Invest like a bee

From The Optimist Magazine
Summer 2014

Biomimicry teaches us that a well-functioning system relies less on balance sheets and more on human ingenuity.

by Katherine Collins

We are all investors. We invest our time, our energy, our money. We invest every single day—as citizens, as consumers, as businesspeople. At its core, done well, investing is well aligned with nature. It involves connection, exchange and mutual benefit: We humans invented this activity, to serve our own needs, our communities and our planet.

Lately, however, this primary, beneficial function of investing has become overshadowed by ever more extended iterations of finance. In my definition, finance consists of all of the secondary activity that’s related
to those initial exchanges: In its earlier stages, finance produced vehicles like the stock market, where activity was still closely connected to the real world. You can buy stock in a railroad company and, assuming the price you pay is a fair one, if the railroad business does well, your investment will likely do well, too.

But as our tools have become more and more specialized, they’ve taken on a life of their own. We now have funds of funds, securitizations on top of securitizations, and entire firms whose businesses are based on harvesting the advantage of microseconds of trading speed. None of these developments is inherently bad, but each one pulls us further and further away from that primary, useful function of investing: flow of resources and mutually beneficial exchange. When we move deeper into the specialized mechanics of finance, we often end up in the realm of speculation, and we lose sight of the primary role of investing.

The trouble is that, driven by fear, we have focused on the wrong goals. Instead of aiming for resilient, optimized portfolios, we have sought risk-free, return-maximizing strategies that promise to sail through uncertain conditions unscathed. Or we’ve sought more safety—protection at any cost. These approaches might sound great, but they are figments. Fiction. Our faith in mechanics has become stronger than our faith in human judgment. Our efforts to confine risk have just rearranged it into different pieces and different places, and in some cases magnified the dangers. We desperately want control. But what we need is flexibility, adaptability and resilience.

We need to reengage with investing in its essential, connected form—to reintegrate our profession with the real world, instead of the world on the screen. But how?

Re-rooting investing is no small task. It requires a philosophical framework that is flexible enough to apply to many layers of a system, yet steady enough to apply to all sorts of shifting circumstances. It requires ideas that are aspirational yet still easily linked to practice in the real world. It requires tools that are connected to deep truths and observable facts.

A provocative, nuanced approach to transforming finance is to use biology instead of mechanical engineering as our starting point for modeling. Specifically, biomimicry provides us with a model that embodies connection and integration, a model of our natural systems that have proven to be effective, adaptive and sustainable.

This is not a nifty new quantitative approach or a fancy consultant’s pitch; the principles of biomimicry, life’s principles, describe how the natural world actually functions. As educator Dayna Baumeister notes, “biomimicry is an emerging discipline of an ancient practice.”

In its simplest form, biomimicry is a straightforward practice. It’s pausing before every creation, every decision, every design, and asking ourselves, “What would nature do here?” This phrase asks us to draw on the wisdom of nature before jumping to our preprogrammed, engineered default mechanisms. The “here” adds an important nuance, reminding us that context is vital. We don’t want to cut and paste convenient, random pieces of nature’s guidance; we want to explore deep layers of wisdom within their appropriate context.

What nature would do is tangible; it is observable all around us. Perhaps that’s why a long walk can be the best remedy for writer’s block, or the best way to calm down after an anxious or angry encounter. Nature is sustainable; it is geared toward optimization; it is inherently connected and regenerative. And because of all those things, it is aligned with the deepest human wisdom, whether from philosophers or spiritual leaders or indigenous communities.

In a general sense, biomimicry asks us to look to nature as model, mentor and measure. As model, nature offers lessons from 3.8 billion years of sustainability. We can use these lessons to innovate products and processes that are more in alignment with life’s principles. As mentor, nature provides us with wisdom, not just raw materials. And as measure, nature offers clear tests for whether any endeavor meets standards of truly long-term, full-cycle, integrated sustainability.

Biomimicry is not just copying nature, as with the mechanical hummingbirds recently developed by DARPA. It is not pasting nature into nonnatural environments, like when we add bamboo flooring to a high-rise in the desert. Biomimicry focuses on embracing nature’s wisdom, not extracting nature’s stuff. This starting point is one of open inquiry and curiosity—asking “How?” instead of “How much?”

