Humor me for a minute and imagine the Everglades is an asset market and every living species of thing in it is an investable stock. The bugs will be our microcaps. They are easily killed so we’ll need a batch of those. If they aren’t all eaten or stepped on, some of them might live to lay eggs and we’ll have a 12,000 bagger in the portfolio.
The birds, and I had trouble with this, will be our counter-cyclical health care stocks. The birds have problems of their own, but living in the trees (Treasuries) they are less suceptible to changes in economic conditions for the ground dwellers. As long as there’s some kind of food available when they swoop down, its all good.
No one’s interested in putting money in birds or bugs, though. They want Alligator Inc. – - the biggest, baddest, perfectly- honed-by-evolution killing machines. Every investment firm has to have an alligator analyst, and every morning one of them’s on SwampBox talking up the benefits of being unassailable at top of the food chain.
Until some mouthbreather gets bored with the Burmese Python he kept in his basement to impress his friends and lets it loose.
Burmese Pythons grow to 20 feet long and kill alligators. The guy on SwampBox isn’t worried, though. The growing python population is a blow, but alligators have proven in the past what badasses they are and it wont be a huge deal.
Hedge funds quickly get long snakes, short rodents. When the Pythons aren’t strangling alligators they’re eating rodents and the little bastards are disappearing at a rapid pace.
The retail investor will, of course, be late on all of this. Their brokers will have stuffed them full of rat new issues after the environmental legislation went through. The rodent analysts never show up at the office and write reports because the big checks for rodent IPOs are a thing of the past.
The pythons are eating everything that used to eat bugs, so bug investors are outperforming. Bug-eating birds are getting fat, too. Maseratis all-around for bankers in the bird and bug sectors.
No one really knows what to do with Alligator Inc., which still dominates the index. Pictures like THIS make shareholders nervous, but the expert on teevee says everything’s good, although he admits to not knowing much about snakes. The snake lady’s REALLY bullish but admits to not knowing much about alligators.
And besides, who could predict? Pythons and alligators have never co-existed in the same area before. Although the uncertainty does get some conservative managers get overweight the largely-guaranteed growth of the trees sector, awaiting new data.
I’m having a bit of fun with this, but I’m hoping it sounds familiar. Nature, for me, is the best metaphor for markets. It encompasses the teething mass of conflicting goals, constant adaption and highest stakes.
Nature also can’t be modelled very well. No alligator expert, no matter where or how long they studied, no matter how many environment-related statistics they compile, could have been ready for the Burmese Python. It is unreasonable to expect they could.
And yeah, I did notice that Apple and alligator start with the same letter.