The following opinion is by Rufus Mwanyasi.
While Warren Buffett has done pretty well for himself investing in the stock market, King Solomon remains the best investor the world has ever known. The Queen of Sheba noted that everything his hands touched prospered.
The King of the Israelites was more than just a character in the Bible; he was the richest man who ever lived going by the fable.
So it would seem logical that if investors could glean some investment advice from him, then they should be able to improve their investment returns, too. In this article, I focus on three investment principles.
The first is the principle of time. King Solomon wrote that one should cast his/her bread upon the waters, for s/he will find it after many days (Ecclesiastes 11:1). The emphasis is on many days or long-term investing.
History has shown that investments held for a longer period tend to exhibit lower volatility than investments held for a shorter period. Assets with higher short-term volatility risk (such as stocks) tend to have higher returns over the long-term than less volatile assets such as money market or fixed-income funds.
Wealth grows exponentially — a little at first, then slightly more and then in a hurry for those who stick around the longest. The lesson is simple — time, patience and endurance pays off and so invest for the long term.
The second principle is diversification. The famous polygamist advises that one should divide his investments among many places, for he does not know what risks might lie ahead (Ecclesiastes 11:2).
Simply put, diversification involves investing across different asset classes such as stocks and bonds since they do not react in the same way to adverse events. No amount of risk-modelling can provide better portfolio protection than diversification.
Solomon reminds us that no one knows the future and therefore nobody knows what is certain and uncertain regarding his/her investments.
Therefore, a combination of asset classes will certainly help reduce any portfolio’s sensitivity to market swings. A diversified investor should have no more than 12 to 15 per cent invested in any single asset or category.
The third principle is the idea of market/economic seasonality. King Solomon reminds us that there is a time to plant, and a time to pluck up what is planted (Ecclesiastes 3:2). Indeed, there comes a time when harvesting ones investments is ideal and well advised.
This, therefore, calls for a thorough understanding of market or economic cycles in order to help one maximise investment returns.
However, investors often find it difficult either because they fail to recognise that markets are seasonal or forget to expect the end of the current market phase.
Nonetheless, smart investors who recognise the different parts of a market or economic cycles are more able to take advantage of them to profit. Typically, bull markets last between three and four years.
Following these timeless strategies as shared by the good king ensures an adherence to time-tested long-term stewardship principles that will generate wealthy in the long run. King Solomon writes about the things we need to know, remember and do to find success in the markets.
