The 5 laws of gold
All that glitters is gold, but it actually comes from the saying:
‘All that glitters is not gold*‘ (believed to be taken from Shakespeare’s The Merchant of Venice)
That shiny, glittering metal has always been valued far beyond what its practical applications warranted, and for that reason, it has often been used as a currency, or means of exchange.
In 1971, the United States went off the gold standard, which was the historic basis for guaranteeing the value of a currency, because it was backed by gold. Now currencies fluctuate in their value due to a myriad influences and gold has continued to rise in value. Although gold is no longer used as the standard medium of exchange, the term ‘Gold Standard’ has lost none of its importance. Today, instead of a backing for currencies, the gold standard has come to represent that which is of the highest quality which is perceived as the most valued, or simply put – the best.
The Richest Man in Babylon, a book written by George S. Clason in 1926, explores ways to accumulate and retain wealth. Some of its important concepts are explained with the appropriately named: 5 Laws of Gold.
In these laws, gold is a metaphor for money or anything of value really that you can save or invest. Art may be your gold, or real estate, or even an idea. As these things all have value and that value can increase and/or cause your wealth to increase, this makes them the same as gold for purposes pertaining to the story in the book.
Much like the value of gold itself, the 5 Laws of Gold continue to have value today.
The 1st law of gold
- The first law says: Gold cometh gladly and in increasing quantity to any man who will put by not less than one-tenth of his earnings to create an estate for his future and that of his family.
Many are familiar with the concept of tithing; where someone pays 10% of their earnings to a church or for a government tax. It is usually voluntary with churches although the Mormon Church tells their members that it’s mandatory. It is a very powerful concept because of the constant and compounding nature of the amount of money.
Stability along with a feeling of satisfaction is another benefit for those who ‘self’ tithe, as the knowledge that this money is accumulating steadily can help create a greater sense of security.
There is also the discipline it instills in the saver. Every month, that one manages to set aside the 10% symbolizes another success and step forward towards financial security. This encourages continuing the saving and other positive actions. This is most likely why the first law also states that ‘gold cometh gladly and in increasing quantity’. Experience tends to show us that creating a positive activity that is practiced regularly will attract other positive results not directly related to the first action. Thus gold, which represents any value once sets aside as savings, will attract more gold, and it will increase.
The 2nd law of gold
- The second law says: Gold laboreth diligently and contentedly for the wise owner who finds for it profitable employment, multiplying even as the flocks of the field.
With the second law, we find that the next step towards better financial management is that gold, or your investments, will work for you if it’s been invested wisely. In simple terms, this means that it’s been invested in ventures that are profitable and their future looks secure. This means that high risk concepts are not desirable but ones that are proven to make money are. The wise owner does not take big chances, especially in the beginning when you are just starting to build up your gold. This could often mean a lower return on one’s investment but also a safer one. If in the future some of your investments have paid off more than you thought they would, then you could think about making a riskier move using some of those profits, but only as long as it doesn’t risk your core investments.
The 3rd law of gold
- The third law says: Gold clingeth to the protection of the cautious owner who invests it under the advice of men wise in its handling.
As a logical progression from the second law, the third law admonishes the investor to be careful and to seek the advice of wise men before choosing where to place his/her ‘gold’. This also sounds simple, like all the laws do, but its application can be anything but simple. ‘Clinging to the cautious owner’ can take the form of hiring an investment firm to guide you or it could be by applying your own painstaking research. Information is the key here and the more you can gather from different sources the better your chances of success. With the internet, there is so much pertinent information available at the touch of a few keys that there is no excuse anymore for someone to say: “I didn’t know about that”. Take time to look into the industry you are interested in investing in. Read articles by others who have invested in something similar before. If it’s a new technology, then read up on what the experts believe are its long-term prospects, not just what the companies own prospectus says. If you take the time and are diligent, then your gold will stick with you.
The 4th law of gold
- The fourth law says: Gold slippeth away from the man who invests it in businesses or purposes with which he is not familiar or which are not approved by those skilled in its keep.
This is the opposite of the third law and tells you what will happen if you are lazy and don’t thoroughly investigate your potential investments. If you don’t know about the investment, then look it up and find out more about it. New ideas can be quite alluring, particularly when they promise rich rewards but these must be resisted. Much like gambling at a casino, there are far more losers for every winner you hear about. The less you know about a business and the more they smooth talk you, the more cautious you need to be. Read about others’ experiences and you will find that your gold does not slip away.
The 5th law of gold
- The fifth law says: Gold flees the man who would force it to impossible earnings or who followeth the alluring advice of tricksters and schemers or who trusts it to his own inexperience and romantic desires in investment.
Another way of putting the fifth law is: don’t be greedy. If you are being seduced by the promise of greater returns the best solution is to go back to the third law and start researching. Have other people realized these returns? How long has it been profitable and is it documented or just word of mouth?
If you are not familiar with it, you should look up the term: Ponzi Scheme. The basic nature of a Ponzi scheme is that the business takes in investors’ funds and then pays them returns using new investors’ money, instead of getting it from a revenue generated by the business’ own activities. Even though this type of fraud had been used for years before Ponzi made it famous, there have still been many investors, who were considered quite savvy, that were taken in relatively recently by the infamous Bernie Madoff investment scam. If they had only followed the third law and had carefully researched his business and its investments, they would have stood a much better chance of realizing that there was something wrong. Moreover the fifth law would have provided them with further protection because the returns being promised by Madoff were much too high. The fact that they were higher than what others could offer should have sounded an alarm bell, but he was a ‘trickster and scammer’ who knew how to smooth talk people, and sadly these people gave in to greed and their own ‘romantic desires’.
This is not an uncommon occurrence. We often hear about movie stars or sports stars who have been fleeced of their earnings by an unscrupulous agent or investment advisor. There will always be dishonest people who may actually start out doing a decent job but are later seduced by the allure of riches. If there is one area where the 5 laws of gold might fall short it’s in the concept of investing under the advice of wise men.
Is there a 6th law?
Perhaps a sixth law should say: “Gold will flee the coffers of those who do not mind its security”. This would mean that although you should seek the advice of wise and experienced people, you must also keep your own council. Never relinquish complete control of your gold to others to manage and do not assume that they are always acting in your best interests. By checking on your gold continually, there is a greater probability that you can prevent someone from squandering or stealing it. This all sounds very much like common sense and yet if it was so common, then we wouldn’t continue to hear about people being cheated and conned out of their gold.
People who use these laws have been finding themselves prospering when those around them have not. It’s so easy to tell yourself that now is not a good time or that as soon as I get a raise or pay off the car I will start. There will always be emergencies or things that come up to get in the way. It’s the simplicity of the first law that by saving 10% of what you earn that creates the dynamic environment from which the other laws can work their magic.
And it can seem like magic when you see your gold multiplying even as the flocks of the field, once you take that first step.
About Sanan Sanani
Co-founder and CEO of Sanani Holding Ltd and Sterling Property Advisors.
Sanan Sanani is an entrepreneur, a savvy businessman and self-proclaimed workaholic who loves to stay busy and make clients happy.