A Talented Businessman

March 28, 2008 by markhsmith 

A TALENTED BUSINESSMAN

by Phil Smith, co-author of A Billion Bootstraps

Luke Mathews was a talented businessman. As one of the few legitimate dealers in Amazonian hardwoods, he had amassed a small fortune in only ten years. As he prepared for a five-year trip into the heart of the Amazon jungles, Luke was forced to come to grips with the fact that he needed to invest $800,000 in such a way that he could feel comfortable being out of communication for so long.

Luke talked with his friends and lawyer how to go about such a daunting project. They all suggested that he find some good money managers and give it to them. He searched the financial newspapers and magazines until he had narrowed his list down to the top 20 money managers in America. After researching their websites and talking to them, he was completely stumped on how to go forward. All of them seemed to be equally qualified and all were sincere in wanting to do a good job. So, using his decision making rules from his own business, Luke came up with the following thought process:

  • In order to get the best results, a person should just invest in one thing … and then be right. If wrong, the worst results are obtained, so

  • In order to get the highest risked results, a person should diversify into several things.

  • Although past results are not a perfect predictor of future results, they are often a good thing to use, especially when someone is concerned about long-term results.

So, Luke told his assistant to do a spread sheet arranging the money mangers in order by their ten-year rates-of-return. Then, he allocated his money as follows: $500,000 to the one in first place; $200,000 to the one in second place; and $100,000 to the one in third place.

Five years later, Luke returned and was astounded at his good fortune. The first place manager had an annual rate-of-return of 15% and doubled his $500,000. The second place manager also doubled his money, but the third place manager just barely broke even. Overall, his profit was $700,000. Luke was thrilled that his strategy of allocating resources based on past results had worked well.

Luke recognized that God had richly blessed him both in those investments and on his trip to the Amazon. His business prospered as never before. In gratitude and to praise God, Luke decided to put $800,000 in an account to give away to help God’s Kingdom grow.

Luke’s assistant asked him how to allocate the expenditure of the money. At once Luke realized he was facing a familiar dilemma. All of the evangelism, missions, and benevolent projects seemed so worthy and the people running them seemed equally qualified and sincere.

Once again, Luke asked his assistant to arrange all of the ministries in order by their results, and then allocate $500,000 to the most effective one; $200,000 to the next most effective; and, $100,000 to the third most effective.

The next day, Luke’s assistant hesitantly knocked on his office door. She quietly told him that it was impossible for her to do the allocation since few, if any, of the projects reported results in a way that they could be used to understand their effectiveness. Luke was sure that was impossible. Since Americans give away more than $250 billion per year surely non-profits must post results so they can be compared to one another. Unfortunately Luke was wrong. After months of being unable to compare the projects by any measure of effectiveness important to him, he lost interest and just went back to making more money in his business.

By now, you may have recognized a thinly disguised rendition of the Parable of the Talents. You may also have recognized why so many wealthy people lose interest in giving away money.

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