I believe that right now you all have enough financial knowledge to be dangerous! Over the last seven chapters, we have reviewed a lot of material – from Goal Setting and Budgeting, to Asset Allocation and Core Portfolio Strategies, and even further to the methodology and calculations used in Fundamental and Technical Analysis.
Our goal is not to make you all accomplished traders, but rather to inspire you to invest in your future, both in your education process and financially.
We received a number of inquiries on both ethical investing and the requirement for a sadhu to manage money. We will share our philosophical understanding on both of these issues, as well as expand on Dharmic living as it applies to Right Livelihood.
A brief overview of other, more sophisticated, investment options is given in this chapter, supplemented by a short summary of Portfolio Strategy.
The importance of charitable giving is discussed as well, and we share our perspective on why, as sadhus, we must give back to the community and give more than we take.
Let’s Begin!
We did receive a number of inquiries regarding ethical investing. Generally our response has been that each one of us will make our own decisions for ourselves as to what kinds of enterprises we want to support with our own resources.
The purpose of these articles is not to advise you on which companies to support. We are not going to presume to tell you in what to invest or even how to invest.
We just want to share that if you do support the causes and corporations you believe in, the time will come when they can help to support you.
We also received questions regarding how can a sannyasi maintain a portfolio of investments. Sannyas by tradition is someone who is unattached, and therefore does not save for the future.
Remember the Story of King Janak, who was liberated while administering his kingdom on behalf of its citizens (Read the Swami Purana). King Janak had a famous dialog with Suk Dev, the son of Veda Vyasa, in which he said, “I certainly want the best for my kingdom and its citizens, but I am not bound!”
If any readers have ever traveled in India, you may have stayed in the ashram of some sadhus. Quite possibly the ashram which invited guests, had more than a one room hut, where any visitor stayed along with the sadhu. They may have even charged a fee for food and lodging or rent for use of the premises, yet it was still called an ashram and it was organized and administered by a Sannyasi.
The fact that we do make a contribution to this world, does not negate our spirituality.
We understand the first rule of being a sadhu is to never allow ourselves to become a burden to anyone else. The second rule of being a sadhu is to always find a little extra to share with others.
The purpose for which we use the wealth that we have attained is just as important as the way that we procured it.
What Is Right Livelihood?
Both Hinduism and Buddhism describe the virtues of ideal behavior and right living.
In Hinduism, both the Devi Gita and the Yoga Sutras of Patanjali describe aspects of Yama, which is self control. The first quality of Yama is non-violence, called Ahimsa. Ahimsa basically means doing no harm to others and encompasses all aspects of living, including right livelihood.
The principle of Ahimsa is based on an understanding of the interconnectedness of all life and extends to all living beings. It involves avoiding deliberate harm to others and strives to bring about the greatest good for all.
Similarly, in Buddhism, along with Right Speech and Right Action, Right Livelihood is part of the “moral conduct” section of the Eight Fold Path. These three parts of the Path are connected to the Five Precepts, which essentially are included as part of Ahimsa. Here are the Five Precepts:
Right Livelihood is, first, a way to earn a livelihood without compromising the Five Precepts. It is a way of making a living that causes no harm to others.
In the Vanijja Sutta (from the Sutra-pitaka of the Tripitaka), the Buddha said,
“A lay follower should not engage in five types of businesses: business in weapons, business in human beings, business in meat, business in intoxicants, and business in poison.”
Vietnamese Zen teacher Thich Nhat Hanh wrote,
“To practice Right Livelihood (samyag ajiva), you have to find a way to earn your living without transgressing your ideals of love and compassion.
The way you support yourself can be an expression of your deepest self, or it can be a source of suffering for you and others.
Our vocation can nourish our understanding and compassion, or erode them. We should be awake to the consequences, far and near, of the way we earn our living.” (The Heart of the Buddha’s Teaching [Parallax Press, 1998], p. 104)
Even if your particular job doesn’t require harmful or unethical action, perhaps you are doing business with someone who does.
In The Seventh World of Chan Buddhism, Ming Zhen Shakya suggests that finding a “pure” livelihood is impossible, stating:
“Obviously a Buddhist cannot be a bartender or a cocktail waitress, or even work for a distillery or a brewery. But could he or she be the one who builds the cocktail lounge or cleans it? Could he be the farmer who sells his grain to the brewer?”
