An Awakening
by Ben Bingham
It is not news that we live in crisis times. Financial
markets seem to be crumbling, governments cannot
sell bonds to secure funds for basic operations,
not to mention infrastructure, 10% and more of the
able workers in well to do nations are unable to earn a
living. On a seemingly separate level, the environment
is under stress; whatever your position or persuasion, it
is undeniable that global ‘wierding’ if not warming is
happening, with droughts in one hemisphere, floods in
another, cold where it is usually hot, and hot where it is
usually cold. What is often ignored is the unprecedented
response by non-governmental organizations (NGO’s)
around the world that have taken responsibility to
resolve social and environmental problems and develop
a world design that is sustainable. There is also a
burgeoning response to the parallel financial crisis that
wants to approach money and investing in a new way.
This movement needs strengthening. Paul Hawken, the
author of Blessed Unrest, reckons there are somewhere
between 1 and 2 million relatively new organizations
that have self selected to make a positive difference.
The Pachamamma Alliance (www.pachamamma.
org) is one such new organization that blends indigenous
wisdom with modern scientific theory to examine the
unintended consequences of humanity’s assumptions
and to develop new ways of seeing humanity’s role on
the planet. Their ‘Awakening the Dreamer, Changing the
Dream symposium’ (ATD)(www.awakeningthedreamer.
org) is being offered at venues all over the globe,
with thousands of trainers volunteering to present
this approach. Their goal is very close to Steiner’s
1919 vision of a threefold society: Steiner envisioned
a healthy social organism where the practical ideal of
brotherhood (i.e. caring for one another’s needs) would
be the guiding principle in local business and in the
world economy; where the practical ideal of equality (or
justice) would work throughout our political systems;
and where the practical ideal of spiritual freedom would
guide the world’s cultures. In the ATD symposium
the language is only slightly different and the intent
is virtually the same but seems to give less of a role
in the current solution to business and money than I
would hope. The underlying purpose is “to bring forth
an environmentally sustainable, spiritually fulfilling
and socially just human presence on the planet as the
guiding principle of our time.”
In the Seminar, each participant is guided through an
experience of what is, i.e. what are the crisis points of
our time; then what might we have to face in the future
depending upon our responses. Each one is encouraged
to name the greatest challenge we see from our unique
perspective and then to find ways to impact upon these
challenges as an individual and with others.
The following is my response to this question: I
believe the greatest challenge of our time is that the small
percentage of humans who are educated and relatively
well-off in terms of material possessions, controlling
most of the realm of commerce, have invested primarily
in a world that is not ecologically sustainable, politically
just or spiritually free. This includes investors in
retirement funds or pension plans all the way up to
wealthy families, foundations and sovereign wealth
plans. It includes people who see themselves as socially
responsible but naïve in the realm of money. Trillions of
dollars/Euros/yen are invested in a world that few with
vision would choose as their home! This is not unlike
the farmer who decides to bulldoze all his land for one
cash crop forgetting to leave the topsoil for growing it;
Or the Native American parable of the frog who drinks
up his own pond. Convinced by expert salesmen in
the guise of financial planners/advisors/brokers that
they cannot afford to invest outside the very liquid
Wall Street market, investors set aside the concern for
long term sustainability to stick with the illusion of
security in the status quo. Many do not know what they
are invested in, like homeowners who sprinkle Agent
Orange (the chemical formulation used to deforest
Viet Nam that made so many war veterans ill) on their
lawns to kill dandelions only to have their children play
on toxic turf. More and more the lessons I learned in
farming seem to be relevant to resolving this disconnect
between individuals with healthy dreams and values and
the manner in which they have invested their resources
for an illusionary future happiness. In fact, it seems
to me that everything I needed to know to be a good
steward of money I learned in my years as a farmer in
my twenties and early thirties. I want to pass on some
peasant wisdom in the following piece. I think the future
depends on us reconnecting to the wisdom inherent in
sustainable agriculture. This may lead to a new view in
investing, a view that considers all stakeholders and the
long term horizon. Each section begins with a virtue I
learned:
Frugality:
My first years of farming, in the early ‘70’s, my wife and
I and our one-year old son never much went anywhere
to spend money. Our income was $3000 for the year,
boarding some horses, and this paid the rent. Everything
we ate, on the whole, we grew, even grain for our cows,
sheep, a horse, two mules and enough chickens to keep
us in eggs. We tried eating wild food but our optimism
got the better of us. On one occasion, we almost all died
after a long night of vomiting because we ate something
that didn’t really look like the drawing in the book after
all. Yet we never even thought of going to the hospital.
