It is fascinating to watch people in finance with no understanding of evolutionary biology conjure up new investment allocation and asset management strategies of long, like ESG, Impact Investing, Responsible Investing, and others, all hinging on a concept of sustainability nonexistent anywhere in our universe. God help them all.
I dissect and break those strategies down repeatedly because I want – and humanity needs – finance to play a crucial role in the expansion of the human fractal in line with the expansion of nature and our universe. Not in the least because a continual equilibrium of humanity with nature will ensure the human species lives as long as humanly possible.
I am all for responsible investing; my contention is with how one defines responsible. Responsible how, to what, and to whom is what I unpack in a corollary to the movie I watched when I was very young “A bridge over the river Kwai” ending this article with the lyrics of “Many Rivers To Cross”, by Jimmy Cliff.
How: The Wrong Bridge
Sustainable investing deploys a monism of absolutism conjured up, agreed and voted upon by peers in the investment community measured by the baseline of a communal index (MSCI) suggesting an infinite trajectory of repeatable returns.
Without dissecting the investment thesis just yet, let me break the investment methodology down for you, in reverse order.
First, in the words of Charlie Munger, investing based on an index of self is the dumbest thing an investor can do. For any index constitutes the average performance of uneven distribution of a few influential outliers and the majority of me-too followers that underperform. Relative performance to the index is therefore by definition subpar (as I have described in depth) and degenerative.
Second, investing based on a peer investment thesis is the ultimate of collusion, guaranteed to yield subprime (i.e., uniform) returns, as any non-proprietary thesis will default to non-differential returns.
Third, no static investment thesis can trace the dynamic nature of the investible assets; hence, soon after initial deployment, the purview of the thesis can no longer spot asset outliers. False negatives become rampant.
So, the standard investment methodology of finance, described above and deployed for years to other asset classes, is inherently broken and non-repeatable. I suspect such is the reason why many founders of large financial institutions (like KKR, Carlyle, Bridgewater, Oaktree) are now “jumping ship,” as their stale monisms have run out of strong winds that made even turkeys fly.
The grandfathered investment construct adopted by some 42% of institutional investors pursuing sustainability is fundamentally flawed. Now, let us break down the validity of the sustainable investment thesis.
What: A Bridge Too Narrow
Nature is known to continually expand in line with the expansion of our universe (at an accelerated pace). The state of humanity is dependent on the state of nature and must, therefore, adhere to the rules of nature to maintain a healthy and continual equilibrium with nature.
Asset management, in turn, as the implicit arbitrage of innovation that expands the human fractal, has the awesome responsibility to steer the expansion of humanity in the right evolutionary direction. And thus, the quality of the thesis of asset management is crucial in determining what humanity can discover to adapt to nature, and is thus paramount in determining the longevity of our species.
Indeed, asset management, too, must adhere to the guiding rules of nature to produce the consistency of repeatable returns derived from the expansion of humanity in line with nature. And precisely on that issue is where my contention with the sustainability investment programs arises.
Sustainability is non-existent anywhere in our universe and is therefore incompatible with the evolution, discovery, and expansion of the investible assets. Investment allocations and programs hinging on sustainability, by nature’s law, cannot produce the consistency of repeatable returns the thesis promises and are therefore dangerous manmade placebos. They are, in reality, unsustainable.
Moreover, sustainable investment strategies suffer from grave depravity of reason stemming from confounding of consequence and cause (Nietzsche). For at best a mere temporal proxy of sustainability, as a consequence, can be achieved from renewal at its cause. Nature’s law of entropy, referred to as asymmetry, not permitting a reversal of renewal leading to sustainability.
Hence, rather than devise programs hinging on a false promise of sustainability, the new programs of finance must be designed to hinge on the core principles of renewal instead. The rules of renewal quite different from the false suppositions of sustainability.
Whom: A Bridge Too Far
The root cause of why humanity conjures up constructs incompatible with nature comes from the remarkable solipsism by which we think we are the masters of the universe and determine the course of nature. Trust me, or listen to scientists who study the micro and macro of nature, we do not determine the course of nature. Nature we still know so little about.
Pertaining to the health of “our” 4.5 billion-year-old planet, the influence of the human species is rather negligible, save for a nuclear catastrophe. After we have become extinct it is estimated – within a thousand years – planet earth will have recalibrated around a new normal and will evolve for another 3.5-billion years. Ozone layers will have been repaired, trees will have grown back, plastics and pesticides will have deteriorated, animals not extinct will have revived.
Hence, the real reason why we want to take great care of planet earth and reduce the human footprint is not for earth’s sake but to ensure our equilibrium with nature during human existence does not devolve into a multilevel cascade and instead remains a gradual process of change. A process of change to which humanity can gradually and smoothly adapt.
So, the goal of asset management should not be to attempt to save nature for nature’s sake but to take care of nature for humanity’s sake. Asset management must drive human excellence – as the cause – to yield a better equilibrium with nature as a consequence. Again, cause leading to consequence, in that order.
The improper identification of cause and consequence omnipresent in finance and now replicated into new programs of sustainability is precisely the reason why growth and wealth creation does not lead to proportionate advances in the strengthening of human renewal.
A New Passage
Let us learn from the evolutionary principles of nature to build new bridges in finance capable of producing consistent and repeatable returns while expanding the fractal of human ingenuity that improves and extends the life-span of the human species.
We must reinvent the operating-systems for humanity to begin to – by design – serve renewable human excellence.
In the meantime, absorb the symbolism of this beautiful song:
Many Rivers to Cross, by Jimmy Cliff
Many rivers to cross
But I can’t seem to find my way over
Wandering I am lost
As I travel along the white cliffs of Dover
Many rivers to cross
And it’s only my will that keeps me alive
I’ve been licked, washed up for years
And I merely survive because of my pride
And this loneliness won’t leave me alone
It’s such a drag to be on your own
My woman left me and she didn’t say why
Well I guess, I have to try
Many rivers to cross
But just where to begin, I’m playing for time
There are times I find myself
Thinking of committing some dreadful crime
Yes, I’ve got many rivers to cross
But I can’t seem to find my way over
Wandering I am lost
As I travel along the white cliffs of Dover
Songwriters: Jimmy Cliff
Many Rivers to Cross lyrics © Universal Music Publishing Group
