interest on money lent only gradually dawned on an innocent humanity, firstly in the Levant. The “money changers” in the temple, the tables of whom Jesus so unceremoniously overturned, were the forerunners of the ubiquitous Jewish financial ‘clothiers’ of Medieval and Renaissance Europe.
Jewish ‘money changers’, were represented by myth-makers, like The Bard and the Brothers Grimm, in characters like The Jew in the Thorns and Shylock respectively. It was this blanket vilification which cast the Chosen People in the usurer (the word not originally being pejorative) role. Money lending was considered a demeaning occupation for good Christians, which left the field free for the Jews, whose vocational options (they could not even own land!) were severely limited. This turned out to be a Big mistake by the anti-Semitic legislators, as evidenced by the power Jew wield – totally disproportionate to their numbers – in world finance today. The American Rothschilds and the Gnomes of Zurich being just two examples. Usury is still a sin in Islam; this has created plaques of problems for the banking industry; hence there is no Median or Mecca stock exchange! Wealthy Arabs rather surreptitiously invest their vast oil riches in London department stores and Australian horse studs!
Usury is a sin in Steiner Education also: one of the board members of a school I worked in lent us a large sum of money to help us over a tough establishment period – a dire time indeed, when the teachers were subsidizing the school’s growth by routinely foregoing wages! This was in the heady 22%pa interest days of the late 1970s. Even at the start of the loan this ‘friend of the school’ didn’t offer even small interest relief. The money stayed in for some years, till rates dropped to about 14%. Then our accountant complained, in his annual audit, about the serious irregularity of the school still paying 22%. The word usury was indeed used by disappointed and disillusioned colleagues. This was yet another case of a hundred good deeds sadly being neutralized by one bad deed.
In investment terms, not only the Jews, but the Christians are today profitable money changers, the Catholic Church being the world’s largest. We like to hope of course that the latter’s vast yields are being channeled into good works; and on a global scale, that’s a lot of good works.
The insatiable pursuit of mammon led to the US stock exchange crash in 1929; which, after flocks of bankrupt capitalists on their maiden flight crashed on the Wall Street pavements below, led to the Great Depression. Here even blue-chip stocks went moldy in the 1930s.
For more spiritual insight into the moral and practical ramifications of the investment element in world finance (all the way down to small organizations, like schools), the teacher should be familiar with Rudolf Steiner’s 3-Fold Commonwealth revelations. These were bestowed to humanity in a period before official finance watchdogs. Internationally, these have at least helped avoid another serious depression. We Steiner folk even believe that, though The Master’s ideas have never been officially accepted by the world’s power brokers, by slow osmosis they have increasingly influenced financial thinking and ethics.
The financial Cerberuses (guardian of Hades indeed!) supervise business dealings of all kinds. In Australia this body is ASIC – Australian Securities and Investments Commission. They are obliged to scrutinize any irregular financial transactions brought to their attention. Their very existence assures a higher level of commercial conduct than would otherwise be the case. And they Do catch the bad guys, like insider traders; parasites on honest investors who use their privileged knowledge to profit from confidential company information. It would be good to have one of these – the sleuths not the insiders! – talk to the class.
A visit to a stock exchange is also highly valuable for this lesson. Then there’s the new on-line trading, where one doesn’t even have to go through a broker to trade stocks and shares – just click the buy or sell icon! Which brings us to a practical aspect of this most practical – and on the face of it at least, despiritualized – of all life skills, making money.
A friend of mine is a shareholder in The Big Australian, BHP. He receives an annual dividend, is qualified to attend the company’s AGM, and receives newsletters and other information about their affairs. All this in spite of the fact that he owns only one single share in BHP!
As can your students! A good idea is to pool some money from the whole class – $100 perhaps? – to buy some shares. Or for those who prefer, assist individual students in investing a small amount of their own money. On a school level, it is best to avoid large sums, as you may be blamed if they lose it all! Small investments (hopefully more than one share!) like these – hopefully in ethically sound enterprises – provide incentive to follow the market each day, and in so doing, demystify it.