We hated to spend money and thought it was the root
of all evil, I guess. We realized later that it is the ‘love
of money’ in isolation that is the cause of so much
unhappiness. And over the years it became obvious that
poverty is no cure for the ‘love of money.’ In fact, with
five children to feed and clothe, the lack of it became a
fixation. Late in life I realized that some ‘ship coming
in’ was not the answer either and could not compare
with an income. And so, almost ten years ago, I trained
as a financial advisor and loved it, much to everyone’s
surprise, though it made total sense to me, perhaps
because taking hold of the financial aspect of life helped
me to feel my connection to the earth in a continuum.
Now with my own firm and 70 clients, we invest in
sustainable initiatives only – and only when there is real
value, i.e. when the price is substantially lower than
the actual value. Likewise we will sell things that are
overvalued rather than dreaming of continued growth
beyond reason. We are, in a word, frugal. In the fall of
2007, this attitude did our clients a great favor when we
persuaded them that the market was overvalued, banks
were going to go down and real estate would plummet.
Not only that, but anyway, capital gains tax burdens were
bound to increase since the government was way behind
in their bills (not practicing frugality themselves). So we
sold everything that was overvalued and started 2008
60% in cash and ready to invest gradually throughout
the year when there was real value. Frugality trumped
the rigid rules of asset allocation.
Prudent Hedging: ‘Puts’ and ‘Calls’.
When I left Yale in 1970 the campus had run amok with
National guardsmen shooting rubber bullets at students
who had left their prep school tweeds in the closet and
were playing at violent anarchy. Unconvinced that
student violence would lead to a better world, I took a
leave of absence of the Ivy walled campus and ended up
studying Anthroposophy and Biodynamic Agriculture
in the quiet of Sussex, England surrounded by hedges.
There I learned that a field surrounded with hedges is a
magical space that is safe from sweeping winds stealing
the topsoil and slowing the rain clouds to bless the soil
with increased rain. It is freer of animal pests like deer
and enjoys a warmer microclimate. More birds come to
eat the goodies in the hedgerow and from there patrol
the field for insect pests. The field is safer, healthier and
more abundant for it. Little did I ever suspect I would
use this knowledge in managing money, but there it is.
To hedge in financial terms originally meant to own
something that will increase in value if something
else loses value. The phrase “a hedge against losses”
became associated with financial hedging because it
was a strategy designed to reduce the winds of volatility
blowing over the markets. Today the term ‘hedging’
seems to have been stretched to mean doing whatever
it takes regardless of risk in order to make someone
richer without anyone knowing what is being done. The
new regulatory climate will modify that and perhaps the
original meaning will come back into favor, something
more like the agricultural hedge: a proper hedge that
defines a happy limit to the field (portfolio) where
violent changes in climate (the market) will have little
effect.