Ming Zhen Shakya argues that any work that is honest and legal can be “Right Livelihood,” so long as we strive to remember that all beings are interconnected, and try to the extent of our capacity to separate ourselves from everything “impure.”
Obviously, if you’re being asked to cheat, or to lie about a product in order to sell it, there is a problem. We should strive to maintain honesty, and to be a conscientious employee, diligent in work, who does not steal or lie.
Most jobs present endless opportunities for us to perform our work with honesty, compassion, and integrity. We can be mindful in the tasks we do, efficient in the way that we do them, helpful and supportive of customers and co-workers, even while practicing compassion and Right Speech in our communications.
Vipassana teacher S.N. Goenka said,
“If the intention is to play a useful role in society in order to support oneself and to help others, then the work one does is right livelihood.” (The Buddha and His Teachings, edited by Samuel Bercholz and Sherab Chodzin Kohn [Shambhala, 1993], p. 101)
Ultimately each of us is required to define “Right Livelihood” for ourselves. In my opinion, if we are adhering to the Five Precepts listed above, if we are honest, and feel good about the contribution we are making to society, if we do not suffer from remorse regarding the actions we perform, if we are capable to support our friends and family, the causes we believe in, without becoming a burden to others, then this is the “Right Livelihood” for us.
There is no “one size fits all” definition of Right Livelihood. I believe that investing in appropriate companies, according to our individual definition of this criteria, is a way to enhance our income while not compromising the principles of Right Livelihood.
The virtues of Right Livelihood can be applied as we select our Core Portfolio, which comprises our long-term investments, and to our Explore Portfolio, which are our more speculative trades that we hope will be profitable even in the short-term.
Now, it is time to briefly discuss some of the other potentially profitable investments, many of which you could manage from a desktop screen.
We will cover a general description of eight additional investments categories.
As textbooks have been written on each one of these investment types, it is beyond our scope to cover them in detail. However, we present here a general description to spark your interest.
We caution that further specialized training is required prior to practicing any of these more sophisticated investment approaches.
Alternatives
Alternative Investments are any investments which are not one of the three traditional asset types: Stocks, Bonds, and Cash. For example, Derivative Contracts, Managed Futures, Real Estate, and Commodities are all considered Alternative Investments.
From a risk and reward perspective, Alternative Investments offer the highest risk and highest potential for reward.
The attractiveness of Alternative Investments to a portfolio is in diversification. These investments are typically not correlated to stocks and bonds, providing some level of diversification.
However, many of the Alternative Investment opportunities can be complex in nature, with limited regulations (more risk of fraud), and a relative low level of liquidity (difficult to readily cash out of if required). Many also have very high transaction fees. Consequently, most Alternative Investment assets are held by institutional investors or those with a high net-worth.
Derivatives
Derivatives are types of investments where the investor does not own the underlying asset, but he or she makes a bet on the direction of the price movement of the underlying asset via an agreement with another party.
There are many different types of Derivative Instruments, including Options, Swaps, Futures, and Forward Contracts. Options and Futures have standardized contracts and are traded on an exchange. Forward Contracts and Swaps are customized contracts and are not traded on an exchange.
We will cover both Options and Futures in the next two sections below. Forwards and Swaps will not be reviewed further as they are highly specialized contracts and only large institutions play in these markets.
All Derivative Contracts have numerous uses as well as various risks associated with them, but are generally considered an alternative way to participate in the market.
Options
An Option is a contract sold by one party, an option writer, to another party, an option holder.
The contract offers the buyer the right, but not the obligation, to buy or sell a security at an agreed-upon price, called the strike price, during a certain period of time or on a specific date, known as the exercise date. The contract obligates the seller to buy or sell should the buyer exercise.
There are two types of Stock Options. If we feel the price is going to go up, we would purchase a “call” option, which is an option to buy at a certain price. Likewise, if we speculate that the security will decline in value, we would purchase a “put” option, which is an option to sell at a certain price within a certain period of time.
Options are extremely flexible and traders use them to either make gains through speculation (considered risky) or to reduce the risk of a particular asset in the portfolio.
Futures
Futures represent a financial contract obligating the buyer to purchase an asset, or the seller to sell an asset, such as a physical commodity or a financial instrument, at a predetermined future date and price.
What is the difference between Options and Futures? The main difference is in the obligation.
Options are just that – they give us an option to exercise the call or put.
In Futures however, you are obligated to buy or sell at the predetermined price at the date set.
