How the Climate Is Breeding More Black Swans

Here's a definition that should send chills down the spines of investors: "An unpredictable or unforeseen event, typically one with extreme consequences." This sums up a black swan event. Nassim Nicholas Taleb mainstreamed the concept through his writings. His points became particularly topical through his book, The Black Swan, around the time of the financial crisis -- a major, destructive event that many people found unexpected and, beforehand, maybe even impossible.

There's a similar risk brewing on the horizon. Climate change could be the next black swan event that causes an ugly ripple effect through our lives and economies. The majority of current investment strategy comes up short on modeling, even considering that this as a legitimate concern, at least for our lifetimes.

History's lessons
Here's a lesson in extreme irony: The term originated when people didn't believe black swans existed at all. Because no one had ever seen one, it certainly looked as if none existed. The rare birds were first sighted upon the realization that Australia existed.

Taleb's theory perfectly segued into the financial crisis as a black swan event. A few people isolated data pointing to a crash before the bust. Michael Lewis profiled several individuals who did suspect the approach of seismic financial disruption in his post-crisis book The Big Short. Taleb's philosophical points included the fact that black swan events have become more serious in their impacts as the world has become more complex .

Climate change -- and its effects on humans, ecosystems, and economies -- fits within possibilities for unforeseen. Although the science of climate change is increasingly accepted, assigning urgency for actions and solutions still lags.

An excerpt from Taleb's The Black Swan, published in The New York Times in 2007, gave examples that fit into this issue:

Consider the Pacific tsunami of December 2004. Had it been expected, it would not have caused the damage it did -- the areas affected would have been less populated, an early warning system would have been put in place. What you know cannot really hurt you.

We may not know exactly what will happen when, but we are seeing the warnings of increased events in unprepared places, as well as causation -- and can at least attempt to twist our brains around that, and devise solutions.

Shareholders should demand proper assessments of all future risks -- even the ones considered remote. Corporate filings already disclose all kinds of possible material events as it is. Some companies warn if important parts of their operations are located in earthquake-prone areas, for example.

Climate change, and the disastrous consequences in geographical regions, are similar risks. Most corporation managements aren't applying the same principle; earthquakes may not happen every day, humans don't always plan for them because the possibility is remote, but they can hobble, or even destroy, businesses and economies.

Delayed reaction
More large entities, including corporations, should take action on issues like climate change, destructive weather in unexpected places causing unprecedented damages, resource scarcity due to disruptive environmental changes, and so forth. They can move the needle in a more positive direction.

Hurricane Sandy, and serious floods, fires, and droughts in 2012, have already shown us the kind of destruction, human costs, and economic disruptions that can result from extreme and unexpected weather incidents. Hurricane Sandy was an unprecedented hybrid storm with combined elements that stymied meteorologists, for example. It continues to affect people and communities. That's frightening and haunting.

In 2012, adding up the costs of Hurricane Sandy and the Midwest drought came to $100 billion. These were the most expensive disasters ever – exceeding the costs of natural disaster incidents all over the world.

Recent data from sustainability advocacy group Ceres pointed out that investors and individuals should also assess near-term costs, like taxpayers picking up the tab. When private entities, corporations, and individuals get a free pass, it's an example of another popular term popularized during the financial crisis: moral hazard.

In 2010, the SEC drew up guidelines for climate change disclosure and its material risks to business. Far too few companies have voluntarily evolved to deal with this mandate. That's sad given the amount of time that has transpired.

Ignoring the weather
According to InsideClimate News, only a handful of companies mention the terms "climate change" or "global warming" in their annual SEC filings. An analysis released in September revealed chilling findings: of 3,895 companies, a mere 27% had taken the bull by the horns and put those risks into print, although many of those only skimmed the dull legalese often utilized in SEC filings.

Data-crunching was conducted by Lawrence Taylor, an entrepreneurial database developer, who had the know-how and the burning desire to closely examine the issue.

Taylor's work on a searchable database took 1,100 hours, and five months of his life. That shows that, without disclosure, accessing information that many investors find important and meaningful to their stock research is an onerous task.

This is a sad state of affairs in a supposedly knowledge-based society with free and easy access to so much information.

Let's not ask questions later
The deft skill of applying many disciplines and possibilities to risk analysis to look ahead instead of behind is a challenging talent. Such thoughtfulness should be the backbone of strong, robust corporate managements and boards. Shareholders should demand disclosures, policies, and specific goals before potential catastrophes.