After learning about biomimicry for the first time, I did not feel the need to convince anyone that I was right when it came to sustainable investing. Unlike some sustainability frameworks, biomimicry does not root itself in anger and blame. It begins with acknowledging the reality of connected systems, and from that springs a natural and genuine sense of responsibility, stewardship, participation and care. While a blame-centered approach begins with liability, shame and negativity, a responsibility-centered approach begins with agency and positivity.

In my work, I use biomimicry to look at individual companies, my own investment processes, investment products and tools and the entire financial system. The contexts are specific and varied, but the principles are universal.

Though the systemic challenges in finance are numerous and multilayered, when I step back from the detail, I see just three main fissures that run straight through to the bedrock of our systems. Repairing these three will bring us back toward the true nature of investing, toward a connected, beneficial financial ecosystem that is in service to our communities and our planet.

First, we have detached investing from the real world. Automating analysis and trading, outsourcing expertise and adding layers of synthesis and complication have improved efficiencies and created certain new opportunities. But most of these efficiencies are of the shallow sort, focused only on speed and immediate cost. And most of those opportunities have proven to be fleeting, looming large in the short term but fading quickly into losses over the longer term. Reconnecting, in all of its forms, is the first task of an engaged investor.

Second, we have narrowed our perspectives in a false and needless way. We think of investing as only what shows on our brokerage statements, when in reality we are investing with every action, every decision, every dollar. We consider profit and cost to be only what’s shown on financial statements, forgetting that we ourselves invented accounting. We examine data every day, every second, pulling our attention away from the months and years to come, shrinking our field of vision to exclude the most important consequences of investment returns. Broadening our definitions to include the long term is the first step toward creating a regenerative system, not just for finance but for our entire society and our planet.

Finally, we have chosen to create complicated, rigid structures instead of flexible, adaptive ones. Like the little pigs, afraid of the big bad wolf, we have built more and more defenses against the threats of our world, both real and imagined. But what happens when the threat of a big wind is replaced by a flood? We can never build complete defenses against uncertainty. Appreciating the need for adaptation, over all time frames, throughout all circumstances and at every level of scale is the beginning of creating a more resilient system.

Fortunately, there is plenty of cause for optimism. The kernel of true service, true need, true exchange and true profit is alive and well. Sometimes it may be small or covered up or removed from its original state, but it is still there. At the core, there is still something solid to be built upon.

Also, we are surrounded by abundance. We have tools and capabilities for sharing knowledge and wisdom that have never existed before. We have the ability to connect not just in superficial ways but in deep and lasting ways across great spans of time, space and culture. We have growing understanding—both technically and emotionally.

Finally, we have ourselves! Humans are a part of nature, and this is a delightful, vital truth. We are pretty amazing and unique creatures. We have morals and ethics and the capacity for complex thought. We have tremendous capabilities that demand an equivalent level of responsibility and stewardship and engagement and care. We have compassion and empathy, along with information and skill. We have the ability to choose to cooperate for the greater good.

With all of these resources, we can engage in a rebirth of creative, independent investment thinking. The narrowed, rigid approach we’ve taken served a purpose in its time, but it was a small purpose and a small window of time. This view is an intellectually lazy one, ultimately unprofitable, and not even very interesting. With all of our resources, all of our gifts, we can do better. We have a responsibility to do better.

And here is the greatest secret of all: Embracing that messy multidimensional complexity is so much more rewarding. It’s even more fun. 

This is an excerpt from the book The Nature of Investing (Bibliomotion), by Katherine Collins.

____________________________________

Putting your money where your magpie is

Using scouts to investigate the landscape, and other lessons drawn from nature.

Katherine Collins had worked for many years at Fidelity Investments, one of the largest financial services groups in the world. On one day on which she had seen more than a dozen clients, she suddenly realized something. “We spent all day talking about tracking error, active bets and market risks,” she reflected. She makes the jargon sound just as dry and dull as it probably is. “We spent no time at all talking about what we were actually supporting, and how it might be of use somehow in the world.”

This realization sparked in Collins a nagging feeling of alienation and unease. But after a while, her “honeybee moment,” as she describes it, suddenly struck her. By chance, she had attended a lecture about how bees make decisions about their hive locations. It turns out that they first send out scouts to get the lay of the land. It seems so logical, but that was the moment that Collins realized that her work must change in some way to make room for this scouting, where now there certainly was none. This decision eventually led her to study at Harvard Divinity School and to pursue education in biomimicry.

