In the book; Patterns of culture, the anthropologist Ruth Benedict argued that; “Each part of a social system (including markets) depends on its other parts in circuitous ways. Not only are such systems nonlinear – the whole is more than the sum of the parts – but the behavior of the parts themselves depends on the behavior of the whole. Like swarms of fireflies, all human societies (systems) are collective and coupled. Collective, meaning it is our combined behavior that gives rise to society (system) wide effects. Coupled, in that our perceptions and behavior depend on the perceptions and behavior of others, and on the social and economic structures we collectively build.” Humans tend to imitate behaviors, investors panic when what was perceived to be linear breaks down, and the trend can rapidly become selfreinforcing as their actions end up causing the precipitous fall they fear. Nature’s systems provide some lessons for both how to build more enduring systems and how to operate optimally within states of flux unleashed by tail events. The dynamics of tail events are complicated by the fact that they result from cascades of other unlikely events. The adaptable survives while the stagnant and the inflexible breaks.
Taking a walk in nature has long been a source of reflection and learning for me, and in ‘noisy’ times like those we are in currently it is a must. I often ponder big questions and look for answers while in and amongst nature, and inevitably I tend to find constructive thought frameworks by observing the ways of nature. Here we will seek inspiration from the mighty conifers and pelicans as we travel through forest to the sea. There is alpha to be found in pinecones and pelicans.
The Way of the Conifer Warrior…
Conifers are amongst the most enduring members of the Kingdom Plantae. During the Jurassic and Early Cretaceous periods, 200 million and 150 million years ago, herbivorous dinosaurs, such as the magnificent Stegosaurs, fed on conifers.
The conifers have been locked in an ongoing battle with the faster growing and aggressive angiosperms, AKA the flowering plants, since the days of the Stegosaurs. Where the angiosperms go with the flow and are ‘fair weather’ creatures seeking the easy path. The way of the conifer is less traveled, it’s one of patience and making the most of marginal opportunities. It is around the edges of things – the rocky, exposed areas, away from the warmth of the herd – that the conifer stakes its initial position. From this uncontested vantage point it bides its time and through its ability to make the most of out of scarce resources it puts itself in prime position to benefit from the disruption that eventually befalls the more flamboyant ‘fair weather’ operators who took the easy path.
Within its makeup it has a natural ability to harness volatility. When the wildfire devastates the central lands that has been rich in overgrowth and now overflows with dry tinder, the fire clears the way for the more adaptable conifers. Some conifers, like the lodgepole, have serotinous cones that open only after exposure to high heat and flame and spread their seeds with the wind across the newly vacant and richly fertilized land. As Mark Spitznagel so aptly describes it in his excellent book; ‘The Tao of Capital’*; “For the conifers, their roundabout strategy allows them to withdraw to inhospitable places, all the while producing innumerable pinecones loaded with seeds that can be expediently dispersed by the wind to other remote areas, giving rise to a phalanx of patient long-living warriors awaiting the next rout in the ongoing battle between the conifers and the angiosperms.”
To withdraw to where others cannot go, to observe, plan and position for when circumstances reverse and then to act decisively as the balance is in flux to gain a dominant position is the way of the intelligent investor. In the larger scheme of things, fire/volatility is a friend to the patient ‘investor’ – the conifer. With endurance comes the ability to compound, which leads to outsized long-term rewards in both the capital gains and the peace of mind columns. Embrace the way of the conifers for optimal outcomes.
*The Tao of Capital is a great book, and it inspired much of the section on the ‘way of the mighty Conifer’, I recommend you read it in full if you have not already done so.
Down by the ocean…
I value the lessons of the ocean more than most other things.
Working in the investment world I find the sea to be a great source of inspiration and understanding. Like the ocean the markets can nourish you, transport you to far away places, force you to learn big lessons about yourself and people around you, allow you to dream about endless possibilities just over the horizon, give you a great ride or kill you…it doesn’t care either way, it’s impersonal and much more powerful than you can even begin to imagine, controlled and directed by millions of constantly changing inputs, it was there before you and it will be there long after you have caught your last wave.