BP's (NYSE: BP  ) Deepwater Horizon disaster is a solid historical example a failure of risk management. That tragic and damaging incident portrays a scenario that didn't seem "possible" -- and the company floundered trying to deal with an event they had considered too remote to plan for. Tracking the news at that time showed no contingency plan.

Liabilities and risks continue. On Monday, BP showed up in court wrangling over its settlement associated with the disaster. The company has paid out $3.7 billion, originally figured $7.8 billion figure of potential costs, and later concluded that it couldn't even give solid estimates.

The situation remains important in the investing sense, even after all these years. Investors should think long and hard about what that means to investing.

Black swans are rare. Black swans do not always live in one place, swimming in a linear and predictable path. Once they reappear, though, they often make perfect -- and horrible -- sense. In many cases, asking why, after the fact, will be the sad and futile response to real, painful consequences, to investors and everyone else.

Check back at Fool.com for more of Alyce Lomax's columns on environmental, social, and governance issues.


Read/Post Comments (47) | Recommend This Article (22)

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  • Report this Comment On November 08, 2013, at 1:10 PM, CHill8008 wrote:

    "Shareholders should demand proper assessments of all future risks -- even the ones considered remote"... Did you even read the book? There are no proper assessments of all future risks. That is probably the central thesis of the book!!

    " We may not know exactly what will happen when, but we are seeing the warnings of increased events in unprepared places, as well as causation" : one of the main points to support the lack of proper assessment of future risk is that "causation" is a scam in a complex system (such as markets, economies, and weather), you are not seeing causation. THE BLACK SWAN also deals with climate change. I think you need to read the book.

  • Report this Comment On November 08, 2013, at 4:33 PM, penchy1 wrote:

    What about Zombies, an asteroid, criminal gas attack and the assassination of the president, VP and Leader of the house.

    Seriously, I prefer the Israeli approach to their serious "Arab" problem and do what you can and then go about your business.

    Unless I stick all my money under the mattress, and then I can have a fire, I am content for now to keep on investing and know the end result of the black swan event is the status quo.

    Unless the Martians invade us!

    Mark

  • Report this Comment On November 09, 2013, at 12:15 PM, duuude1 wrote:

    Hi Alyce,

    First - climate change today is not "An unpredictable or unforeseen event..." It is very much foreseen - it's just that as a species and as individuals we're pretty stupid and refuse to acknowledge facts that are inconvenient. What you are talking about is "reaping what you sow".

    Second - we need to stop scaring investors. Both you and Taleb. Black swan events are by their very nature impossible to predict and plan for. So don't bother.

    Just invest, buy diversified stocks every week with every paycheck, and stop looking at your investment totals. Look at the stock market over 30-40 year periods through WW1 and WW2 and the great depression and presidential assassinations and nationwide riots and many many things much worse than what we moan about today. Diversified stocks have done great despite those clearly unforseen black swan events.

    Stop worrying. Just freaking invest NOW.

    Duuude1

  • Report this Comment On November 09, 2013, at 3:02 PM, sciencedave wrote:

    True, black swans events are not predictable but risk analysis is a science. Ask any insurance company. How we manage our investments from a risk basis is what we should all try to do. The businesses and investers who do it best are better prepared for these events. Some companies are more likely to be affected by black swan events as they extend their businesses into the global economy more or have a complex supply chain. Investors are more likey to be affected by these events if they don't diversify (think Enron).

  • Report this Comment On November 09, 2013, at 3:14 PM, duuude1 wrote:

    Yeah, Sciencedave, saying "don't bother" was definitely glib - "buy diversified stocks" is your risk management for investments. The important thing is not to get analysis paralysis and remember the most important thing of all - staying patient for the long term in diversified stocks is the best thing for your investments.

    I can tell you that today the big issues from 2007-9 are starting to look smaller every day in the rear view mirror - but that's only the case if you stayed invested and kept investing every week despite panic in the press and from your neighbors and co-workers.

    Duuude1

  • Report this Comment On November 10, 2013, at 7:18 AM, KBecks wrote:

    I don't think we should get caught up in the words whether a company we own is a "good talker" in it's annual report. Just because a company uses the words "global warming" or "climate change" does not equal corporate ethics, does it? Anybody can say the right things. It's action that matters.

    I recently watched a documentary about the American Dust Bowl. That was a human disaster. However, I don't think we can as easily blame corporations for weather events like tsunamis and hurricanes. Oil companies need disaster plans, and should have them in place anyway to protect their valuable assets and, more importantly, the precious lives of their employees.

