Complexity [Guest Post] The Resilient Investor

For those who follow the KISS approach to life (Keep It Simple Stupid), the word complexity can be a bit of a turn-off. Indeed, systems scientists have produced a vast trove of research and equations that inform various institutes and graduate programs. We don’t want to over-simplify complexity, but there is a growing body of accessible literature and online discussions that can help anyone gain a more complete understanding of the times we are living in.

As a starting place, we can easily see that as humans developed from clans to countries and corporations, and as we harnessed the earth’s abundant resources, we’ve created increasingly complex systems. Hunter-gatherer societies were comprised of groups of around 40 individuals. With the invention of the digging stick, horticultural societies grew to populations of 1,500. Cities in agrarian cultures reached 100,000, while the Industrial Age made it possible for mega-cities to exceed 10 million people.

Now we are on the precipice of achieving a single, interconnected society of 7 billion. Mobile and smart phones are quickly penetrating global markets—in 2012 there were 4.5 billion mobile subscribers, with 73% of those in developing countries.

As societies get larger, there is exponentially more potential to divide basic functions into ever greater specializations. A look at any of the structures of society reveals that complexity is everywhere. The financial system makes a fine illustration. Trading among nomadic tribes was limited and relatively straightforward. Today it is largely performed by ultra-high speed computers, and by some measurements, the market value of complex derivatives that sell and resell risk dwarfs the value of actual stocks in real companies, as well as the GDP of the world as a whole.

Contemplating just how complex our civilization is can lead some to conclude that the whole house of cards could collapse at any moment.

The potential for consequences severe enough to derail our civilization is perhaps reason enough that each of us should get familiar with the lessons of complexity. But as resilient investors, we are looking for actionable guidance; if we’re all doomed then we might as well just throw a big party, or head off into the woods (as some have done) waiting for the lights to go out.

So, given all that, how are we to make decisions that will serve us in this uncertain future? Obviously it’s important to remember that we can’t rely on anyone’s future forecasts and formulaic solutions (especially those pants-less pundits that the media loves to parade onscreen)–no one can make predictions with any reliability.

Rather, if you want to do what our book’s tagline suggests, to “thrive in turbulent times”, we suggest that you need to have a highly flexible strategy that prepares you to proactively respond to any possible future… in other words, you need to increase your resilience.

Christopher Peck, Michael Kramer, and Hal Brill are co-authors of The Resilient Investor. Christopher lives in Sonoma County, California, on a developing homestead within biking distance of a lovely downtown. He’s a long-term sustainability entrepreneur and holistic financial planner and has taught sustainable finance for many years, including in a green MBA program, and a popular course on business planning. Michael lives in Kailua-Kona, Hawai’I and serves on the national policy committee of USSIF: The Forum for Sustainable and Responsible Investment. He is a strong advocate of innovative local economy strategies and corporate and regulatory reform. Hal is the co-author of Investing with Your Values: Making Money and Making a Difference and co-founder of Natural Investments. He lives in a sustainable neighborhood that he developed on the edge of Paonia, Colorado.

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