In our firm we mostly hedge below the market
to reduce losses in a down market. Remember that
“markets” are still places where buyers and sellers are
working out the value of things. No longer done on the
village green under a tree, the supply of things (corn,
iron, recycled glass etc.) and the demand for them are
still factors in pricing, along with new complicating
factors like the relative value of the world’s currencies
which is often effected by politics. When I say we hedge
below the market I simply mean we buy a contract that
will increase in value if the market goes down. We are
willing to pay for the contract because the cost of it is
all we lose if the market, within the agreed upon time
frame of the contract, does not after all go down. We
might give up 1% in the performance of our portfolios
because of the cost of these contracts, but it is worth it to
protect against 20% losses. In the USA these are called
‘puts’. The word ‘put’ refers to the fact that someone
has decided to sell us a contract that gives us the right
to force them to buy securities from us (in which case
we might ‘put’ that demand to them) if it should go
down in value to a particular price, or lower, within a
particular time frame. It costs us, the buyer of the put,
money for this safeguard and the one who sells the put
makes money simply by selling the put. This works for
the seller if, and only if, the securities in question do not
go down below the agreed upon price. If the securities
don’t go down in value they (the seller of the original put
to us) will have profited from the agreement and have
to produce nothing and we have only lost the cost of the
contract. But if the securities go down in value below the
contracted price the seller will have to buy the securities
at the agreed upon price when, in fact, they might have
become worthless. That is the seller’s risk. For us, since
we do not want to ever own the underlying securities
(since we only do ‘sustainable’ investments), when the
contract increases in value, others in the market will
want to buy it from us to protect their portfolios; so we
can then sell it for a profit and with part of the money
gained we buy another put further below the market.
Thus we are able to gain value from this downward
movement in the market when other investors (without
‘puts’), sadly, are losing.
But we can also hedge above the market, with ‘calls’,
by purchasing investments that go up in value when
markets go up. These ‘calls’ increase in value as the
market goes up because the seller of the call agrees to be
‘called’ if the securities in question go up to an agreed
upon price, or higher. Should that happen within the
contracted time frame they have to sell the underlying
securities to us at the agreed upon price, even if the
market has gone much higher. We buy these contracts
mainly if we feel that we do not own enough securities
to benefit from an up market. The seller sells them
thinking the market won’t go up and so they expect to
profit simply from the sale of the contract. They are at
great risk because in theory the price of the underlying
security could go up infinitely and they would have to
buy it at this higher price in order to deliver it to the buyer
of the call at the lower price. Again, if the securities do
go up in value the contract becomes valuable and we
sell it for a profit to other investors who want to secure
the contracted price within that particular time frame.
With such protection against extremes the portfolio will
feel safer and will gain value (abundant harvests) in any
kind of season if hedged wisely.
In 2008, because we bought puts that would
specifically increase in value if the market went down,
our clients benefitted significantly as the market plunged.
What is actually affecting the value of the contracts we
buy is the price of the ‘underlying security’ whether the
contract is a ‘put’ or a ‘call.’ Though this underlying
security can be an individual stock, we prefer to use
an index, and lately it has been the S&P 500 (see the
footnote). This US index is very liquid, with an easy
market for buyers and sellers. We simply bought these
puts on the S&P 500 inexpensively and then sold them
when their selling price rose in value because the
market in these large US companies was dropping and
people wanted the put to protect them from losses. Then
with these profits, as I mentioned above, we would buy
another put further below the market, always limiting
our losses at a reasonable cost. Similarly in 2009 as the
US market was rising and we were rebuilding portfolios,
we bought calls to gain from the rising market and sold
them for profit when the investors gradually gained
confidence and these calls became desirable.
Limiting losses and securing gains that otherwise
might be missed using wise ‘hedging’ in this way is
like planting two hedgerows that slow down the wind,
capture the rain and warm the garden or field.
Light reins:
After my initial agricultural training I wanted to learn
how to farm with horses. My father was a great horseman
who had taught me to ride and I loved to gallop over the
fields even before I was nine years old by myself with
Ginger, an Arabian that had been left on our farm. She
was smooth on all gaits and needed very little guidance
beyond a lean of my young body. There was no need
to “rein her in”, just a quiet “whoa” with a slight tug
would do.
This was not the case with Thunder and Lightning,
the old team of mules I bought, unwisely, in 1972 and
then sold for less because they were tired and did little
more than Hee-haw. Heavy reins did little good either.