  • Report this Comment On November 10, 2013, at 7:21 AM, KBecks wrote:

    Fukushima in Japan was an incredible disaster... can businesses fully prepare for that level of destruction? I would like to hope so but I honestly don't know what's possible.

  • Report this Comment On November 11, 2013, at 10:32 AM, alexf wrote:

    As investors, diversification is key.

    Disasters come and go, but they are predictable.

    Fukushima could have had more planning and preparation to mitigate. They did not consider a tsunami likely.

    Hurricanes are predictable and you can prepare. I lived through Andrew and Katrina (I live in South Florida). I have a plan, and I get out of the way if the storm is >Cat 2

    If you build a manufacturing plant over a known seismic fault (and there are too many to count in that situation), then plan and have redundancy. If you are not prepared, it is a failure of your risk assessment.

    Same goes for BP and their "accident", and as bad as it may sound, there is every reason to accept massive property losses in a place like Tacloban City, but 10,000+ loss of life as they are saying, is unacceptable in the 21st Century. The government (local and national) should build shelters. We see these storms coming days in advance. Get the hell out or go to a proper shelter. Anything less is negligence.

  • Report this Comment On November 11, 2013, at 10:48 AM, alexf wrote:

    As investors, diversification is key.

    Disasters come and go, but they are predictable.

    Fukushima could have had more planning and preparation to mitigate. They did not consider a tsunami likely.

    Hurricanes are predictable and you can prepare. I lived through Andrew and Katrina (I live in South Florida). I have a plan, and I get out of the way if the storm is >Cat 2

    If you build a manufacturing plant over a known seismic fault (and there are too many to count in that situation), then plan and have redundancy. If you are not prepared, it is a failure of your risk assessment.

    Same goes for BP and their "accident", and as bad as it may sound, there is every reason to accept massive property losses in a place like Tacloban City, but 10,000+ loss of life as they are saying, is unacceptable in the 21st Century. The government (local and national) should build shelters. We see these storms coming days in advance. Get the hell out or go to a proper shelter. Anything less is negligence.

  • Report this Comment On November 11, 2013, at 1:28 PM, hbofbyu wrote:

    Isn't "planning for a black swan" an oxymoron?

  • Report this Comment On November 11, 2013, at 2:28 PM, Mathman6577 wrote:

    The biggest black swans have all occured because of some government program that sought to "help" us. But in the end they have always backfired on us as a society and individual investors trying to profit off of them. The list so far has been endless over the last 60 to 70 years --- Social Security, Medicare, Medicaid, Medicare Part B, Obamacare, affordable housing programs, food stamps, etc.

    As Warren Buffett said there are always going to be depressions, recessions, stock market collapses, hurricanes, tornados, earthquakes. Trying to predict them or profit off of them is a fool's errand. You might get lucky once in a blue moon.

  • Report this Comment On November 11, 2013, at 2:43 PM, duuude1 wrote:

    Mathman, the second part of your post paraphrasing Buffet is cool as a commonly attributed quote of his is: "Stop trying to predict the direction of the stock market, the economy, interest rates, or elections."

    The first part, however, is a bunch of unmathematical horsepuckey. Do you mind providing specific examples of those black swans and how those government programs you cite caused them? Attributing a specific cause to a particular black swan event is also a fool's errand since if you could reliably do so, you would know how to predict future events - and then by definition you don't have a black swan event.

    Duuude1

  • Report this Comment On November 11, 2013, at 3:06 PM, Mathman6577 wrote:

    One example: The government programs allowing "poor" people to obtain mortgages + Wall Street banks repackaging those loans into securities led to the Great Recession.

  • Report this Comment On November 11, 2013, at 3:10 PM, duuude1 wrote:

    All right mathman, so put some numbers to those would you? How much of the total packaged loan amounts were those for poor people? How much of the bad loans were for poor people?

  • Report this Comment On November 11, 2013, at 3:15 PM, Mathman6577 wrote:

    @Duuude1: it's a fool's errand to argue w/ people like you. A cow could drop on your head and you would ask how heavy the cow was.

  • Report this Comment On November 11, 2013, at 3:22 PM, duuude1 wrote:

    Retreaat! Someone's asking the mathman for some numbers and facts and logic! Oh no!

    Try a little logic next time would you?

    Duuude1

  • Report this Comment On November 11, 2013, at 3:39 PM, HoosierRube wrote:

    I'm with mathman on this one. Facts, that should be obvious right? How many poor people took out bad loans? Not exactly the right question, but good enough for discussion.