Collins noticed that the increased specialization within finance has made it difficult to connect investing with the real world, and with our  ideals. She aims to bridge this divide with her own investment company, Honeybee Capital, established in 2009. The guiding framework for her approach is biomimicry, the rapidly growing science that studies the natural world to adopt the best ideas for making products, processes and systems more effective and resilient.

How can biomimicry be a usable guide for financial decisions?

“Every time I have a decision to make, I check that decision against life’s principles and simply lean in that direction with every choice I make. For example, two key principles are being locally attuned and being adaptive. But in my portfolio, most of my money was invested in things that were hugely global and multinational, and pretty far away from my own local context.”

What did you do?

“I started to look for more local endeavors and invest in them. That’s how I became involved in some newer businesses based in my hometown and in affiliates that supported our local food system directly. Obviously, food and agriculture are businesses that by nature have no choice but to be attuned to the local environment. But  there are still interesting questions. What other forms of support does the organization have? And are they similarly aligned? What are the end-markets for the organization, and are they similarly aligned? In terms of your investigation, there is a great web that never ends. Some people find that exhausting, but I find it thrilling.”

How about the adaptive quality? That may be harder to find.

“You know, until something happens, you can’t really be sure whether your organization or approach is adaptive and resilient. This is a lesson many investors have learned the hard way, especially in the past few years. You think you’re investing in a conservative, prudent way, and before you know it you’ve lost half your money!

“When I’m meeting with organizations, I ask a lot more questions about culture and process, and slightly fewer questions about tax rates and marginal profitability. I want them to tell me not just what they’re doing but why they’re doing it and how they’re doing it. I want to know the purpose of the organization. The biggest question is centered around function—what is the essential function that they’re trying to perform? The economics of the business are still important, of course, but it’s just one part of the picture.”

What are the financial results?

“Well, so far it’s going even better in terms of traditional measures. I’m hesitant to answer the question, though, because, you know, so what? I started Honeybee because I felt traditional measures weren’t complete, or weren’t measuring what we wanted. So on that longer term, more complete set of measures, it’s too soon to say. I can say, however, that I’m confident that by using life’s principles, I’m -creating decisions that are better not just for me but for the whole system around me. And that is a pretty great feeling.” | Marco -Visscher

Solution News Source

Invest like a bee

From The Optimist Magazine
Summer 2014

Biomimicry teaches us that a well-functioning system relies less on balance sheets and more on human ingenuity.

by Katherine Collins

We are all investors. We invest our time, our energy, our money. We invest every single day—as citizens, as consumers, as businesspeople. At its core, done well, investing is well aligned with nature. It involves connection, exchange and mutual benefit: We humans invented this activity, to serve our own needs, our communities and our planet.

Lately, however, this primary, beneficial function of investing has become overshadowed by ever more extended iterations of finance. In my definition, finance consists of all of the secondary activity that’s related
to those initial exchanges: In its earlier stages, finance produced vehicles like the stock market, where activity was still closely connected to the real world. You can buy stock in a railroad company and, assuming the price you pay is a fair one, if the railroad business does well, your investment will likely do well, too.

But as our tools have become more and more specialized, they’ve taken on a life of their own. We now have funds of funds, securitizations on top of securitizations, and entire firms whose businesses are based on harvesting the advantage of microseconds of trading speed. None of these developments is inherently bad, but each one pulls us further and further away from that primary, useful function of investing: flow of resources and mutually beneficial exchange. When we move deeper into the specialized mechanics of finance, we often end up in the realm of speculation, and we lose sight of the primary role of investing.

The trouble is that, driven by fear, we have focused on the wrong goals. Instead of aiming for resilient, optimized portfolios, we have sought risk-free, return-maximizing strategies that promise to sail through uncertain conditions unscathed. Or we’ve sought more safety—protection at any cost. These approaches might sound great, but they are figments. Fiction. Our faith in mechanics has become stronger than our faith in human judgment. Our efforts to confine risk have just rearranged it into different pieces and different places, and in some cases magnified the dangers. We desperately want control. But what we need is flexibility, adaptability and resilience.

We need to reengage with investing in its essential, connected form—to reintegrate our profession with the real world, instead of the world on the screen. But how?

Re-rooting investing is no small task. It requires a philosophical framework that is flexible enough to apply to many layers of a system, yet steady enough to apply to all sorts of shifting circumstances. It requires ideas that are aspirational yet still easily linked to practice in the real world. It requires tools that are connected to deep truths and observable facts.