Futures transactions are typically on a large scale as well, which means we can win big or lose big. The obligation, combined with the magnitude of potential gain and loss, makes Futures Contracts more risky than Options.
Futures Contracts detail the quality and quantity of the underlying asset. They are standardized to facilitate trading on a Futures Exchange.
Some Futures Contracts may call for physical delivery of the asset, while others are settled in cash.
The Futures Market is characterized by the ability to use very high leverage (little expenditure of your own funds required up-front for a possible big gain in the future) relative to stock markets.
Traders use Futures either to hedge or to speculate on the price movement of the underlying asset. For example, a producer of corn could use Futures to lock in a certain price and reduce risk, called a “Hedge.” On the other hand, anybody could speculate on the price movement of corn by buying (going long or holding a long position) or selling (going short or holding a short position) using Futures.
Real Estate
Real Estate includes land plus anything permanently fixed to it, including buildings, sheds and other items attached to the structure.
Often we think of the “real estate market” from the perspective of residential accommodations, your own home or primary residence. However, real estate can actually be grouped into three broad categories based on its use: residential, commercial, and industrial.
Examples of real estate include undeveloped land, houses, condominiums, townhomes, office buildings, retail store buildings, and factories, whether occupied by the owner, held for lease, or purchased in speculation of appreciating prices.
Why is Real Estate a valuable addition to our portfolio? It tends to behave differently than stocks and bonds, which gives us additional ways to diversify our overall portfolio. For example, in times of inflation, real estate does well, but stocks and bonds often do not. So, by adding real estate to our portfolio, it’s possible to lower risk and still achieve the same return.
There are countless avenues we can take to jump into the real estate market, such as purchasing property to live in or to rent, buying properties in a down cycle and “flipping” it (selling it) in a rising market, and investing in Real Estate Investment Trusts (REIT).
Commodities
A Commodity is a basic good used by either consumers or as raw materials in manufacturing processes. Any good exchanged during commerce, which includes goods traded on a commodity exchange, is known as a commodity.
What makes commodities tradable on an exchange is that there is very little product differentiation between producers. The quality of a given commodity may differ slightly, but it is essentially uniform across producers.
For example, an ear of corn cannot generally be differentiated between farms. This allows corn, as well as several agricultural products to be traded on an exchange. However, when Commodities are traded on an exchange, they must meet specified minimum standards, also known as a basis grade.
Commodity trading is usually transacted through Futures Contracts, which standardize both the quantity and the minimum quality.
Some examples of commodities are food items like corn, livestock, fruit, coffee; materials like copper, silver, or gold; energy like oil, natural gas, electricity. These are all things that are used as inputs of economic enterprise.
Why do we hold commodities in our portfolio? Commodity prices usually rise and fall with inflation. They are one of the best asset types that offer protection from the effects of inflation.
Foreign Exchange (Forex)
Forex refers to the foreign exchange markets and the buying and selling of currencies. The Forex Market is one of the largest, decentralized, over-the-counter markets in the world. Every day an average of more than 3 trillion dollars in transactions takes place in the Forex Market.
Each of these transactions plays a vital role in establishing a currency pair’s exchange rate (the price of one currency put in terms of another currency).
For example, when a traveler visits a new country, or when an international business pays its foreign employees, or pays for goods or services contracted in another country, they each convert their local currency into a common currency. Over time, these transactions cause a shift in the exchange rate.
When money flows into a currency it strengthens, and when money flows out of a currency it weakens. These shifts in value give life to the Forex market. Forex traders attempt to predict the direction of an exchange rate just like stock traders try to predict the direction of a stock price.
Collectibles
A Collectible is an item that is worth more than it appears because of its rarity and/or demand. As an investment, their value may increase with time if the supply is limited or if it becomes rare. Collectibles may be a hedge against inflation as well.
Works of Art are major contributors to this category of assets. Other common collectibles include antiques, toys, coins, comic books, and stamps.
As with any Alternative Investment, before we invest in Collectibles we should thoroughly understand the market, including the supply and demand of the item we are considering as an investment. Collectibles are less liquid than stocks and bonds, meaning, it may be difficult to readily cash out of your investment if you can’t find a worthy buyer.
Diversify Your Portfolio
There are as many strategies for managing portfolios as there are individuals. I believe the key to them all is Diversify, Diversify, Diversify!
In creating the rules according to your individual investing plans, consider how many ways you can mitigate your risk, and how many different asset classes you can join in your investment profile. That way when one asset class goes down, another will go up, and with prudent planning, you will never be caught short without resources.