    The bubble burst when X number of loans went into default. So whatever X is, is not an important number because the catastrophe that ensued was obvious to even the most casual observer. So X was 'significant enough' to trigger the melt-down.

    So, does knowing X make you any smarter?

    And the program at the heart of this debacle, The Affordable Housing Act. Sounds familiar doesn't it.

    There it is, go look it up and read it for yourself. Or whine about someone not spoon feeding it to you.

  • Report this Comment On November 11, 2013, at 3:44 PM, HoosierRube wrote:

    Global warming? Generally accepted. So was the idea the earth was flat.

    I'd say global warming is tons better than global cooling. Last time we had global cooling, the Dark Ages were ushered in. And we are overdue for a cooling cycle.

    Each 1/2 degree rise in temp provides for many new hectares of tillable ground. More wheat, more food. How is that bad.

    I find this whole article fairly limp.

  • Report this Comment On November 11, 2013, at 3:47 PM, TMFHousel wrote:

    <<The government programs allowing "poor" people to obtain mortgages + Wall Street banks repackaging those loans into securities led to the Great Recession.>>

    For what it's worth, Community Redevelopment Loans made during the bubble defaulted at less than a quarter the rate private subprime loans did.

    http://www.ritholtz.com/blog/wp-content/uploads/2011/11/defa...

  • Report this Comment On November 11, 2013, at 3:53 PM, duuude1 wrote:

    Hey Hoosier,

    I'm not surprised and would bet that the majority of people on this site agree with you and mathman.

    Does that, however, make you all correct?

    The majority of people (not just poor people) thought home prices would go up forever and thought nothing of refinancing or buying homes all through the rising housing bubble. The majority were wrong. That's what makes any bubble a problem - the majority are wrong. The majority look at what's "obvious" and don't bother to look at the numbers, the X that actually caused the problem.

    Duuude1

  • Report this Comment On November 11, 2013, at 3:55 PM, Mathman6577 wrote:

    Mr Housel: so you are implying that the government-backed loans had nothing to do w/ the "bubble"?

  • Report this Comment On November 11, 2013, at 3:59 PM, TMFHousel wrote:

    Mathman.

    No. But I do think it's empirically wrong to say CRA-type loans "led to the Great Recession." The total amount of defaulted loans tied to CRA programs is infinitesimal compared to the losses generated in the private market.

  • Report this Comment On November 11, 2013, at 4:01 PM, Mathman6577 wrote:

    Note that I put the word poor in quotes. The government considers everyone below a certain level "poor" so they can foist programs onto them and justisfy their existance and buy votes for the next election.

  • Report this Comment On November 11, 2013, at 4:06 PM, TMFHousel wrote:

    Also, if CRA were a leading cause of the bubble, you'd expect the housing boom to be most pronounced in poor inner-cities like Detroit and Harlem. The opposite occurred: The bubble was the most out of control in rich areas like Los Angeles, Orange County, and Miami.

    Also, the government's share of the mortgage market *plunged* by almost half during the bubble.

    http://www.ritholtz.com/blog/wp-content/uploads/2011/11/fann...

  • Report this Comment On November 11, 2013, at 4:07 PM, Mathman6577 wrote:

    Ok ok I give up. So the government did not cause the housing bubble and the Great Recession. it must have been something else.

  • Report this Comment On November 11, 2013, at 4:26 PM, duuude1 wrote:

    Back to the less controversial black swan events that might arise from global warming... :)

    Imagine that - something so "in front of our eyes" as homes and home loans, and we have a hard enough time sifting fact from fiction on the causes of these huge economic events like the great recession...

    Do you think we'll be any better with climate change?

    I concur with Alyce's article that there are sure to be unforeseen events and consequences of global warming.

    The foreseeable consequences including rising sea levels, impacts to agriculture, civil unrest... if/when they come to pass these are huge predictable consequences and are thus manageable if we choose to address them.

    Where I disagree is that we should fundamentally change how we invest because of the black swan unknowns. There will always be big unknowns, and they are never an excuse to stop investing every week.

    The flat-earthers who deny global warming are sure to deny that there will be any significant economic consequences from climate change. The sand must feel nice and warm packed around the ears and neck... but the good thing is that they will continue to responsibly invest in diversified stocks with no fear of global warming, right?

    :)

    Duuude1

  • Report this Comment On November 11, 2013, at 4:39 PM, awallejr wrote:

    I caught CNBC a bit ago and a few guests were asked their forecast. Peter Schiff happened to be one and he said the market will crash because something bad is going to happen. At least Steve Leisman took him to task for making "something bad is going to happen" as an investment thesis.

