Should a Christian Invest in the Stock Market? A Balanced Perspective

From Partnerships to Shareholders

Knowing something’s origins helps one to comprehend it. Like the majority of our society’s most venerable institutions, modern investing has its origins in the Medieval Ages, when trade expeditions, their financing, and the emergence of a distinct mercantile class all increased. St. Thomas Aquinas provides us with an insight into this world and its self-understanding. According to him, an investor who covers a merchant’s expenses in the hopes of earning a cut of his earnings establishes a kind of “joint activity” or societas with him. Societas originally meant “personal relationship” in medieval Latin, and it was even used to refer to marriage. However, the term also meant “single venture agreement,” referring to a partnership between a traveling partner (referred to as a tractor, “hauling one”) who took on the personal challenge of the venture and an investing partner (referred to as a stans, “staying one”) who stayed at home. [2] The former would deposit “two thirds of the money, with profits (or losses) split fifty-fifty, and the traveler one third.” [3] Should the venture fail, both parties would be personally liable indefinitely. For instance, the traveling companion could use the funds to purchase wine in Portugal and return with it to sell in the neighborhood market. Whatever money remained after covering the travel expenses was divided equally with the investing partner. Both of them would have lost their investment if the merchant capsized and lost everything. It would be incorrect to view the stans as a type of sleeping partner who was only looking to profit from a speculative investment, according to Raymond de Roover. [4] The investor was frequently an experienced older merchant who gave the young one advice on where to go and what to buy, and who would also help him sell the goods when he returned. The investor and the merchant would split the profits, and the societas would dissolve after the money was disbursed.

Edwin Hunt claims that a novel business arrangement gained traction following St Thomas passed away, one centered on several collaborations that lasted for a predetermined amount of time as opposed to being restricted to a single project. These contracts had a duration determined by the partners, typically between two and twelve years. The Peruzzi Company from the fourteenth century is a prime example of this kind of business. [5] It consisted of twenty-one partners. Each partner made a financial contribution to the endeavors, making them eligible for a share of the company’s overall earnings. However, the business was structured like a societas: it was an endeavor by workers and investors who were willing to take a loss in the hopes of giving their communities goods in exchange for a cut of the profits. “Most, if not all, shareholders, along with several sons of shareholders, worked actively for the company, [and] none received any apparent remuneration other than their pro rata share of profit,” according to the Peruzzi Company’s statement. [6] The investor joined the joint-action as an expressly active participant. We will contend that this sets the medieval societas apart from the contemporary corporation, even in this later incarnation. Over the ensuing centuries, a crucial element emerged that paved the way for the current stock market: the legal definition of a “company.” As ought to be evident by now, the societas described individuals In modern usage, the term “company” refers to a legal entity, or “it.” People who formerly belonged to a “us” can own a portion of “it” and own that portion of “it” for an indefinite amount of time. ”.

The history of how the societas became the company, and how “us” became “it,” is complicated and most likely not the product of a single historical event. It is enough to say that in order for this change to occur at all, an investor had to start viewing the business as something bigger than the lives and goals of any of the people involved. Without the practice of temporally indeterminate investments, this would not have been possible. When an investment is made neither for a specific project that it ends with nor for a predetermined period of time, the work it permits must never end. A company is distinguished from a societas by its quasi-immortal life, and a societas by its specific work, whereas a company is distinguished by “any” work. This shift, however it occurred historically, made it possible for an investor to own a business in the same way that he could own any other “it,” like a table, a car, or a house: without a finish line, without having to provide ongoing funding for the business, without having to work for it, and without having to take a proportionate share of its profits or losses. The “partner” became the “shareholder. ”[7].

The Dutch East India Company (DEIC), established in March 1602, is the first instance of a publicly traded business, with shares exchanged among “dormant partners”—speculators. [8] Although investors were guaranteed a portion of the profits, just like in the societas, the DEIC profits were not distributed after this or that venture was completed. Instead, they were reinvested in order to spur the company’s growth; consequently, unlike the societas, the investors were unaware of the specific initiatives they were supporting. Their investment became the company itself, not this or that individual on a single trip.