A provocative, nuanced approach to transforming finance is to use biology instead of mechanical engineering as our starting point for modeling. Specifically, biomimicry provides us with a model that embodies connection and integration, a model of our natural systems that have proven to be effective, adaptive and sustainable.

This is not a nifty new quantitative approach or a fancy consultant’s pitch; the principles of biomimicry, life’s principles, describe how the natural world actually functions. As educator Dayna Baumeister notes, “biomimicry is an emerging discipline of an ancient practice.”

In its simplest form, biomimicry is a straightforward practice. It’s pausing before every creation, every decision, every design, and asking ourselves, “What would nature do here?” This phrase asks us to draw on the wisdom of nature before jumping to our preprogrammed, engineered default mechanisms. The “here” adds an important nuance, reminding us that context is vital. We don’t want to cut and paste convenient, random pieces of nature’s guidance; we want to explore deep layers of wisdom within their appropriate context.

What nature would do is tangible; it is observable all around us. Perhaps that’s why a long walk can be the best remedy for writer’s block, or the best way to calm down after an anxious or angry encounter. Nature is sustainable; it is geared toward optimization; it is inherently connected and regenerative. And because of all those things, it is aligned with the deepest human wisdom, whether from philosophers or spiritual leaders or indigenous communities.

In a general sense, biomimicry asks us to look to nature as model, mentor and measure. As model, nature offers lessons from 3.8 billion years of sustainability. We can use these lessons to innovate products and processes that are more in alignment with life’s principles. As mentor, nature provides us with wisdom, not just raw materials. And as measure, nature offers clear tests for whether any endeavor meets standards of truly long-term, full-cycle, integrated sustainability.

Biomimicry is not just copying nature, as with the mechanical hummingbirds recently developed by DARPA. It is not pasting nature into nonnatural environments, like when we add bamboo flooring to a high-rise in the desert. Biomimicry focuses on embracing nature’s wisdom, not extracting nature’s stuff. This starting point is one of open inquiry and curiosity—asking “How?” instead of “How much?”

After learning about biomimicry for the first time, I did not feel the need to convince anyone that I was right when it came to sustainable investing. Unlike some sustainability frameworks, biomimicry does not root itself in anger and blame. It begins with acknowledging the reality of connected systems, and from that springs a natural and genuine sense of responsibility, stewardship, participation and care. While a blame-centered approach begins with liability, shame and negativity, a responsibility-centered approach begins with agency and positivity.

In my work, I use biomimicry to look at individual companies, my own investment processes, investment products and tools and the entire financial system. The contexts are specific and varied, but the principles are universal.

Though the systemic challenges in finance are numerous and multilayered, when I step back from the detail, I see just three main fissures that run straight through to the bedrock of our systems. Repairing these three will bring us back toward the true nature of investing, toward a connected, beneficial financial ecosystem that is in service to our communities and our planet.

First, we have detached investing from the real world. Automating analysis and trading, outsourcing expertise and adding layers of synthesis and complication have improved efficiencies and created certain new opportunities. But most of these efficiencies are of the shallow sort, focused only on speed and immediate cost. And most of those opportunities have proven to be fleeting, looming large in the short term but fading quickly into losses over the longer term. Reconnecting, in all of its forms, is the first task of an engaged investor.

Second, we have narrowed our perspectives in a false and needless way. We think of investing as only what shows on our brokerage statements, when in reality we are investing with every action, every decision, every dollar. We consider profit and cost to be only what’s shown on financial statements, forgetting that we ourselves invented accounting. We examine data every day, every second, pulling our attention away from the months and years to come, shrinking our field of vision to exclude the most important consequences of investment returns. Broadening our definitions to include the long term is the first step toward creating a regenerative system, not just for finance but for our entire society and our planet.

Finally, we have chosen to create complicated, rigid structures instead of flexible, adaptive ones. Like the little pigs, afraid of the big bad wolf, we have built more and more defenses against the threats of our world, both real and imagined. But what happens when the threat of a big wind is replaced by a flood? We can never build complete defenses against uncertainty. Appreciating the need for adaptation, over all time frames, throughout all circumstances and at every level of scale is the beginning of creating a more resilient system.

Fortunately, there is plenty of cause for optimism. The kernel of true service, true need, true exchange and true profit is alive and well. Sometimes it may be small or covered up or removed from its original state, but it is still there. At the core, there is still something solid to be built upon.

