Markets took a beating last week as the Dow Jones Industrial Average dropped more than 1,300 points in just two days. The shake-up encouraged investors to move away from stocks and towards the traditionally safe investments of bonds and gold. However, if you pay close attention to history, you’ll notice that there is one investment that is even more secure than these old standbys: diversity.
While humans bring a variety of ideologies and understandings to the table in discussions about diversity, in the biological sense, diversity is not about fairness or equity; it is a defense mechanism. In an uncertain world, variety is the only way to ensure long-term success. Of course, the inverse of this truth means that uniformity can be downright dangerous.
Diversity is Security: How Agriculture Yields Returns
In the middle of the 19th century, a plant disease, specifically a water mold known as “late blight,” ravaged Irish potato fields. A result of unjust land distribution, roughly one-third of the population of Ireland was completely dependent on the “Irish Lumper” potato for food calories. Tragically, the blight destroyed half the crop in 1845 and almost 75% of the crop over the seven years that followed. The decimation of the single variety of the starchy root that sustained so many resulted in the deaths of one million Irish men and women, forcing the same number to abandon their homeland as refugees.
In contrast, the Peruvian highlands (where the potato originated) boast over 4,000 unique varieties of the plant. If one variety falls prey to a pest or disease, 3,999 alternatives provide resistance and resilience. Diversity is the primary form of defense against expected natural calamities.
This diversity is no accident. Whether through the painstaking process of natural selection or the accelerated process of plant breeding, individuals make conscious decisions to invest in a broad spectrum of possibilities. The same wisdom plays out in the financial world. To quote financial blogger Ken Faulkenberry, investment diversification is “a portfolio strategy combining a variety of assets to reduce the overall risk of an investment portfolio.” In short, diversity is defense against the unexpected.
Diversifying portfolios with agricultural investments makes sense on a strictly financial level. From 2000-2014, agribusiness indices outperformed the S&P 500 every single year. As worldwide populations continue to grow, the demand for agricultural products grows as well. Of course, as agricultural investments are typically long-term, it is important to know that the land producing these products is managed sustainably.
At Ganaderia Pietrasanta (GP) in the Cordoba department of Columbia, diversification is practiced in a variety of ways. Pasture rotation builds soil without depleting nutrients and helps break pest cycles. Cultivating products for a variety of markets prevents the farm economy from becoming dangerously dependent on a single buyer or marketplace. In fact, GP is not a teak forest, a coconut plantation, a cattle ranch, an apiary, or a passion fruit orchard. It is all of these things and more—a healthy and diverse system.
Variety does not make agricultural investments fail-proof—no such certainty exists. But cultivating diversity at every level is simple wisdom. Gold has been the symbol of financial security for millennia, but in reality, diversity has always been our number one defense.