Before the company revealed its financial success and gave investors the option to withdraw their money and any profits, investors had to hold onto their investments for ten years. But before the company’s shares were made available to the public, the directors realized that this time was too long and that people would not purchase However, they permitted investors to sell their stake in the company to a third party rather than reducing that time frame. The words “Conveyance or transfer [of shares] may be done through the bookkeeper of this chamber” were added to the share register agreement’s first page. This meant that investors could now sell their shares to another investor at any time, rather than waiting until 1612 to profit from their investment. This made it possible for investors to purchase them in order to sell them to another investor for a profit greater than what they had originally paid for them, rather than in order to benefit from the eventual payout. These shares’ value started to fluctuate due to supply and demand, just like any other commodity. A share could be sold for more money to a buyer who was prepared to pay a higher price. Between August 1602 and April 1603, the share price increased by 6. 5 percent. [9].

The phrase “the secondary market,” which refers to the activity of trying to make money from the sale of shares in a company (secondary) as opposed to from the company and its activities (primary), is also used to refer to this new market, which is commonly known as the stock market. In terms of operation, we deal in the secondary market by offering to sell shares to other investors. Seldom does the money paid to purchase company stock benefit the business itself. Instead, it goes to the previous stockholder; we are assuming his position within the business. When we sell, we give up our position to another. Jim may sell his property to Joe, and Joe may sell it to Justin, but the merchant—possibly somewhere in the water near Portugal—never gains anything from their deals. The funds are not used to pay for the actual labor involved in obtaining, say, sugarcane and spices.

From Shares to Dividends … and Beyond

Modern stock buyers become the legitimate proprietors of the company whose shares they buy, just like the societas’ investors did. But thanks to the DEIC’s innovations, this “ownership” no longer includes a cut of the business’s earnings. The DEIC provided its investors with dividends, which were an amount that was arbitrarily determined and regularly paid to investors. The amount could be increased or decreased over time by the company’s directors. Rather than being a percentage of the company’s profits (or losses) at the end of a venture, as per the terms of the contract, those were automatically reinvested in the next venture. The difference may not seem like much, and in fact, the amount distributed as dividends during this early period of switching from percentages to dividends was quite large by today’s standards. However, it represented a significant departure from the past and any notion that an investor’s success is directly correlated with the success of the business he invested in. Dividends proportionate to profits were no longer required of companies, unless by custom or as a means of rewarding shareholders. In actuality, they were no longer required to pay dividends at all, as is the case with many contemporary businesses. [10] The most obvious distinction between a company and the societas that came before it is the legal sacrifice of one’s share in the profits. This sacrifice is what firmly divides the secondary market of stock trading from the actual activity of companies: if one has little or no share in the profits, the only benefit of ownership is the ability to sell it to someone else.

Effective stock trading is contingent upon a company’s ability to generate profits. But this connection is dependent rather than necessary because of the legal sacrifice of receiving a portion of these profits. Owners of businesses, who are entitled to a portion of their profits, are paid based on how well their productive operations perform in the short term. Investors forfeit their portion of the profits and earn varying amounts of money depending on their ability to sell their stocks to third parties. The company’s success or failure may have an impact on their ability to sell their position.

A company’s owners have the authority to manage its day-to-day operations and are legally entitled to the profits the business makes. When a business “goes public,” its founding shareholders relinquish both of these in a formal process known appropriately as a “public offering.” They are now granted a specific quantity of stock but no longer have a claim to the profits. They no longer hold executive authority over the business; instead, they usually participate in a voting board of directors. This board is just a collection of individuals who own stock in the company as well, albeit frequently in greater proportion than the broader public. To guarantee that the stock price rises, the board of directors is tasked with representing all of the company’s shareholders.

The change is gradual but significant: a company’s immediate goals are no longer satisfied by the products it produces or the money it makes, unless those products and profits enable stockholders to sell their shares to other investors for a higher price than they were originally paid for them. If the board of directors decided, for example, that a bakery would be better able to maximize the sale of their investment if it stopped baking and started producing, say, plastic wrap—that could and would happen; Facebook could become Meta. “Going public” releases a business from all obligations other than generating increased stock value. [11].