Remember, every trade does not have to be profitable. We only need to win more times than we lose.
It is now time to shift our focus to one of the most important virtues we can have as sadhus. It is the divine quality of giving back to others, to our community, and to those in need. After all, we are not investing to amass personal wealth to hoard for our own personal gain, but rather, we are doing so because we have chosen to take responsibility for ourselves and to contribute to the welfare of others.
After we have provided for our own needs and have saved enough to ensure that we will never become a burden to society, and after we are capable of assuming responsibility for ourselves and our loved ones, the next step will be to make a budget for giving back or paying forward, as you may like to call it, by sharing with those who are less fortunate than we are.
Charity must become a high priority in every sadhu’s life. We must give back. We feel a need to make this world a better place because of our having been here. Only then will our higher purpose, the spiritual reason for our having accumulated our wealth, be fulfilled.
There are several ways to give back to society. Private philanthropy is the cornerstone of charitable organizations in the United States. This support provides numerous benefits to society, as well as being a tax-efficient means of transferring wealth.
While the most common form of giving is through charitable donations, many of us will want to contribute even more of ourselves to a cause in which we are passionate. Venture Philanthropy, also known as “philanthropy with an attitude,” affords us an opportunity to give not just money, but also our leadership and management expertise.
Venture Philanthropy is the application of venture capital principles to giving — which means, among other things, defining results by measuring “Return on Investment.” A typical venture philanthropist will provide intellectual capital, financial capital, and will be an active, long-term partner with a focus on building an organization’s capacity.
Their inspiration will help build the bench-strength required to propel the non-profit to higher levels of attainment. They will also help set-up management systems to measure progress and assess their Return on Investment.
Venture philanthropists bring fresh energy, a willingness to contribute, and additional support, guidance, and ingenuity to the organizations they serve.
Their objective is to create invigorating partnerships with a common bottom line — changing lives through empowerment.
Fulfilling the promise of venture philanthropy demands sophisticated collaboration between donors and non-profit organizations. Like all successful collaborations, the ones between venture philanthropists and nonprofits are based on mutual respect and clear communication.
Just like any other business partnership, prior to making commitments, both parties have the responsibility to ensure their goals are aligned. To that end, both parties should think through the following questions and follow partnership best practices:
A Venture Philanthropist should ask:
- Are the skill sets that empowered us to amass our resources the same skill sets required by the non-profit? Are our values aligned such that we feel comfortable sharing our money?
- Do we believe that this non-profit corporation is a business organization which measures its success in terms of “changing lives,” and, as such, they can benefit from the business efficiencies which made us successful?
- Do we believe that we will be capable of determining in what ways our resources are invested? Will the venture be one of openness and collaboration?
A Non-Profit Organization should ask:
- Do we understand the full application and definition of our mission statement, and how our donor proposes to work with us?
- Do we understand the donor’s objectives, and how we can accommodate his understanding into our work-flow?
- Do we have a clear idea of the efficiencies that our partnership can bring about, and clarity as to our goals and processes?
Both Partners should follow best practices:
- Remain open to learning from and sharing with each other.
- Foster continuous collaboration through superior communication of bottom line results.
- Engage the donor in work activities to avoid the attitude “I will write the check; you do the work.”
Each one of us, independently, will decide how much we should give, in what ways we should give, to which recipients should we give, and in what circumstances should we give. Spirituality means giving more than we receive. As we grow in our spirituality, we will become compelled to give more and more.
May God bless us all with the highest understanding of spirituality and increase our capacity to give!
I hope that this guide to financial matters has been helpful in inspiring new investors to get started on the path to financial independence, and even old investors to increase their discipline and knowledge. Obviously, there is no substitute for greater experience, and there are numerous courses which vary in sophistication.
It is my dream and objective to inspire all of you on the path toward perfect attainment, which includes financial independence. I believe this overview is enough to set beginners on a good path and move each of you, step by step, towards achieving the ultimate objective, as I have defined it here:
Four Steps Toward the Ultimate Objective:
- To become financially literate and capable of adding value to other’s lives as is needed
- To become financially independent and empowered to nourish the entire community with revenue and resources
- To become financially capable of maintaining the ideals, philosophy, and practices, and maintaining the portfolios of the Devi Mandir, and qualified to fit into our succession plan
- To have achieved the skills necessary to maintain our Dharma
We offer the highest blessings of Peace and Prosperity.
