Ray Dalio, the founder of the enormously influential hedge fund, Bridgewater Associates, takes as the first of his Life Principles: Embrace Reality and Deal with It.
There is simply no way to invest well over the long-term if you do are not consistently able to perceive the reality of a situation and act accordingly. Faulty beliefs are pounded down just as convincingly as a carpenter drives a nail. Truth and markets can be brutal.
In this sense, investing shares similarities with military strategy. Generals in the field do not have the luxury of wishing things were different; they must see things as they truly are and figure out a way to create the best outcome possible with the men and material at hand.
When I first started reading about climate science in the mid-aughts, the papers that impacted me the most and to which I paid the most heed were those published by the US Military. With no formal training in climate science, I had no idea whether one scientific paper was more believable than another. I considered the monographs published by the Department of Defense to be neutral arbiters of truth.
The military has been writing about the likely effects of climate change on base security, cross-border migration, and civil strife for a very long time (here is a paper published by the Department of the Navy in 1990, for instance).
It came as a shock to me, then, when I heard the news that the Trump Administration was establishing a commission tasked with questioning decades of sober, detailed work to estimate the likely effects of climate change on long-term national security. The commission will be headed by an academic with zero training or credentials in atmospheric science, who holds unstudied views on the topic that have been disproven in numerous refereed and respected scientific journals.
Bad information leads to malinvestment. In capital markets, malinvestment leads to loss of capital. In the geostrategic field, malinvestment can lead to defeat and loss of life. (The French government conducted a master course in malinvestment with the Maginot Line. That investment of French treasure worked so badly that France was overrun, and their English allies had to beat a pathetic retreat across the Channel from Dunkirk.)
To an investor accustomed to thinking about risk and the likelihood of different outcomes, to ignore an outcome that is already underway beggars understanding.
Perhaps what is more confounding to me is the idea that society must decide between economic growth and investing in strategies to adapt and mitigate climate change. These two choices are most decidedly not mutually exclusive unless you are Don Blankenship or someone of his ilk.
Many have been critical about the freshman representative from New York’s 14th Congressional District’s Green New Deal plan as being impractical or economically disruptive. When I read through the plan, honestly, all I see is dollar signs!
“Dramatically expand existing renewable power sources…” cha-ching!
“[Build] a national, energy-efficient, [sic] ‘smart’ grid…” cha-ching!
“[Upgrade] every residential and industrial building for state-of-the-art energy efficiency, comfort, and safety…” cha-ching!
Every one of the points above and the others in Representative Ocasio-Cortez’s draft plan represents a wonderful opportunity for entrepreneurs and investors. That people do not see this is as confusing to me as a governmental commission tasked with ignoring flooded bases or those collapsing due to permafrost melt.
Climate change is a real, existential threat to human civilization over the next 100 years. While slow-moving, it is – in a word – a crisis.
All good investors know never to let a good crisis go to waste. Investing in a new paradigm is the only way to build and maintain intergenerational wealth in the 21st century. Intelligent investors take note!