They were as bad an investment as the no interest
checking account I kept during the Jimmy Carter Years
when interest rates were allowed to soar and a simple
Savings Account yielded double digit returns in the
US. Later, when we joined a Camphill community so
that I could apprentice with an experienced farmer and
also learn how an ‘intentional community’ successfully
managed money, I worked with a beautiful team of
horses, Morgan/Percheron crosses, Bootch and Nellie.
We cultivated 3-5 acres of vegetables and I was loving
it because it was fast and silent; and our footprint (at
the time I had not yet heard of carbon footprint) on the
topsoil was so light with little or no compaction of the
subsoil – as is the tendency with tractors, making it
harder for plant roots to penetrate deeper.
But I had to be awake on the reins. Bootch might try
to grab a mouthful of something off to the side or Nelly
might pull toward the barn, but with a light hand on the
reins they tended to stay on course and keep up their
wonderful gliding momentum. This image has served
me well in managing money. The momentum can be
side tracked by fear (heading for the comfort and safety
of the barn or bank account: i.e. ‘going to cash’) and
getting out of the market just when it is about to improve;
or by greedily grabbing for one-off risky ventures or
veering off the cliff of an overvalued market. “Staying
the course” got a bad name in 2008, because it was a
case of holding the reins too tight with inflexibility.
Allowing a little natural desire for self development
in looking for investments of real value and yet, at the
same time, a natural desire to protect oneself and loved
ones in avoiding undue risks requires a light hand on
the reins so that the ‘investment horses’ can find their
own rhythm, but not too light when some direction is
needed. Otherwise investments, like an undisciplined
team of horses, may weave violently from side to side
as they go along.
Ecosystems and synergy, the whole thing.
The fi rst thing I recognized with experienced farmers
was that they knew their farms intimately and at the same
time could see the whole place as a living organism. They
had a real love for the whole thing. A craggy old farmer
woman from Switzerland with whom I apprenticed
sensed things about the land and the environment each
day and, some days, she sensed things about me too and
once, for example, wouldn’t let me drive the tractor on
the road with a wagon stacked high with straw. She was
right. That day I might well have tipped it over – as I did
one time. She was suspicious of metrics and forbade me
from counting the cattle when we went to check them
high above the barns. She reasoned that if you have to
count you are not using your sense of the whole. You
should be able to immediately sense if something is
wrong. If there is trouble, unrest, in a corner of the field,
then the fence is likely broken and one or two cattle may
have bolted through.
Experienced gardeners certainly sense what goes
together well and will surround carrots with onions;
tomatoes with marigolds and so on. There are logical
reasons for these things that may be measurable like
less insect pests in the case of marigolds and increased
flavor in the carrots, but such gardeners don’t need the
measurables. They can see and taste the difference.
As a portfolio manager I like to see the investments
as a manifold variety of plantings at different stages
of maturity, synergistically supporting one another.
As crops rotate to benefit the various soils on the farm
or garden, so some investments are harvested and
others planted in a kind of ecological procession. The
proportions change like recipes for varying menus in
varying seasons. It is a whole living system.
Double digging:
The biodynamic/French Intensive concept of ‘double
digging’ taught me in a deep way the importance of
preparing the ground before planting. The basic process
in making a raised bed (more air, more light, better
water retention, deeper roots) is to start by digging out
a trench, a spade’s width and place all the soil dug out
into a wheel barrow, or at the end of a plot of ground
you are double-digging. After loosening the soil at the
bottom of the trench you chunk out the soil next to that
first trench, spadeful by spadeful, and place each chunk
of soil into the first trench, being careful to keep the best
soil on top (hence the name “double digging”). When
you have finished the old trench is full again and you
have a newly formed trench from where you just took
the soil. And so you continue, standing on a wide piece
of plywood or such, to avoid compacting the bed as you
dig it row by row, digging until you have worked the
whole bed. The final empty trench you fill in with the soil
(from the wheelbarrow or where ever you put it) that you
took from the very first trench. The chunks of soil have
moved forwards by rows and the first row becomes the
last. Before each row moves forward the idea is to dig
down into the subsoil, rocking the spade back and forth
to loosen and lift it a bit for aeration and to invite the
entry of deep roots. All this work need not be repeated
often if done well and provided you never tread on the
bed of soil you have turned over in the digging. Just add
compost on top and watch the results!