    This article is silly to be frank. Something bad is ALWAYS going to happen eventually. We don't live in nirvana. As for climate change, all we can do is adapt to the circumstances. But that is more structural. It would be ridiculous to suggest that mankind can actually control climate change.

    So in the end this article is nothing but an attempt at fearmongering.

    And Mathman it was something else. You might want to look up Glass-Steagall Act and the repeal of it.

  • Report this Comment On November 11, 2013, at 4:51 PM, duuude1 wrote:

    Hey ajwallejr,

    I'd be the first to blame the bankers since they are the ones in power in this whole transaction. Glass-Steagall's primary function was to separate retail banking from investment banking, right? And sure, the purchasing and selling of bad loans was certainly one of the central players right? But the cause?

    It think the closest answer so far is from Robert Shiller in his book Animal Spirits:

    http://www.amazon.com/Animal-Spirits-Psychology-Economy-Capi...

    But Shiller's is a hard answer, because it implicates every single one of us - and who of us wants to have the blame for this? Most of us bought or refinanced a house during this period without doing the hard math of estimating true asset value - many of us were employed in banks, real estate companies, mortgage originators, home assessors... and so most everyone played a role in keeping this merry-go-round moving...

    Likewise, we will all be liable for this climate change since we say there is nothing we can do or that we as humans are not responsible....

    Duuude1

  • Report this Comment On November 11, 2013, at 5:23 PM, awallejr wrote:

    Duuude anytime you get Wall Street involved it only leads to trouble. Lehman Brothers would still be in business today. Same with Bear Stearns, Wamu, Wachovia if Clinton never signed the repeal of that Act at Larry Summer's urging.

    And the guy who pricked the bubble ironically was Ben Bernanke when he kept pushing interest rates to the point where people couldn't refinance their ARMs when they started becoming due. And so the House of Cards cascaded.

    As for climate change unless you are suggesting mankind will evolve into X-men in the forseeable future yes I am saying we can't stop it. We can only adapt. You can't stop continental plate shifting. You can't stop Yosemite from eventually exploding. You can't control the Ocean's currents. You can help reduce pollution which to me is more of a health issue.

  • Report this Comment On November 11, 2013, at 6:34 PM, duuude1 wrote:

    Hey awallejr,

    I'm with you 1000%. If I could push on the silk-clad back of just one banker and watch him tumble into a flaming volcanic caldera - I would jump for joy. Hate. It's there. Palpable and physical.

    But if I step back and think about what the actual cause, the true cause of the great recession is, the loss of all those jobs, homes, and lives (how many murder/suicides did we read about over the past half decade)... is it really the bankers, wall street?

    I don't know what the true cause of the great recession is - and I also doubt everyone elses easy answers. It's not an easy answer (like poor people). But I think the answer that comes closest is the toughest one, the answer that implicates each of us, the answer that Robert Shiller (one of the few voices in 2005 loudly cautioning about the impending housing market collapse) gives - about those animal spirits that rule us all.

    Do the people with the most power in the system - the bankers and politicians - deserve more blame? Of course - with great power comes.... the one thing none of us wants to take - great responsibility.

    But every single one of us is also responsible for the decisions we each make - to buy a home, to refinance and use the "free money" to buy flat screen TVs, to sell a home to someone who clearly cannot afford it, to approve a NINJA loan, to assess a home way beyond its true value, to fail to report unethical or illegal actions by your company, etc etc... and so each of us are responsible for contributing to this mess we went through.

    As for climate change, we are all similarly responsible for the decisions we make that contribute to this big environmental mess that is occurring - and if we can make it - we can fix it.

    Duuude1

  • Report this Comment On November 11, 2013, at 8:17 PM, Mathman6577 wrote:

    Ok Duuude1 do your part for climate change. Don't drive your car or heat your home using fossil fuels, turn off your electricity. Go back to the horse and buggy days.

  • Report this Comment On November 11, 2013, at 8:30 PM, hbofbyu wrote:

    Yellowstone is the super-volcano, not Yosemite.

    We have the technology to cool the earth but no one dares. If we were 100% certain about the cause and consequences of global warming then artificially cooling the planet would already be in the works at a frantic pace. I say if we are the ones warming it, then why would it be "unnatural" for us to cool it down?

    The reason is because no one is certain what could happen. And that's the beauty of quantum physics, black swans and free will.

  • Report this Comment On November 11, 2013, at 9:11 PM, ifool100 wrote:

    Hey Alyce thanks. It's about bringing attention to the fact that climate change is real. It's good to be mindful of that fact that most companies are in denial of this.

