In this video I discuss the implications of Religion and Finance. Watch now!
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This week we are going to be talking about the religious implications of finance. I know this is a little different than my normal business videos. Just bear with me, because we will bring the discussion back to finance and stock valuation. So hang in there, because I think you will find this useful.
In life, we are faced with a lot on unanswerable questions. Some examples are “what happens after we die? Why do bad things happen? What is the purpose of life?” These are questions science is never going to provide answers to, so society has relied on religion to tackle these very difficult questions. There is one question that I want to focus on in this video. “Is our experiences the result of free will or fate?”
This is a question humanity has been struggling with for a long time. The ancient Greeks debated this question. And every religious tradition in the world has an opinion on this question. In fact, most religions have split into separate denominations over this very question. Are actions the result of free will or fate?
Please realize this video is very summarized. There is so much philosophy written on this topic, that you could spend a whole career studying this. But I will try and be brief.
Let us look at this question from a religious context. I know there is a lot of different religious perspectives out there, so I am going to keep this as generic as possible. If you believe in God, a common description of God is that God is all knowing. God knows everything. He knows the past, the future, and he has a plan for your life. If that is true, than the future is already determined and you have no free will. God determines the future and not you, and your life is determined by fate. But that explanation is problematic, because most religions also believe you have the choice to decide to do good or evil. You have the free will to make decisions which impacts whether you go to heaven or hell in the after-life. How could it be true that God is all knowing, and at the same time, people have free will?
So what does all this have to do with finance? Finance is about predicting the future. That is what stock valuation is. You are coming up with a value for a company based on how you think it is going to perform in the future. So you really should know where you stand on this question. Is the future the result of free will or fate? The current state of finance is a direct result of this religious debate.
You have to understand what has happened throughout history on this topic. Today, most people do not even talk about fate. Most people operate with the assumption that their lives are governed by their own free will. But that has not always been the case in history.
If we go back 500 years, it was much more common to use fate as an explanation for the things that happen in your life. Something happened because it was fated to happen. Then when you mix in religion, the church is determining the outcome of your life.
So what caused this shift in philosophy over the last 500 years, from believing in fate versus believing in free will? There is one moment in time that started this shift more than any other. In 1517, a monk named Martin Luther nailed a document called the “95 Thesis” to the door of a church in Germany. This was a document calling for reforms in the Catholic church. That day is considered to be the start of a movement called the Reformation. Martin Luther was excommunicated from the church and condemned as an outlaw.
Let me explain how significant this movement is in history. Before Martin Luther, the Bible was written in Latin. The priests in the church were the only people who could read Latin and read the Bible. That meant that the priests were the only ones with access to that knowledge, and they would tell the people how to live their lives. Martin Luther helped to translate the Bible into the language of the people. This gave people the free will to make their own choices in their lives.
Ironically, Martin Luther did not believe in free will. He believed that everyone’s life was dictated by fate. He even wrote a book dedicated to this subject. And yet, his actions started this trend in philosophy towards the ideas of free will.
So now let us look at the history of science and business. Science and business are very much influenced by these philosophical ideas of free will. The whole idea behind science is that we can use knowledge to control the world around us. If you can define the variables well enough, and reduce the world to mathematical equations, you can control the world around you using science. Finance uses the same approach and attempts to control financial markets with math equations.
Today we now sit at a moment in time where the world philosophy has swung to one side where we all believe in free will. Let me pose a question to you. Why are we so convinced that our lives are not influenced by fate? What happened to fate? What if our lives were predetermined? Isn’t it a little egotistical to say that we are in complete control of everything that happens in our lives?
I know you are saying to yourself, “why does any of this matter?” Whether you believe in God or not, or whether you care about this philosophy or not, these ideas are built into the mathematical equations that are setting the prices of financial markets every time you buy a stock. The math equations you are using were built upon the waves of history. So you better pay attention to this, because it is impacting your money, whether you realize it or not.
Let me share my thoughts on this. I believe that financial outcomes are the result of both free will and fate. This is recognition that we are not in control of everything. I find it helpful to look at financial decisions as if there are two aspects: elements within our control and elements outside of our control. The interaction between those two aspects will determine the value of something in the market.
You can illustrate this with a very simple example. Imagine you run a business. It is a successful business with a good business model that works well at this moment in time. So you say to yourself, “I do not like change. I do not want any change to happen in this business for the next 20 years. I do not want to the market to grow or shrink. I do not want changes in technology. I do not want anything to change.” Let me tell you something. You can try as hard as you want, but change is going to happen. You are in control of some elements of your business outcomes, but some elements are dictated by the market. One thing we have learned is you cannot stop progress. In other words, your value is dictated partially by your own free will, and partially by fate.
I will use another example. I talk with a lot of business owners. If you talk with entrepreneurs long enough, there is one phrase that they all say. “One of the most important aspects of business is luck.” It is kind of funny how many conversations I have had where this phrase has come up. What this is saying, is that your success or failure in business is partially out of your control. You could be the smartest, most talented business person out there, but if the market does not move in your direction, you will not be successful. Again, your value is dictated partially by your own free will, and partially by fate.
We have been talking about growth lately in these videos. Specifically, how do your forecast business growth in the future? I have taken this philosophical debate about free will and fate and rolled it all into this math equation. I call this the Theory of Credit Markets, and the value of a business is determined by two aspects, elements within our control and elements outside of our control. In other words: free will and fate. This is a dramatic departure from the Dividend Pricing Model, which combines these two elements into only one variable, assuming the growth rate of the economy is within our control.
The point of Finance is to have mathematical equations that help describe the world around us that can help you make decisions in your life. I am offering you a new solution, that I believe is more accurate and will give you better results.
Leave a comment down below letting me know what you think!
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Neither Zach De Gregorio or Wolves and Finance Inc. shall be liable for any damages related to information in this video. It is recommended you contact a CPA in your area for business advice.