Investing Like An Ecosystem
Over the last few years, I have been formulating my opinion on how to approach investing and what do to with extra cash. And I can’t believe how many people have told me in the last few months that they are anticipating another huge market correction basically any time now. Mulling all of this over (and with the help of a good forest analogy) I’ve recently developed a few key principles that I believe will help to guide good investment strategy.
“How and where should I invest my money?” is a question that I get asked a lot… and underlying that question is often fear. In some ways, the subject of the fear is a giant elephant in the room. The elephant can be any number of things = impending economic collapse is usually the biggest elephant, but I would argue that he looks bigger than he is because he is standing on top of other elephants, such as collapse of the food system, peak oil, climate change and many more (in fact, there is a whole herd of elephants in the room).
The initial reason people want to invest their money or wealth is because they have generated a surplus. They want to see their investment appreciate in value (i.e. make a return on their investment) and have some security that they won’t lose this surplus.
However, most present day investment schemes send the surplus money into a “far away” system that extracts non-renewable resources and ultimately reduces ecosystem output and harms the planet. Many people just end up feeling guilty and very anxious because they know (or suspect) that this growth-game can’t go on forever (at least at its current growth rate). They do not feel secure nor do they feel good about these investments.
So, the question I think that we need to ask is “What is the real purpose of investment and how can it be done in a way that makes the planet a better place?”.
Well, first off, the third ethic in permaculture is Return of Surplus. This refers to investing the surplus back into the original system that generated the surplus. The desired result is to make the original system stronger, more resilient, and ultimately anti-fragile.
A system is anti-fragile when it evolves and improves after dealing with some sort of a shock. Grasslands and forests are examples of anti-fragile systems. In order to improve and evolve, grasslands need to be grazed aggressively and many types of forests need fire.
On the other hand, resilient systems resist change and resist evolution. A fortress with a moat could be considered quite resilient. However, with enough shock, it will eventually fail.
For a more in-depth discussion of anti-fragility, read this fantastic article.
Let’s start by thinking of investment in the context of an analogy found in nature. How does a forest ecosystem deal with surplus?
Forests capture the sun, water and soil nutrient and use this energy to grow trees and other biomass. A portion of the total biomass (leaves and branches) falls back to the ground to decompose on site. This could be considered the tree investing in its own systems. The decomposing matter increases soil fertility and the whole forest becomes stronger and ultimately, anti-fragile.
Typical investment practice is to invest surplus cash into other companies and stock markets. The moment we do this, we lose control of that surplus and, more often than not, it goes to destructive ends. Because it is stuck in the conventional economy, we are then susceptible to the swings of the economy – a broken system in chaos. This chaos permeates into our lives and creates anxiety that we aim to avoid through investment.
Think about it – if the forest always exported its leaves to a different ecosystem, the forest would, at the very least, become fragile, and in the event of a natural shock, like a fire, it would not be able to regenerate. Systems that don’t re-invest into themselves, require resources from the outside. When the needs of a system are not met from within we pay the price in energy and pollution.
It’s as simple as this: for ecosystems, exporting biomass is impoverishing.
We can view our surplus money in the same way as the leaves of the forest. People that are smart with their money invest the surplus into things that buttress them and the systems around them. This can include tangible things like solar panels, perennial food plants, greenhouses, passive solar buildings that heat and cool themselves, gardens, books, soil and water harvesting equipment, but they can be as intangible as education, community and design. Ecosystems give us a whole host of ideas we could consider as templates for investments – stacking assets (biomass, seedlings, new trees), buffer systems (mother trees investing in surrounding trees), complementary options (parachuting seeds into new, proximal microecosystems), attractants (flowers).
A couple of years ago I went to a talk put on by Chris Martenson in Edmonton, Canada. Chris is famous for his popular online Crash Course. Chris gave his usual spiel on how most investment strategy is based on the preceding 20 years of investment statistics and that this is underpinned with the assumption that there will always be more energy, soil, forest, air, and water that we can exploit. However, how can the next 20 years be anything like the last 20 years if we have run out of cheap oil, 50% of the forests are gone, the air is getting worse and we are running out of water? His main point is that the next 20 years are not going to be anything like the last 20 years.
What really blew me away was the private conversation that I had with Chris after his talk. He told me that he had given the same presentation to Wall Street bankers the week prior. These bankers gave Chris the following comment: “We know all of this already. We have our bug-out locations in the woods so that when the music stops playing we can hide out while the world unwinds.” They believe they need to keep dancing until the music stops – everything will look normal until the very last moment.
Wow! These folks Chris spoke with actually recognized that the system is broken. They continue to sell their investment schemes with the knowledge that things are very likely to come crashing down. And they are prepared for this crash. They’ve invested their surplus into off-grid cabins stocked with food and other supplies.
So how do you manage that information, not get freaked out and preserve wealth in a way that allows you to ride out the storm? That is the question that I have been asking myself for 10 years. Here is what I have come to.
So, where should I invest?
I believe that there are a few key areas where you can invest your money that return the surplus, increase anti-fragility and that are not subject to massive fraud. Here are a few core principles to help to guide you to a good investment strategy.
- Can you wear it? This does not mean clothing necessarily… it is stuff that will provide you with value regardless of any economic route and it will keep or increase in value in an economic downturn. Examples include food, solar panels, generator, a home, heating fuel, perennial food systems, water harvesting systems, and gardening tools. This is similar advice that this very wealthy wall street investment manager gives to his clients. While I do not admire or look up to people like him, I do agree with his logic.
- Can you store it in your brain? Education, especially anything that teaches you how to take care of yourself is invaluable. Get some skills. Start a garden (even a small one), learn to use a hammer, cook, build a house (Dirt Craft Natural Building) or learn to keep bees (Apiaries and Bees for Communities).
- Can you call on it? Community is the most important of these as it is the relationships that form a web and it is the web that is anti-fragile. Invest into your friendships and your community.
A lot of people recommend gold and silver, but I can not wear those things and gain any value from them plus they require destructive mining processes which I am fundamentally and ethically not aligned with. In addition, it is a lot easier to manipulate these metals than the proponents of them would have you believe.
One of the other interesting things that Chris Martenson said to me was that he had his entire property designed by a local permaculture designer. Finding and purchasing the right piece of property based on your goals (the topic of a future post) and then designing it and building it so that it will meet your goals and provide for your needs is a perfect way to simultaneously hit all three principles above.
Having a piece of property that has a solar heated home that keeps you warm, grows fuel, food, fibre, forage for livestock, harvests water, grows topsoil, turns waste into resources and builds community is probably one of the most anti-fragile investments that you can make. If you get it right, it is investments like this that actually appreciate in downturns!