Father Jude Michael Krill and Behavioral Finance

This may be the only time that I will mix investing with anything to do with religion, but it struck me as appropriate, even consilient.

My parish, which is Roman Catholic, has been blessed to have the services of three outstanding priests in the eighteen years that my family and I have been members. Father Tom Hagan was a pious and hilarious priest who left us in 1997 to create a Haitian mission called Hands together (http://www.handstogether.org/).

Father Tom always reminded me of comedian Rick Moranis. He used to bring his dog with him to mass and always left him leashless in the vestibule alone during services. The dog wore a bandana around his neck every day. My favorite story that Father Hagan told, probably apocryphal, was of his meeting with the Bishop over the dog. The Bishop was upset about it and asked him several questions about why he brought the dog, why he wore a bandana, and asked whether it safe to have him unleashed, etc. Father Hagan replied, “Bishop, are you upset that I bring a dog to church or are you upset that he is Presbyterian?”

In the embedded video, Father Tom (pink shirt in the stopped action photo below) discusses the schools they are building in Haiti. For obvious reasons, you will not see his trademark humor in the video.



Father Charles Creed, also a pious and humorous priest, left us last year when his home, a Vincentian seminary in Princeton, NJ, was sold. He now lives in Maryland, I think, and he is missed. Father Charlie was a favorite of ours in part because he had the same Queens NY accent that my mother had. My father who also grew up in Queens would crack up at any joke father Charlie told, and he told many.

Today, Father Jude Michael Krill, the third of the trio, gave another brilliant homily. All three have the gift of extraordinary humor. (In a Google search for the school in which he teaches, I found video of a homily he gave last year at Neumann University).



I could not help but make a connection between his homily today and a prominent concept in behavioral finance. His homily was based on today’s Gospel, specifically what Jesus said here:

“Everyone who listens to these words of mine and acts on them
will be like a wise man who built his house on rock.
The rain fell, the floods came,
and the winds blew and buffeted the house.
But it did not collapse; it had been set solidly on rock.
And everyone who listens to these words of mine
but does not act on them
will be like a fool who built his house on sand.
The rain fell, the floods came,
and the winds blew and buffeted the house.
And it collapsed and was completely ruined.”

The part of the homily that struck me was when Father Jude talked about houses built on sand, fault lines, or on cliffs with potential mudslides. From the outside, he said, the person’s house may look glorious because it is so close to the beach or has magnificent mountain views, but it is only a matter of time before it is exposed as worthless. Father Jude even compared it with people who expect the economic conditions of the day to go on forever and who never plan for the day that they will end.

The latter is the epitome of a concept in behavioral finance: we too often project current conditions too far into the future, whether on a macroeconomic, corporate, or individual level. The investment results for companies such as NFLX, MAKO, CRM, LULU, and OPEN have been glorious for the past few years. But, they are priced for perfection at best and at worst are horrifically overvalued based on those far-looking, rosy projections. Current conditions will not go on forever.

Likewise, it is not likely that China, with its myriad ghost cities and escalating inflation, will continue to grow at the same pace for much longer, but investors in Chinese firms seem to believe that it will. The investment results for many Chinese companies, and those outside China that rely on big-ticket sales to Chinese firms, are not likely to be satisfactory.

And, yes, I understand that this was not the purpose of the homily, but it is consilience, no?


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