  • Report this Comment On November 12, 2013, at 12:08 AM, awallejr wrote:

    "Yellowstone is the super-volcano, not Yosemite."

    Lol oops you are right. I had Disney in the head heheh.

    And I submit it is BECAUSE of global warming mankind has thrived as a species. Prior to the warming we were living in caves. And the warming had NOTHING to do with mankind. Let me repeat, NOTHING to do with mankind.

    While the forest deforestation and carbon pollution does have an impact, in the end it is miniscule. Nature will dictate the end result. It is arrogant to think that mankind can control events.

  • Report this Comment On November 12, 2013, at 12:33 AM, awallejr wrote:

    And duuude in response to "It's not an easy answer" it really is. It is a one word response: GREED. We had a real estate crash in the 1980s. We then established private mortgage insurance as a response, meaning if you didn't have 20% equity you had to get insurance.

    During the 1990s it worked. But after the repeal of Glass-Steagall, again because of the IDIOCY of Larry Summers (yes Larry you might think you are a genius except you were more an idiot and we are the same age so I can feel comfortable saying that) Wall Street created the 1st mortgage, heloc work around rule.

    Basically Wall Street and Fannie Mae Freddie Mac decided that you can get around the 80 % equity requirement by doing a 1st mortgage at 80% and a Heloc (credit line mortgage) at 20% WITH a 6% closing cost credit. A recipe for disaster which happened.

  • Report this Comment On November 12, 2013, at 12:43 AM, awallejr wrote:

    oops, 20% equity rule.

  • Report this Comment On November 12, 2013, at 10:20 AM, TMFLomax wrote:

    BTW, I do totally agree that diversification is important in uncertain times (and true, what times aren't uncertain, of course they are) and I was in no way was implying that people shouldn't invest. My point is that investors should be looking at the companies that are acknowledging a growing problem and devising possible solutions or retooling their businesses to mitigate greenhouse gas emissions and so forth as the most positive investments. And there ARE companies that are doing that.

    We can also encourage our companies to address these issues by voting our proxies in favor of sustainability reports and goals.

    The housing boom/bubble/bust is a good example of a situation in which there are signs of an outcome that most people say is "impossible." The financial crisis/bust was NOT just about subprime borrowers as I see is being posed here. A very large number of people borrowed far, FAR over their capabilities to repay, and people literally said, "The housing market never goes down." Even very smart people. It wasn't fun to be a "pessimist," and people insulted you if you tried to point out that the situation was outrageous. Even at the time just saying "housing prices never go down" didn't make sense -- housing prices had spiked more than in the course of recorded history, among many other signs that it was an unsustainable situation.

    Anyway -- just wanted to jump in here and clarify a bit. No, we can't predict exactly a specific storm like Typhoon Haiyan. (In fact, when I wrote this I didn't yet realize it was bearing down on the Philippines. So awful.) We can pray for the victims and send donations for aid and wish things like that didn't happen.

    However, we can be cognizant that data is showing -- sadly enough -- that we are having increasing numbers of extreme weather events and need to assign more urgency into action, and ask for more acknowledgment of what is going on from our companies. The disclosure element is the acknowledgment that these are material risks.

    Best,

    Alyce

  • Report this Comment On November 12, 2013, at 11:25 AM, hbofbyu wrote:

    It is worth pointing out that while global warming is real, definitive statements about extreme events are almost nowhere to be found in the scientific literature but are rampant in the popular media - per climate scientist Gavin Schmidt of the NASA Goddard Institute for Space Studies.

    The 24 hours news cycle and the fact that over half the world's population now lives within 100 miles of the coastline exaggerates the perception that weather is worse today than it has been in the past. It just isn't true.

    Overall, the long-run impact of global warming will be negative for the population because of changing climate zones. But an increase in extreme weather events is not a given.

    Great article Alyce!

  • Report this Comment On November 12, 2013, at 3:38 PM, TopAustrianFool wrote:

    Here for you Global Warmers. Check the data from Lake Vostok and try to correlate the cavemen driving fossil fuel cars 200,000 years ago.

    http://en.wikipedia.org/wiki/Vostok_Station

  • Report this Comment On November 12, 2013, at 7:04 PM, duuude1 wrote:

    Hi Alyce,

    You are absolutely right in saying:

    " I was in no way was implying that people shouldn't invest."

    I apologize for reading that into you piece.

    I was on autopilot and reacting to your first line here which influenced my reading of the rest of the article:

    'Here's a definition that should send chills down the spines of investors: "An unpredictable or unforeseen event, typically one with extreme consequences."'