If you prefer a non-cash but still salutary exercise, how about comparison between current investment offers in newspapers or magazines? Using just a sampling I’ve found; which company would be the best in which to risk a given amount of money? Due to my own cash-challenged circumstances, I am seriously not qualified to recommend any! I have merely provided all the relevant information contained in the ads. Points not mentioned, like fees charged and minimum time, usually detract from the offer – so err on the side of caution:
Company A (solicitor); 8.5%pa on a registered 1st mortgage – minimum $30,000. Company B (mortgage corporation): 7.75%pa 12-month term, minimum $1000, no fees. Company C (bank); 6%pa 2 years; 5.8% 12 months; 5.2% 6 months – Win one of three cash prizes! Company D (credit union): 5%pa 4 months; 5.7% 7 moths; 5.75% 12 months; 6% 15 months – minimum $20,000 (in tiny print) maximum $500,000, fees and charges apply. Company E (credit union) 4%pa in January; 5% to Feb.; 6% to Mar.; minimum $10,000; money at call. Company F (solicitor): 9%pa in secured first mortgage – no fees.
A good exercise is to provide each student with an imaginary, say, $1000, $10,000 and $100,000, and give them a week to secure the best investment possible for each sum. The minimum investment time-limits on each could be none for the $1000, one year for the $10,000 and five years for the $100,000. This assignment will clearly demonstrate how much better a deal one can obtain if one shops around. A review of the calculation of interest rates (see earlier ‘Finance’ chapters) is essential for this lesson, and the implications of same.
There is no good and bad in the interest rate universe; high rates are good for investors, low rates for borrowers. Nor is there in the types of stocks, say between ‘resource’ and ‘non-resource’. The former deals in tangibles, like gold mines, cattle properties and timber; while the latter exploit the ethereal world of such things as information technology (IT) and financial services. Non-resource stocks seem to have a more price-change roller coaster ride than resource, as they are more dependent of perception of value rather than its real equivalent.
Lately IT stocks have skyrocketed in an unprecedented way. This is based on profit expectations of companies which are often still run from the family garage! Lemming-like investors are scrambling to buy shares. Not in reliable railways, but in invisible electronic impulses. Alas, the bubble must inevitably burst – by the time you read this perhaps?
But not today; as I write, Rupert Murdock’s Newscorp Stocks just went stratospheric with the announcement of the biggest merger in history, between America Online and Time-Warner. This behemoth created an all-time record All-ordinaries peak on the New York Exchange.
The Futures Market is also somewhat ephemeral, buying and selling goods which one not only never sees, but, as the word implies, do usually not even exist! Historically these originated at Medieval fairs with agreements called letters do faire. These were based on samples from which merchants sold their wares ahead of their arrival by shop or caravan. Both buyer and seller were protected from the vagaries of price change in the often-long delivery period. In time, the letters de faire could be bought and sold as easily as the putative goods they described.
One of the first centers to trade in these “forward contracts” was the Royal Exchange of London. The trade expanded mightily in the 19th Century, especially for cross-Atlantic goods, like grains and cotton. Futures markets have changed little since the first large commodity exchanges were established in America and Europe I the mide-1880s.
Futures trading in Australia began in 1960 with the establishment of the Sydney Greasy Wool Futures Exchange. This remained small until 1975, when a cattle contract was added, and in 1978 a gold contract. The glitter of gold was the honeypot which attracted swarms of investor bees.
During 1979/80, the gold price surged from around $300 an ounce to $800. Frenzied speculators, both Australian and overseas, created the mother of all bull markets in the precious metal. Annual volume in the Sydney Futures Exchange leaped form 121,000 contracts in ‘79/’80 to 511,000 the next year. But the rampaging auric bovine went down on its knees a year or two later – to my regret!
My wife Susan played a part in this gold futures debacle. At the time, my mother-in-law invested $500 in gold futures for each of her three children. Her crafty financial adviser was the man next door – a taxi driver! She did this just when the price peaked, and lost the lost when it plunged. So much for the retirement cushion! The frenetic futures market pushed gold to an artificial and unsustainable all-time high. Are we witnessing the same thing with the astronomical rise of ‘internet’ stocks? As I said earlier, the students need to hear these kinds of financial disaster anecdotes; if for no other reason than to arm them to combat the multifarious scams they will inevitably encounter in life.
The irony is that the gold price is traditionally relatively steady, controlled by the Gnomes of Zurich (where were they when I needed them!?) and others, who release and hold back supply as they deem necessary. The price was about $300 an ounce in 1979, and is about the same now. In real terms, the metal, due to inflation, is actually much cheaper than two decades ago. For more on the enigmatic role gold plays in the world economy, see the Finance chapter in my Class 5-6 maths book, Numero Mystika.
I may have missed out from indirectly benefiting from my mother-in-law’s well-intentioned gold rush, but at least I still have the daughter – 22 carats indeed! As the saying goes, “Lucky in love, unlucky with money.” – that’s my story anyway!