2017-08-01 20:06:05-0400
Index Funds as Prudent Investing
I've been thinking a little about the effect of the Climate Crisis on Index Fund Investing.
The operating ingredient of index fund investing is that the aggregate of the component stocks balances out and spreads the risk in a kind of no-brains efficient manner. The brilliance of it is that, although you could make a graph of dependencies between the stocks of the companies in the index, at some level, they are interconnected enough for such subtleties to be superfluous. One might say the same for single payer health insurance, but I digress.
But the values of the stocks underlying those indices, any that actually reference tangible goods, are all at risk of having the rug pulled out from under them. In fact, that risk is really a question of when, at this point.
That is, any company that derives value from stable real estate, predictable cycles of harvesting (including mineral harvesting), secure and predictable sources of water, engineering that assumes which temperature and wind speeds fall into the category of 100-year events, and companies that service and depend on those companies, will all be adversely affected. I'm not sure there are companies that won't be adversely affected.
Assuming there'll be enough of a future to actually use the funds realized by these index investments, it might make sense to try to discover which of the underlying stocks are most vulnerable to the rapid dissolution of their economic underpinnings. You might be able to suss out the more climate-immune stocks by looking at general performance of localized companies after various environmental (and political) crises. You may be able to come up with an index that has a one or two year advantage over the general index.
The clever thing to do would be to use that temporary immunity to shore up the more vulnerable parts of the market, such as transitioning to sustainable energy, conservation by updating transit and goods hauling, on demand manufacturing, insulation and other zero net energy options, and relocation services for refugees of unsalvageable coastal regions. Or you could just buy yourself a big boat with a fridge stocked for a decade or so (you won't be able to count on fish, even), and hope to sit it out.
#gloomanddoom
I've been thinking a little about the effect of the Climate Crisis on Index Fund Investing.
The operating ingredient of index fund investing is that the aggregate of the component stocks balances out and spreads the risk in a kind of no-brains efficient manner. The brilliance of it is that, although you could make a graph of dependencies between the stocks of the companies in the index, at some level, they are interconnected enough for such subtleties to be superfluous. One might say the same for single payer health insurance, but I digress.
But the values of the stocks underlying those indices, any that actually reference tangible goods, are all at risk of having the rug pulled out from under them. In fact, that risk is really a question of when, at this point.
That is, any company that derives value from stable real estate, predictable cycles of harvesting (including mineral harvesting), secure and predictable sources of water, engineering that assumes which temperature and wind speeds fall into the category of 100-year events, and companies that service and depend on those companies, will all be adversely affected. I'm not sure there are companies that won't be adversely affected.
Assuming there'll be enough of a future to actually use the funds realized by these index investments, it might make sense to try to discover which of the underlying stocks are most vulnerable to the rapid dissolution of their economic underpinnings. You might be able to suss out the more climate-immune stocks by looking at general performance of localized companies after various environmental (and political) crises. You may be able to come up with an index that has a one or two year advantage over the general index.
The clever thing to do would be to use that temporary immunity to shore up the more vulnerable parts of the market, such as transitioning to sustainable energy, conservation by updating transit and goods hauling, on demand manufacturing, insulation and other zero net energy options, and relocation services for refugees of unsalvageable coastal regions. Or you could just buy yourself a big boat with a fridge stocked for a decade or so (you won't be able to count on fish, even), and hope to sit it out.
#gloomanddoom
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