    But I do have to say, that is a tough sentence to cozy up and get comfortable with...

    Although we should never mislead new investors by claiming that the future is all roses and garden parties; at the same time we need to stiffen up the spines of investors despite the uncertainties of the environment, politics, economy, and personal situations.

    Most retail investors bailed out of stocks at the height of the financial crisis, and most have missed out on the investing opportunity of a lifetime - and that is one of the true tragedies of this past recession.

    We need the Winston Churchill of investing!! Just as Churchill stiffened the spines of the British in the face of an unstoppable Nazi war machine - we need someone to buck up regular Joe investors in the face of unholy terrors and enemies like The Great Recession(s), Fed policies, Climate Catastrophes, Chinese Hegemonic Aspirations, Nuclear Terrorists...the list goes on.

    We need to tell them that despite the Nazi war machines in our own futures, we can't be paralyzed and sit on the sidelines - we have to act every week and invest in the stock market - otherwise the enemy will win.

    Best,

    Duuude1

  • Report this Comment On November 13, 2013, at 8:47 AM, TMFLomax wrote:

    Duuude1, I can't agree with you more that people shouldn't get scared off from investing, and I totally agree with you that bailing or not buying stocks during the crisis was a big mistake.

    In my investing, I take "risk" very seriously in analysis, and I think sometimes I don't convey that as bearish or pessimistic as I might sound, it doesn't mean I don't think investors should buy stocks. I'm very bearish on a lot of stocks right now, because I don't believe the economic situation in this country is truly strong on a REAL level, but I still very much believe in holding stocks and looking only for the strongest ones to buy.

    This article is about looking for companies that are addressing one kind of risk, and I believe that it will increasingly be a competitive advantage. Not to mention, if they start doing something about bigger problems, it's good for their futures, investors' futures, economic strength, and people's futures.

    I totally agree that new investors should simply be aware that yes, there are risks big and small (this one is a big one, IMHO), but that they should still invest -- carefully. Also, the line in question is really in reference to the many short-term investors who don't think through the bigger picture in the economy and their stocks. Some big issues *should* send chills down *their* spines. Short-term investors don't tend to look at the larger picture, and I do wish that we could convince more to come into the careful, thoughtful buy-and-hold investing camp.

    You're correct that that's a choice of words that should have been clarified better. Sometimes I beat up on my own stocks while figuring risks, but I very, very rarely sell.

    Thanks for bringing that up, because it was not my intention to warn investors AWAY from stocks, not in the least. I need to be more careful about properly conveying something like that!

    Best,

    Alyce

  • Report this Comment On November 13, 2013, at 2:27 PM, HoosierRube wrote:

    Global warming has yet to be proven.. However, that does not fit in with the Global Wealth Redistribution plan as embodied in Koyto Protocol.

    The alarmist 'Sky is falling' folks cant get past the 'everyone believes it to be true'. So afraid of the name callers like duuude (what did you call me, a flat earther; and that's hardly fair, I used that same example for my side of the argument).

    Lets take a look at the proposed fixes for this 'problem'. Taxes... That's it, one word, taxes. Taxes will be taken from you and given to someone else.

    There is NO consensus for global warming, no matter how many times you say it.

    George Carlin had it right when he discussed the arrogance of man. Only in the 70's it was plastic that was going to destroy the world. The same alarmist 'sky is falling' folks said plastics would forever pollute our environment. George said, 'How arrogant to think man can have any meaningful impact on the fate of this planet. One day this planet will shake us off like a dog does fleas.'

    Please, don't send me links to govt. funded studies that 'prove' your point. I've seen them, and even if I believed them, they prove nothing.

    There's lie's, damn lie's and statistics.

    So, do you even know what the #1 greenhouse gas is? Do you know where on the list CO2 is? And do you know that the #1 greenhouse gas is greater than the next 5 combined?

    I suspect not, but I bet you look it up. And I bet you'll use all of your scientific discipline to 'reason out this as proof of your theory'.

    If you're concerned, quit driving your car and quit heating/cooling your home and for sure, quit building and manufacturing anything. Quit raising food. Heck, just kill yourself and Save the Planet.

  • Report this Comment On November 13, 2013, at 9:04 PM, awallejr wrote:

    Hoosier, stop it. Seriously. Be grateful you are anonymous. The world really is round and once a good portion of it was covered under ice. Not today. Why? Because some NON-MAN made tipping event occured 11,000-14,000 years ago.

