One of the hottest topics in design and technology is biomimicry, the practice of looking to nature to inspire innovation and solve problems. Biomimicry has been the basis of everything from Velcro to faster bullet trains to brighter LED light bulbs, and now, thanks to Katherine Collins, nature’s wisdom can be applied to finance and investing.
Collins is the founder of investment research firm Honeybee Capital and a new member of our Board of Directors. In her new book, The Nature of Investing: Resilient Investment Strategies Through Biomimicry, this financial world veteran explains how discontentment with her profession led her to mine the natural world for better solutions. After years of study and searching, she developed a framework for reconnecting investing with our communities and our planet, which she lays out in her book.
We sat down with Collins to learn more about how the wisdom of nature can change investing for the better.
Katherine Collins: As I had more and more experience investing, I noticed that our tools and our mechanics were becoming much, much better when it came to data and analytics. And that was a terrific set of developments — but eventually I realized that what was being left wide open and vulnerable was our ability to prepare for things that were not so predictable, things that are inherently unexpected and unanalyzable. When you are faced with uncertain situations like that, whether it’s as an investor or as a human being, you need things like creativity and flexibility and resilience and adaptive capabilities. The more time you spend with very rigorous, mechanical tools, the less capable you are in those other areas.
So my journey for almost 10 years now has been to try to figure out what tools help us when it comes to developing capacities for resilience, and maybe even regenerative activity, after those unexpected events. This led me to leave a more traditional financial firm to go out and explore the world. I did work as a volunteer, and traveled as a pilgrim. My studies at divinity school focused on moral philosophy, looking at the intellectual guides that we had created for ourselves that relate to this big question. That eventually led me to the study of natural systems, which are our best models when it comes to resilience and adaptability. We have 3.8 billion years of evidence. It’s the best track record there is, and yet we don’t really look to nature that much for its wisdom. That’s where the book is focused. It’s taking nature as our best example of resilient systems and trying to translate those lessons into the human context of investing. After all, we are part of nature, too.
SA: At what point did that switch go off for you? That nature can provide a framework for investing?
KC: When I was a portfolio manager, I had what I call now my “honeybee moment.” I was in the middle of a rough patch at work, and I happened to attend a lecture with Tom Seeley, who studies honeybees at Cornell. He was talking about amazing research he’d done to describe how bees make collective decisions. Bees make consistently great decisions, so it’s a pretty fascinating model to study. For example, when bees have a big decision to make, such as where to relocate a hive, the first thing they do is go out and explore the world around them. They do that directly, with no intermediaries, just gathering primary information.
It just hit me like a ton of bricks. I was sitting there at my desk every night rearranging my spreadsheets and hoping that some magical answer was going to come forth. And what I needed instead was to ask what was it in the world that was happening that I needed to bring back to my work? That was the seed from which all the rest of this sprung, although I never would’ve guessed it at the time.
SA: Can you provide an example of how this wisdom from nature can be applied to investing?
KC: Growth, for example, is one of the biggest questions for investors. We feel that we need it, but all of us have seen situations where it can be unhealthy. And this is true in every context; you can gain 20 pounds because you’re having a baby, or you can gain 20 pounds because you ate lots of pizza. So the question of what constitutes healthy growth, whether it’s for an organization or for an entire society, is really central.
When I look at biological models and the practice of biomimicry, it’s a pretty commonsense, straightforward set of criteria that are essential to healthy growth. The biggest idea is that growth is integrated with development. A tree won’t just grow a random branch; it grows a branch when it’s ready — when there’s support structure in the roots, support structure from the other limbs, availability of nutrients and water, and so forth. And when you don’t see that pattern in nature, it’s usually a sign that something is wrong. It’s usually a disease or an invasive species — those are the only things that grow unchecked, out of sync with the rest of the system.
Maximum growth, absent those developmental supports, is not achievable in a healthy way. And so when I relate that back to my investing, it just puts a really simple framework around a lot of things we tend to struggle with. If you’re looking at a retail company, for example, how is it that they’re going to open new stores? Do they have managers? Do they have customers who actually want what they’re selling? Do they have a supply chain? It doesn’t matter if they grow revenues if all that other stuff isn’t being invested in at the same time. That’s true for the investment world as well. We see a lot of growth in volume in certain parts of finance, but that doesn’t necessarily mean it’s adding value or is healthy for the overall system.
SA: If the investment world took your ideas to heart and used them as a framework, what kind of change would we see?
KC: A lot of what we’re doing right now in finance is focused on being transactional, and my approach is much more relational. A lot of what we do is focused on single dimensions of outcomes, maximizing returns on those single dimensions. And this is a much more robust, multi-dimensional, optimized kind of approach. A lot of what we do right now is very mechanized, and this is a more mindful approach. So if you look at the six central chapters of the book, they’re all structured around one set of these transformations. Those connected, integrated, multi-disciplinary kind of mindsets, they do already exist in our investment world, but they’re currently being overshadowed by this more automated version. I want to recenter us on true investing and not just finance and trading.