So it is with investing, there is much deep digging,
turning over of the ‘investment-soil’, to do before
acting. This includes knowing the investor on an
emotional/spiritual level as much as possible to be
New View 62
able to understand what their true goals may be; so
that their money may become an expression of their
highest intentions. It also includes deep research into
the investments themselves… not just cultivating with
a shallow rake and hoping there is good soil below. Is
the product or service beneficial and relevant? Are the
business models progressive in terms of fair wages and
benefits and ergonomic systems of production? Do the
communities where the businesses exist directly benefit
or pay an unreasonable price for hosting them? Are
the managers far sighted and concerned to benefit all
stakeholders, not just themselves and other insiders?
Is it on all counts a promising business relevant to the
future?
Investors need to understand that it is not prudent
to invest in a world that is profitable in the short term
but unsustainable long term; like the ‘green revolution’
of the 1950’s and its heavy use of petrochemicals
ultimately killing the soil. This shift in awareness may
keep our planet from a premature death. Mother Earth,
or Pachamamma, is described by the Quechua people
in South America as “all space/all time”; others now
speak of the Earth as Gaia, the source of wisdom, or
Sophia. As human beings we have the unique capacity
and responsibility to love her. Like the rhythms of
day and night, the moon, the planets and the seasons,
there are rhythms in all aspects of life that need to be
observed. This time of greed and fear may bring us so
far off course. Nothing is for certain but change, and yet
a little wisdom from the land, may serve us well and
return us to health.
To close I would like to reiterate that the greatest
challenge of our time may be that investors are funding
a world that in the end will not support us. One set of
guidelines that supports Steiner’s earlier vision and
the more recent Awakening the Dreamer vision was
developed in Sweden in the 1980’s and 90’s. It was
the result of years of intense debate among scientists
to bring into focus a set of criteria that would make
all decisions support a world that would continue to
support humankind. Simple to convey and flexible to
implement, these, in my words, are the four components
of the criteria that underpin what is called “The Natural
Step”, a framework developed by Swedish scientists
who were aware that most cancers were due to exposure
to toxins in our environment (www.naturalstep.org):
• Avoid extraction of substance that will be deposited
in the biosphere (if such substance is needed then reuse,
recycle it!)
• Avoid creating synthetics that may end up as deposits
in the biosphere (use natural solutions)
• Avoid pollution of the biosphere in general (clean up
and enhance life, water, air, soil)
• Take care of human needs (we are each other’s
“keepers”)
This simple set of standards if applied in all financial
transactions would go a long way toward healing a
planet that may not be destined to live forever in its
present form.
G. Benjamin Bingham is the managing Director of
Benchmark Asset Managers (www.benchmarkam.com)
in Philadelphia, USA.
[All illustrations in this article are by the author.]Endnotes
The S&P 500 is an index published since 1957 of the
prices of 500 large-cap common stocks actively traded
in the United States. The stocks included in the S&P
500 are those of large publicly held companies that
trade on either of the two largest American stock market
exchanges. After the Dow Jones Industrial Average, the
S&P 500 is the most widely followed index of large cap
American stocks. It is considered a bellwether for
the American economy. Some investment funds, are
designed to track the performance of the S&P 500 index.
Hundreds of billions of US dollars have been invested
in this fashion.
This is reprinted from the Spring edition of New View, a UK publication. It may become an excerpt in a forthcoming book with a working title: Valuing Values in Financial Markets by G. Benjamin Bingham. Ben has been developing and managing portfolios for socially responsible investors successfully for a decade. He is a co-founder of a new woman owned firm called 3 Sisters Sustainable Investments LLC. And can be reached at [email protected].