The Parable of the Talents is one of the most recognizable and commonly quoted parables in finance. It wisely declares that “if you are faithful with a few things, you will be faithful with many.” Less commonly understood is how the parable illustrates investment principles that are useful today.
From the perspective of a financial professional or theologian, the economic context and investment principles in the parables should be obvious. However, financial analysis and biblical exegesis rarely if ever meet, and the economic significance of the parable has been forgotten. When Wall Street’s financial professionals recognize the parable’s timeless principles, they will be better equipped to steward talents and create human flourishing.
Jesus’ Investment Strategy
Matthew’s gospel records Jesus’ illustration of eight talents, the equivalent $40 million USD.1 The owner in the parable administers the same investment process used by today’s institutional investors to multiply the talents. His investment strategy includes a long-term horizon2 and strategic-asset allocation, including diversification, weighting,3 and reporting.4 Furthermore, the percentage allocation of the talents is efficient and reasonably corresponds to Harry Markowitz’s 1990 Nobel Prize-winning Modern Portfolio Theory.
Codified Principles
The Parable of the Talents is best understood by recognizing the Mosaic Law in the first-century economy. Matthew was a Jewish tax collector and familiar with Mosaic Law; including the codification of investment principles for fair dealing, fair value, and settling accounts on the Sabbath and Jubilee. The estate owners and landlords illustrated throughout Matthew’s gospel parables were common in the first-century economy. Wealthy landowners would hire servants to manage their estates and return periodically to collect revenue and settle debts. Jewish law prescribes this could occur after six years’ work—every seventh year in accordance with the Sabbath and Jubilee. Matthew’s audience understood this firsthand as wealthy landowners and servants in Israel near the vicinity of Tyre and Sidon. The Parable of the Talents gains appropriate significance by recognizing the landowner’s enormous wealth, the servant’s faithful and good stewardship, and the investment principles recorded by Matthew.
The Talents
In Israel, a talent of silver weighed approximately 100 pounds (45 kg), a talent of gold weighed an estimated 200 pounds (91 kg). Both Tyre and Sidon were affluent cities and famous for their gold and silver. Talents were also a monetary unit (not a coin) valued at approximately 6,000 drachmas or the equivalent of 20-years wages! At the time of this article in 2012, a talent equals $1,028,260 (USD), based on 20-years wages of U.S. inflation-adjusted median income of $51,413. A talent of silver is calculated at only $48,000 given a $30 per-ounce market price. The wage standard is highly influenced by countries’ wage scales, and the silver standard lost reliability given the metal’s decline in long-term value relative to other metals. Most importantly, neither effectively convey the means of a wealthy estate owner. Based on the most reliable long-term “gold standard,” a talent at market price of approximately $1,600 per ounce equals $5,120,000 (USD)! Given the large sum of money and responsibilities awarded to the servants, the parable deserves closer examination to uncover its meaning and usefulness in today’s economy.
The Stewards
The servants in the parable are stewards and can be understood in today’s context as investment managers. Two of the stewards industriously apply the principles and invest $35,840,000. Through successful investing and trading, they multiply the talents and earn a 100% return over a long-time horizon. Faithful stewardship results in being given greater responsibility. The best-performing steward increases his initial investment from $25,600,000 to $56,320,000 of assets under management. The increase is from $25,600,000 in capital appreciation and $5,120,000 in additional deposits taken from the unproductive steward and reallocated by the owners. According to the parable, faithfully using God-given abilities and the inherent power and influence from wealth “dynamis” will be rewarded with additional opportunities for stewardship. “To everyone who has, will more be given” (Luke 19:26 and Matt. 25:29). To Matthew, the landowner is not miserly economically or spiritually!
The Portfolio Approach
The owner of the talents demonstrates trust in his servants and in the principles of modern portfolio theory already at work in the first century. Effective management includes allocation, diversification, and weighting of the talents among different strategies and asset classes. The manager, preparing for a journey, maintained investment goals for his talents. He must have been familiar with his servants’ work, knew their track record, and trusted them accordingly with his property. The manager selected three stewards and weighted the talents investment according to the stewards’ abilities: 62.5% to the lead manager, 25% to the second, and 12.5% to the third respectively.6 The stewards diversified the talents through investing, trading, and in savings.
The Strategy
The stewards demonstrate their understanding of the owner’s goals and their investment mandate by investing the talents “at once.” The steward’s knowledge of the long-term investment time horizon, confirmed by the owner’s journey, combined with the act of immediately investing the talents indicates their understanding of the time value of money.7 The parable also indicates the stewards went about investing according to their abilities,8 undoubtedly with different strategies, and among the different asset classes described in the parable and elsewhere in the gospel of Matthew.
Given the owner’s investment goals and description of the steward’s investment actions, we may deduce their respective investment styles. Matthew uses four separate Greek verbs describing the stewards’ investment actions; ergazomai, meaning to make gains by trading; poieō, to bear or cause rightly to perform with the designation of time; kerdainō, to profit or gain and avoid loss; and apokryptō, to hide or save. By transliterating the Greek verbs in Matthew’s economic context, the lead manager is best understood as a trader and long-term investor.9 The second steward is also a long-term investor, but has limited capital and is therefore presumed less active and likely sought a fixed rate of return.10 The third manager hides the money in savings,11 commonly done in a field, rather than seek some type of yield from the bankers. The parable is clear that there is no reward or return without assuming some level of risk.