Also, we are surrounded by abundance. We have tools and capabilities for sharing knowledge and wisdom that have never existed before. We have the ability to connect not just in superficial ways but in deep and lasting ways across great spans of time, space and culture. We have growing understanding—both technically and emotionally.

Finally, we have ourselves! Humans are a part of nature, and this is a delightful, vital truth. We are pretty amazing and unique creatures. We have morals and ethics and the capacity for complex thought. We have tremendous capabilities that demand an equivalent level of responsibility and stewardship and engagement and care. We have compassion and empathy, along with information and skill. We have the ability to choose to cooperate for the greater good.

With all of these resources, we can engage in a rebirth of creative, independent investment thinking. The narrowed, rigid approach we’ve taken served a purpose in its time, but it was a small purpose and a small window of time. This view is an intellectually lazy one, ultimately unprofitable, and not even very interesting. With all of our resources, all of our gifts, we can do better. We have a responsibility to do better.

And here is the greatest secret of all: Embracing that messy multidimensional complexity is so much more rewarding. It’s even more fun. 

This is an excerpt from the book The Nature of Investing (Bibliomotion), by Katherine Collins.

____________________________________

Putting your money where your magpie is

Using scouts to investigate the landscape, and other lessons drawn from nature.

Katherine Collins had worked for many years at Fidelity Investments, one of the largest financial services groups in the world. On one day on which she had seen more than a dozen clients, she suddenly realized something. “We spent all day talking about tracking error, active bets and market risks,” she reflected. She makes the jargon sound just as dry and dull as it probably is. “We spent no time at all talking about what we were actually supporting, and how it might be of use somehow in the world.”

This realization sparked in Collins a nagging feeling of alienation and unease. But after a while, her “honeybee moment,” as she describes it, suddenly struck her. By chance, she had attended a lecture about how bees make decisions about their hive locations. It turns out that they first send out scouts to get the lay of the land. It seems so logical, but that was the moment that Collins realized that her work must change in some way to make room for this scouting, where now there certainly was none. This decision eventually led her to study at Harvard Divinity School and to pursue education in biomimicry.

Collins noticed that the increased specialization within finance has made it difficult to connect investing with the real world, and with our  ideals. She aims to bridge this divide with her own investment company, Honeybee Capital, established in 2009. The guiding framework for her approach is biomimicry, the rapidly growing science that studies the natural world to adopt the best ideas for making products, processes and systems more effective and resilient.

How can biomimicry be a usable guide for financial decisions?

“Every time I have a decision to make, I check that decision against life’s principles and simply lean in that direction with every choice I make. For example, two key principles are being locally attuned and being adaptive. But in my portfolio, most of my money was invested in things that were hugely global and multinational, and pretty far away from my own local context.”

What did you do?

“I started to look for more local endeavors and invest in them. That’s how I became involved in some newer businesses based in my hometown and in affiliates that supported our local food system directly. Obviously, food and agriculture are businesses that by nature have no choice but to be attuned to the local environment. But  there are still interesting questions. What other forms of support does the organization have? And are they similarly aligned? What are the end-markets for the organization, and are they similarly aligned? In terms of your investigation, there is a great web that never ends. Some people find that exhausting, but I find it thrilling.”

How about the adaptive quality? That may be harder to find.

“You know, until something happens, you can’t really be sure whether your organization or approach is adaptive and resilient. This is a lesson many investors have learned the hard way, especially in the past few years. You think you’re investing in a conservative, prudent way, and before you know it you’ve lost half your money!

“When I’m meeting with organizations, I ask a lot more questions about culture and process, and slightly fewer questions about tax rates and marginal profitability. I want them to tell me not just what they’re doing but why they’re doing it and how they’re doing it. I want to know the purpose of the organization. The biggest question is centered around function—what is the essential function that they’re trying to perform? The economics of the business are still important, of course, but it’s just one part of the picture.”

What are the financial results?

“Well, so far it’s going even better in terms of traditional measures. I’m hesitant to answer the question, though, because, you know, so what? I started Honeybee because I felt traditional measures weren’t complete, or weren’t measuring what we wanted. So on that longer term, more complete set of measures, it’s too soon to say. I can say, however, that I’m confident that by using life’s principles, I’m -creating decisions that are better not just for me but for the whole system around me. And that is a pretty great feeling.” | Marco -Visscher

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