This week I ran across a post on Farnam Street titled, The Code of Hammurabi: The Best Rule To Manage Risk. While an interesting piece, there were a couple of areas that I had an issue with, notably bonus payments. If one navigates successfully through rough waters a reward may be warranted. Conversely, failure should not be rewarded and be, perhaps, punished. In my mind, the degree (lavishness) of the reward has the ability to inflict more damage than the remuneration itself. Risk taken should not be without reward so long as potential downsides are properly mitigated (margin of safety). Excessive CEO pay is an entirely different matter.
The tangent my mind followed was if there was a correlation between Hammurabi’s Code and Dividend Growth Investing. Following I’ll perform a deeper dive into the tenets noted by the author:
Three important concepts are implicit in Hammurabi’s Code: reciprocity, accountability, and incentives.
the practice of exchanging things with others for mutual benefit
As DGI bloggers we freely share our buys, sells, portfolios, reasoning and rationale. We solicit comments and questions. All of which is performed with no expectations other than others knowledge and experience will in turn be of benefit to us.
willingness to accept responsibility or to account for one’s actions
There have been times that our choices or decisions resulted in a loss or failure to achieve the desired outcome. Sharing within the community of a loss incurred or a dividend cut is a form of accountability. Sharing our thoughts and concerns – particularly in a time of failure – is not only cathartic but an exercise in self-improvement.
a thing that motivates or encourages one to do something
The encouragement provided to each other is by far the largest incentive. Considering DGI is a journey that is a lifetime in the making, having our spirits lifted or a nudge along the path is a job undertaken by everyone in the community.
To summarize, you could say we are adherents to the Code of Hammurabi. Perhaps not to the degree or brutality as the original, but to the parts that depict a sense of community and a helping hand to our neighbors.