The Best Investment Advice Is Sometimes About What Not to Do

The Richest Man in Babylon is a book by George Samuel Clason which dispenses financial advice through a collection of parables set in ancient Babylon. Through their experiences in business and managing household finance, the characters in the parables learn simple lessons in financial wisdom. Originally, a series of separate informational pamphlets distributed by banks and insurance companies, the pamphlets were bound together and published in book form in 1926.

Bansir, a chariot builder, has a conversation with his friend Kobbi, a musical person. They bemoan the time and effort which they used to build up their skills and become one of the best chariot builders and one of the best musicians yet they are still poor. They determine to go ask their childhood friend Arkad for advice, since he has become one of the richest men in Babylon.

Bansir and Kobbi meet with Arkad, asking him why fate has favored him so much that Arkad has grown rich while they remain poor, even though they've worked harder than Arkad has. Arkad replies that he was once a hard working scribe who made a deal with a very rich man, Algamish, for the secret to wealth in return for a much needed copy of a law immediately scribed into clay. The rich man agreed and the next day, when Arkad delivered the carving, the rich man delivered in return the secret of wealth. "I found the road to wealth," he said, "When I decided that a part of all I earned was mine to keep. And so will you." (emphasis in the original) Arkad then relates that he asked the same question that is undoubtedly on Bansir and Kobbi's minds, "Isn't all that I make mine to keep?" Algamish then said no, that a man had to pay for his clothes, for his food, etc., but that if he regularly saved at least a tenth of his income (and as much more as he could afford to save) and put that money to work earning interest, he would become wealthy.

Arkad relates that he did as advised, saving a tenth of his income for a year, then investing that money with a brickmaker who went on a journey to buy jewels to trade. He related this to Algamish, who castigated Arkad for this foolishness. "Every fool must learn," he said, "But why trust the knowledge of a brickmaker about jewels? Would you go to the breadmaker to inquire about the stars?" Algamish then said, "He who takes advice about his savings from one who is inexperienced in such matters, will pay with his savings for proving the falsity of their opinions." Arkad then saved his money for another year, and he invested it with Agger the shield maker who used it to buy materials; every fourth month Agger paid Arkad rent for the use of these funds. Arkad spent these dividends on fine clothing and regularly scheduled feasts. Algamish comments that Arkad is "eating the children of his savings" by not investing them. Arkad adjusts his behavior and when he finally meets with Algamesh two years later, Algamish is so pleased with how Arkad has taken his lessons to heart, he hires Arkad as a manager of his estate in Nippur. By continuing to save and invest wisely, Arkad relates that he became the wealthy man that he is now.

Sargon of Akkad, the King of Babylon, is told by his Royal Chancellor that the kingdom is poor. There are not enough jobs for everyone, people don't have enough money to buy what they want to buy, and farmers can't make enough selling their produce to continue farming. All of the gold has found its way into the possession of a few very rich men of Babylon. The King asks why so few men would be able to acquire all of the gold and the Chancellor says because they know how to, that one may not condemn a man for succeeding because he knows how, neither may one with justice take away from a man what he has fairly earned, to give to men of less ability. But why, the King demands to know, should not all the people learn how to accumulate gold and therefore become themselves rich and prosperous? After further consultation with the Chancellor, the King summons Arkad to teach people how to become wealthy. Arkad then delivers a series of lectures to a class of one hundred men, teaching them the seven cures for a lean purse.

Arkad instructs the men to begin by continuing to work hard at their current occupations, but for every ten coins placed in their purse to take out for use but nine. "Deride not what I say because of its simplicity," Arkad says, "Truth is always simple."

"How," some of the men ask, "Can a man keep one-tenth of all he earns in his purse when all the coins he earns are not enough for his necessary expenditures?" "How many of you have lean purses," Arkad asks. All of the men say that they have lean purses, that they have no money. "Yet," Arkad responds, "Thou do not all earn the same. Some earn much more than others. Some have much larger families to support. Yet, all purses are equally lean. Now I will tell thee an unusual truth about men and the sons of men. It is this: That what each of us calls our necessary expenses' will always grow to equal our incomes unless we protest to the contrary." Arkad tells the men not to confuse necessary expenses with their desires, that all men are burdened with more desires than they can gratify. "Budget thy expenses that thou mayest have coins to pay for thy necessities, to pay for thy enjoyments and to gratify thy worthwhile desires without spending more than nine-tenths of thy earnings."

This simply explained that, once you've started saving at least one-tenth of what you earn, you must put that money to work earning interest. "Put each coin to laboring that it may reproduce its kind even as the flocks of the field and help bring to thee income, a stream of wealth that shall flow constantly into thy purse."

"Everyone is tempted," Arkad relates, "By opportunities whereby it would seem that a man could make large sums by investing his money in most plausible projects. Often friends and relatives are eagerly entering such investment and urge him to follow." The first sound principle of investment is security—what is a person who wants a loan from you offering as collateral? Arkad relates again his decision to invest his money with a brickmaker who was going to buy jewels to trade. Some Phoenicians took advantage of the brickmaker's naivety concerning jewels and sold him bits of colored glass. "Guard thy treasure from loss by investing only where thy principal is safe, where it may be reclaimed if desirable, and where thou will not fail to collect a fair rental. Consult with wise men. Secure the advice of those experienced in the profitable handling of gold. Let their wisdom protect thy treasure from unsafe investments."

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