Suffice to say that ‘blue sky’ thinking is best done with a panoramic view of never ending sea in front of you. The best board meetings are in board shorts.
Naturally when looking for understanding of how to best and securely harness the powers of the sea/market, I tend to look to its most successful inhabitants. During my time living in the Caribbean I came to know a flock of brown pelicans that kindly shared their beach with me. Day after day I watched them, swimming as close as possible to them and thinking about their patterns of behaviors, trying to deduct their secrets.
Pelicans are a great subject for study for investors – At times they choose to do nothing much besides sunning themselves perched on a rock with an advantageous overview of their favored hunting grounds. At other times they are patiently stalking the waters with an almost bored poise, and only when they see really big opportunities do they deploy their hunting strategies, honed for millennia and literally manifested in their DNA and physical structure, for optimal results.
When they deploy, they go big, scooping it all up until the beak is almost bursting. Once they have secured their harvest from the sea, they retreat to digest and recalibrate and perhaps some light reconnaissance activities with the flock. All but the mating related activities are done mostly in complete silence, inherently channeling Sun Tzu’s Art of war; “Move Big – Move Quiet”.
Build to last…
Fossil evidence of pelicans date back to at least 30 million years, the name comes from the ancient Greek word ‘pelekan’ which is itself derived from the word ‘pelekys’ meaning “axe”. Early etchings of the mighty pelican can be found in ancient Egyptian temples and their image features extensively in heraldry as a symbol of ‘a caring self-sacrificing parent’. This longevity is a testament to its adaptability and enduring physical attributes perfectly calibrated to harness its highly developed operational system.
Further evidence of their endurance and flexible approach is the fact that pelicans can be found on all continents except Antarctica, in seven different varieties.
Unlike their noisier and less efficient neighbors – the seagulls – the pelican is opportunistic but not a slave to its habitat. It will not lose its compass and cease from its natural hunting regime when faced with temporary easy pickings from human activities such as local fishers cleaning their catch at sea and lose it in a frenzied noisy sub-optimal free-for-all. Be flexible but stick to the behaviors that has served you well for generations.
Although amongst the heaviest of the flying birds, they are light for their apparent bulk because of air pockets in the skeleton and beneath their skin enabling them to float high in the water. The air sacs, when inflated, serve to keep the pelican remarkably buoyant in the water and it also cushions the impact of the pelican’s body on the water surface when they dive from flight into the water to catch their targets. Risk management is ingrained.
They are strong swimmers and have perfect aerodynamics that enables them to both harness the thermals for soaring to heights of 10,000 ft for that ultimate overview as well as to travel great distances in their squadron ‘V’ formation. Pelicans can also efficiently fly low or “skim” over stretches of water, using a phenomenon known as the ‘ground effect’ to reduce drag and increase lift. Through these maneuvers the pelican saves substantial levels of energy while traversing its habitat. Reduce friction for optimal outcomes.
The diet of pelicans usually consists of fish, of all sizes, but amphibians, turtles, crustaceans and occasionally birds are also eaten – a flexible and efficient approach that ensures its viability in different and changing habitats. Be adaptable.
What can an investor learn from observing these magnificent birds?
Build your skills around a sustainable, flexible yet disciplined set of behaviors. Have buoyancy in times of troubled waters etched into your ‘DNA’. Have risk management tools in place to soften the impact of abrupt collisions with reality.
Know your habitat and take your time, conserve energy and remember you do not have to plunge in every time you see something bright shimmer just under the surface, pick your spots, spend time on reconnaissance and when you see opportunity seize it with all you can muster. Remain above the fray. Don’t be a picky eater, find a wide array of sources of nourishments. Don’t fight the elements, harness them. Move big – Move Quiet.
At Strategic we are actively harnessing the lessons of nature as we set out to build adaptive frameworks that feeds on volatility and has endurance at their center. Reach out to us for a call, or even better a walk in nature, to discuss our approach and how we may be able to assist you in building an enduring portfolio that protects the fruits of your work to enable you to compound the seeds year after year for optimal harvests for generations to come.
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