    The REAL issue is if we can do anything about the direction of climate. Right now we can't (I say right now only because I have no clue where evolution will lead us 10,000 years from now) and that is why you no longer hear people saying "we must do something about global warming" to saying "we must deal with climate change."

    One of many fun threads:

    http://caps.fool.com/Blogs/cooler-year-on-a-cooling/746099

    Hopefully I had some impact on that by mocking those who think we could ever control climate. We can't. End of story. We can try to reduce pollution which is good for health. But that won't stop the climate doing what it "wants" to do.

  • Report this Comment On November 14, 2013, at 11:54 AM, TMFLomax wrote:

    That's interesting bringing up the arrogance of man, because that actually works both ways and is part of the point I was trying to make in the article, only in another direction and perspective. There's also the arrogance of wasting valuable resources and panicking about having to do something about it later.

    How hard should recycling have been to figure out? Some of this is ridiculous common sense and yet for a long time people really thought throwing their trash out the window (or dumping chemicals and hazardous waste into waterways, etc.) was a perfectly fine thing to do.

    Personally, I do believe that climate change is a sea change (pardon the pun) that needs to be addressed for the big picture of health (economic, social, and so forth). We could argue till the cows come home about whether it's manmade or not but we also know that science is showing that some big things are going on. If we can't fix it, we can try to mitigate it. If we can't fix it, we can prepare better. (And I still also strongly contend that regardless of anyone's stance on what is such a polarized issue, why on earth does resource waste make a lick of sense economically? Companies are supposed to be efficient; that's supposed to be economic common sense.)

    I appreciate the argument about the coastlines, but I posit that yes, it's a good point: coastlines HAVE always been dangerous and unpredictable. For ages people have known that storms that yes, have always happened in those areas could completely wipe them out. They took that risk for livelihoods and coasts have been important to commerce over history, etc. Today, though, people have the arrogance to overbuild on coastlines, build say McMansions on coastlines for comfort and lovely views, and then get wiped out and wonder how that happened. Again, private or public insurance in its way is another example of moral hazard in cases like this -- if people are covered, they will keep doing it.

    I'm pretty sure that traditionally, people didn't build anything particularly fancy at beaches, for example -- they actually knew that they might have to evacuate and rebuild. Plus, some of these areas have always had a very rough impact on possessions -- water, salt, sand, wind, storms...

    Anyway, just the point that arrogance can go both ways. I do believe our society has a lot of issues with long-term thinking and what we can "fix" or not, BUT, when it comes to changing climate and wasting resources that are essential to life (water, for example) throwing up our hands and saying there's not much we can do to mitigate that, no way to innovate to improve on "what we've done for decades" isn't really a great idea.

    Just some thoughts. We can agree that human nature often includes thinking we can control more than we can, but that can also include a vision of life as we think it should be (easy, in this case) and that nothing will ever go wrong (even if we have some proof that it IS, as this article is trying to convey).

    This is a good conversation, by the way. Thank you for that.

    Best,

    Alyce

  • Report this Comment On November 14, 2013, at 11:57 AM, TMFLomax wrote:

    PS: Again, some companies absolutely ARE working on innovative ways to reuse, recycle, deal with water issues, save resources, go for zero landfill, etc. Again, I believe we should continue investing, but look for companies that are addressing these issues. One way or another it has everything to do with business and economies -- short term OR long term.

    Best,

    Alyce

  • Report this Comment On November 14, 2013, at 3:00 PM, awallejr wrote:

    I don't disagree with anything you just said in your PS. Buying into companies that have a "green" impact as an investment thesis is fine (of course I would think you would at least want to own profitable ones).

    It is interesting that mankind really seems to prefer to live near coastlines. But we know coastlines ALWAYS change because the tectonic plates aren't static. Nor is climate.

    NYC will have to start thinking storm surge protectors. Might even have to build a wall around Manhattan one day. But that is par for the course on living on the surface of a dynamic planet.

  • Report this Comment On November 14, 2013, at 3:19 PM, TMFLomax wrote:

    awallejr,

    Yes profitable ones are of course pretty key. Most of the ones I've been buying for the real-money portfolio project (which goes along the ESG lines) are profitable and doing well. I've only got a few I consider super speculative, although they're the innovators too (which is of course why I've bought a few).

    Yeah coastlines ARE beautiful. I can't say I don't love them but definitely there's that other side. I totally agree that the things you mention for Manhattan are examples of being ready for what seems "impossible." (That really was so horrible and unthinkable that it could happen in NYC.)

    Alyce

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