But this is not a romantic vision. Aligning with natural principles doesn’t mean we will have a system without risk. It doesn’t mean we have a system in perfect balance all the time. But it does mean we have a system that’s more capable of growing in a healthy way and sustaining itself when we do have those shocks that surely will come. Right now, we’ve set ourselves up with a very fragile system so that instead of those shocks being manageable, they have really devastating and magnified effects.
SA: Let’s talk about food and fuel. What is your take on the connection between those systems?
KC: One set of challenges for our economy and for our ecology is that we’ve disaggregated those systems, as we would in a traditional factory model. We fragmented them and put them in different boxes — literally in some cases…we have a box in our country where we grow all our corn. This is not really the best way to go about things. We have also disaggregated our thinking between food and fuel, when there are such obvious connections, as the work of Sustainable America points out. It’s an integrated system, and we’re treating it like it’s not.
That’s the exact same situation we have in finance. It’s an integrated system, and we’re treating it as if it’s independent of our society, of our economy, as if the different pieces within finance are independent of one another. I’ll admit that it’s much more manageable on the surface that way. It’s easier to analyze anything if you put it in a vacuum. It’s just wrong. And ultimately, it’s dangerous.
For both Sustainable America and my work, the goal is to reintegrate these systems that we have pulled apart and haven’t quite yet put back together, either analytically or in practice.
SA: For people who do want to get a return, but also want to make a difference with their money, what sort of advice would you have?
KC: Try to free your mind to be able to think of returns as more than a number on a spreadsheet at the end of the quarter. Just because we can check pricing every minute of every day doesn’t mean that that’s the most important or even the most valid indicator of value. I think one reason impact investing, social investing, integrated investing — all these different fields — are growing so quickly is because we’ve all seen time and again the limits of that one simple number on a spreadsheet. Something that looks great today turns out in six months to have been a fraud. Something that was terrible today turns out in six months to be an amazing catalyst that is changing the whole world. So making more room in terms of our thoughts around returns, and extending our timeframes for measurement are the most important elements.
SA: What are some ways for someone who doesn’t have a lot of money to make an impact? Are there going to be new ways to do that?
KC: Absolutely. The resources here are growing really quickly. And we’re lucky to live in a time where some of our technologies are really helpful in this regard. Robin Chase, founder of Zipcar and now Buzzcar, gave a great talk where she mentioned three things that enable the whole sharing economy or collaborative economy to really take off. One is the availability of information and the technology to make connections among people; second is availability of supply–in her case, a surplus of cars. And then the third one is community, engagement, and trust. In some ways, this is almost going back to the way investing used to be, just like we’re going back to the way farming used to be in some cases. And yet, it’s not really going backwards, it’s kind of spiraling upwards, because we have all these new tools at our disposal.
For example, if you think about investing in local economies, even 10 years ago you likely had to go out on your own and try to find a local business that you wanted to support, or hope that you happened to be connected through a local institution like a credit union or community development foundation. These are terrific approaches, but they can be very labor-intensive. But now you can look at options like peer-to-peer lending, which still has a lot to be worked out in terms of the mechanics, but the start is there. There are lots of local groups with Slow Money and investing in local food and agriculture that have been sprouting up. And the same institutions we’ve relied on for a long time — local chambers of commerce, local community development organizations — are still terrific resources, now with easier interfaces and more connective ability. I think it is still a little more labor intensive, just like going to the farmer’s market is sometimes a bit harder than stopping at the grocery store on your way home from work, but you get the same benefits as well. So it doesn’t have to be a wholesale shift in our investment practices, but bit by bit, we can reconnect our investing. It doesn’t mean you should be 100 percent invested in your own neighborhood, but there is a place for investing right there close to home, and many of us have forgotten about that over the last couple of decades.
In talking to folks, there’s sometimes a sense of investing being too big or too complicated or just overwhelming. I don’t see it that way at all. Once you think about it, a lot of things are much simpler than we’ve made them out to be. And all of us are investors, whether we’re investing time, energy, money, or other resources. We invest every single day. The challenge in boxing everything up with specialized names and functions is that eventually you hit the edge of the box, and then you’re really stuck. When you have this more connected, natural approach, you have an ongoing dynamic relationship that is much more clearly visible and much more enjoyable to engage in. It is always changing, but that’s life. Why would you want to run away from that?
Learn more about Katherine Collins at honeybeecapital.com, or watch her book trailer below:
Sustainable America Blog Editor