Nature’s Diversity and Portfolio Diversification

Nature is diverse.

Source: NOAA

Whether down in the depths of the sea or soaring in the Himalaya Mountains or out on the African veldt, we find a broad array of plants, animals, fungi, and microorganisms. Wherever there’s a source of energy, there’s something out there that uses that energy to grow, reproduce, and spread.

That’s why the discovery of deep sea geothermal vents by the crew of the Alvin in 1977 was so revolutionary. They found a whole community of tube worms, clams, limpets, and shrimp that feed off the bacteria that in turn get food from the chemicals in the vent fluids. There’s a whole ecosystem down there supported by geothermal energy.

Nature’s diversity allows it to recover quickly from disasters. In 1980 Mount St. Helens in Washington State erupted with enormous force, creating a zone of devastation over 200 square miles. But traces of life survived beneath the debris: seeds, spores, and fungi. Within a couple years, a few hardy plants had colonized the area. Several decades later, satellite images show the mountain covered by a rich carpet of forest and grasslands.

Source: US Geological Service

Our investments should follow nature’s example. Invention and ingenuity allow for commerce and production in almost every sphere imaginable: from nomadic desert tribesmen conducting tourists across the Sahara to people arranging helicopter commutes via their smartphones. By diversifying globally across various sectors and industries, into small, mid, and large-cap companies we participate in the broad spectrum of human resourcefulness. And when there’s a disaster, a diversified portfolio comes back much more quickly.

I’m not saying that diversification is simple or that it provides a free lunch. But the best way to benefit from the amazing creativity of the human spirit is to have part of our portfolios exposed to as much as possible. There’s a line about this in the new musical Hamilton: “When you’ve got skin in the game, you stay in the game. But you don’t get a win unless you stay in the game.”

Douglas R. Tengdin, CFA

Chief Investment Officer

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