The Results
With the owner-of-the-talents’ goals established and the stewards’ investment mandate clear, the talents are allocated and performance systematically reviewed.12 Following the owner’s journey, he meets with the stewards who report their investment results and account for the talents. The lead manager reports a 100% return on assets, comprising 71.43% of the owner’s total return. The second steward also had a 100% return, comprising 28.57% of the total return. The third steward returned the principal talent with no capital appreciation, income, or interest. The weighted return for the owner over the long term was 87.50%. The 100% return of the faithful stewards could illustrate 12% compound average annual returns during a typical 6-year Sabbath economic cycle, for example. To complete the investment process, the owner reallocates the talents from the underperforming steward and rewards the best performing lead manager with $56,320,000 or 73% of $76,800,000 total assets under management. Two stewards remain in faithful service to the owner while the third is removed from his responsibilities. The financial system is intact! The lead manager is motivated and rewarded by his success. The second steward performs well and is also rewarded. The third is removed from management.
The Cost
Finally, the stewards’ compensation must also be understood in context. From the beginning, the stewards order their life around faithful service and are employed by the owner to invest the talents. The lead manager and the second steward share with the owner.14 The sharing is participation in the benefits of profit described by the Greek eiserchomai, to enter into society with. For the stewards, there is both financial gain and social improvement from faithful service.
The Value
Throughout the parables, the mysteries of how the economy of God operates are revealed to the disciples, but withheld from the unresponsive crowd.15 Similar comparison can be made among discipline investors and the so-called herd. Parables produce very different results in different people, just as there are varying results among investors. Diligent analysis and exegesis of the Parable of the Talents’ economic context and principles reveal their present and eternal value. As John Wesley put forth in his printed sermon “The Use of Money,” 1872 edition,
It is therefore of the highest concern that all who fear God know how to employ this valuable talent; that they be instructed how it may answer these glorious ends, and in the highest degree.
Nicholas V. Leone III serves as the Managing Director of The Principles Consulting, where he oversees consulting with businesses, family offices, and foundations for the Institute for Faith, Work & Economics.
1 8 talents (200 lbs.) of gold at $1600 per ounce
2 Matthew 25:14
3 Matthew 25:15
4 Matthew 25:19
5 Matthew 25:28
6 5/8th, 2/8th, 1/8th
7 Matthew 25:16
8 Matthew 25:15
9 Matthew 25:16 Strong’s G2038 – ergazomai trading; Strong’s G4160 – poieō rightly cause to perform over time
10 Matthew 25:17 Strong’s G4160 – kerdainō to profit or gain and avoid loss
11 Matthew 25:18 Strong’s G613 – apokryptō, to hide, concealing, keeping secret
12 Matthew 25:19
13 Matthew 25:28
14 Matthew 25:21,23
15 Matthew 13:34-35
THE TALENTS PARABLE TODAY
Matthew 25:14-28 (transliterated by author)
[14] The Kingdom of God is like when an individual preparing their investment policy; called his investment managers and entrusted them with his portfolio. [15] He gave the lead manager $25,600,000, another manager $10,240,000, and another $5,120,000 each according to their investment style and track record. Then he went back to work. [16] The lead manager, who had received $25,600,000, immediately opened investment and trading accounts and earned $25,600,000 more. [17] The investment manager who had $10,240,000 earned another $10,240,000 investing. [18] But the manager who had received $5,120,000 opened a safe deposit box and deposited the investors’ money. [19] After several years the investor met with his investment managers to review their performance. [20] The lead manager, who had received $25,600,000, presented his reports showing $25,600,000 in capital appreciation and said, “You deposited $25,600,000 with me; I have earned $25,600,000 more.” [21] The investor said to him, “Well done, you are a good trader and faithful investor. You have been faithful over a little; I will set you over much. You have the satisfaction of sharing in the performance allocation!” [22] The manager who had $10,240,000 presented and said, “You deposited $10,240,000 with me, I have made $10,240,000 more.” [23] The investor said to him, “Well done, you are a good and faithful investor. You have been faithful over a little; I will set you over much. You have the satisfaction of sharing in the performance allocation!” [24] The manager who had received $5,120,000 presented, and said, “I know you to be a hard man, not wanting to lose any principle, and always earning capital gains or interest on your investments. [25] So I was afraid to take the risk, and I went and deposited your money in a safe deposit box. Here is a check for the original amount of $5,120,000 in full.” [26] But the investor answered him, “You are a horrible and lazy investment manager! You knew that I had a minimum return requirement and I always get a premium on my investments? [27] You ought to have invested my money with the bankers and laddered treasuries so I could have at least received the risk-free rate. [28] Transfer the $5,120,000 from him and invest it with my best-performing manager who has $25,600,000. [29] Every manager who performs, more funds will be given, and he will increase his assets under management. But the one who does not take any risk, that manager will lose all to inflation. [30] Report that worthless investment manager to the Securities Exchange Commission. They will file a complaint and have his security licenses removed, just like others who violate investment policy.”