This issue with profits explains a phenomenon observed in businesses like Amazon, where Jeff Bezos, the company’s founder and former CEO, has been receiving base pay of no more than $81,840 for the past few years—with no bonuses at all. Tesla does not even pay Elon Musk a base salary. The only source of income for these CEOs is the growth in their stock values. [12] The individual who owns a small amount of both Tesla and Amazon stock is in a similar situation to Bezos and Musk, albeit to a lesser extent.

In technical terms, the difference between a company’s “book value,” which is determined by looking at its balance sheet, and its “market value,” which is the price at which it could be sold on the open market, can be used to describe the impact of “going public.” Profitability, or how well a business is doing in its real production and sale of goods and services, determines book value. [13] The amount of money that a stockholder can get for selling their shares of the company determines its market value.

There is a widespread belief that a company’s book value determines its market value, meaning that stockholder profits are correlated with the company’s productivity. Strictly speaking, this is not the case. Stock traders do speculate, or purchase stocks, based on a company’s projected book value, but only to the extent that this information is helpful in forecasting the company’s future market value. The traders take into account potential future market expansion, potential new product development, etc. as underlying factors. However, this is also based on speculation and frequently has nothing to do with the company’s profitability now or in the future because speculators are more interested in the company’s potential market value. Because of this and the rise in investors driving up stock prices, a company’s market value can exceed its book value by a significant margin. At the moment, Tesla’s market value is roughly forty times higher than its actual book value. A group of Reddit users decided to purchase stock from GameStop’s stockholders in 2021. At the time, the video game company was all but bankrupt and its stock price was only a few dollars. The “demand” for GameStop’s stock caused it to rise to almost $500, even though the company had just disclosed a $200 million loss for 2020. As of 2022, the stock price has stabilized at approximately $100, which is five times the share’s book value. [14] The shoe company All Birds recently disclosed in their initial public offering (IPO) filing that, “A corporation’s assets can be valued in a variety of ways and may not always equal their book value.” The relationship between a business’s profitability and the public’s perception of it, or between what is real and what is seeming, can be very different.

If a company’s market value—that is, if it is controlled by investors who profit from an increase in stock price rather than from the company’s profits—is the primary source of individual financial gain from it, then the company will make decisions based on how it can raise its perceived value. Being a profitable and well-run business is still vital, but only to the extent that it fosters this perception and encourages potential investors to purchase stock from the company’s controlling shareholders. It was evident from the cases of Tesla and GameStop that a company’s profitability does not always translate into this perceived value. Purchasing stocks has the ability to create this perceived value “all on its own.” “A company’s primary goal through the secondary market becomes the creation of this perceived value; in other words, the goal becomes what we might call marketing.” Production is just another way that the public company does this marketing. Making watches or announcing via advertising that they will make watches is one way for a business to raise the value of its stock. [16].

Should Christians invest in the stock market?

FAQ

What does God say about the stock market?

Is it OK for Christians to invest?

Is it a sin to trade in the stock market?

Is stock market a form of gambling?

Is investing in the stock market a sin?

If investors follow the USCCB’s guidelines, in all likelihood they are not committing a sin by investing. Even hypothetically granting that investing in the stock market is gambling, it still would not be sinful if it is engaged in according to the USCCB’s guidelines and the normal rules that apply to gambling.

What is a sin stock?

A sin stock is a publicly traded company involved in or associated with an activity that is considered unethical or immoral. Sin stock sectors usually include alcohol, tobacco, gambling, sex-related industries, and weapons manufacturers. Consistent consumer demand for their products helps sin stocks during recessions.

Why do sin stocks have higher taxes?

There is also an economic argument that tends to support sin taxes, resulting in higher taxes for sin stocks. Whenever a good or service is taxed, some people will reduce consumption in response to the tax. This reduced consumption does not produce any tax revenue.

What is sinful stock?

Sinful stock is stock from a company that is associated with (or is directly involved in) activities considered unethical or immoral. The thing with ethics and morality, however, is that there is no universally accepted definition of what is or what is not ethical or moral.