When Your Investments Meet “Extinction Debt”
Turn! Turn! Turn! (To Everything There Is a Season)–folk song, Pete Seeger
A Thought Piece* on Extinction Debt, Investing, and the Financial Markets
Lately, I have been reading a lot about “extinction debt” and how humans are going to go extinct (Scientific American, November 30, 2021 online issue) sooner than later. A hugely enormous and very recent population doubling (there are twice as many people on earth as there were in 1968, for example) is part of the equation. Degradation of habitats and lack of genetic diversity are other factors.
The Human Extinction Debt
Homo Sapiens has been on this earth for approximately 300,000 years or so, but not until now have we overpopulated the planet. As evolutionary and biological scientists know from studying species over time, there is a season to everything. Are we as human beings in our last hurrah?
Species with long generation times and populations near their extinction threshold are most likely to have an extinction debt; that is, have a delay in their extinction time. There is also a slightly optimistic interpretation or side to extinction debt: the delay in extinction (the debt) means there is more time to remedy it before it happens.
Like all groundbreaking scientific principles, there is crucial information to unpack, for our ecological paths as humans but also for us as the species who thinks in the most sophisticated ways.
Consider Other Debts…
As a personal finance blogger, I wondered: could it be that advanced scientific thought could help us with something as commonplace as understanding our finances and debt better?
The Life Cycle of Stocks
As expressed above, the biological expression of this type of species debt refers to the delay of one or more species in a habitat to become extinct. There is an arc to the lifecycle, whether delayed or not. I am reminded of my technical analysis graduate study material of the cyclical nature of stocks and the stock market and economic cycles in general, and specifically, the Wyckoff stock cycle, which is a widely accepted concept in technical analysis circles. It attempts to define and categorize the evolution of stock prices. The Wyckoff cycle has four parts to its cycle (largely in part to the buying and selling of large institutions):
- Accumulation – large institutional investors accumulating shares
- Markup – stock price goes higher
- Distribution – institutional investors start unwinding their positions
- Markdown – lower stock price
There are also other broader market and economic cycles to consider here. For example, are we currently at the end of a late bull market cycle or at the beginning of another different, early cycle? OR, as some analysts believe, the second part of the previous bull cycle?
Do we know how much time the human race has or where it is exactly in its cycle(s)? The beginning of the end, or the end of the beginning where we move into a more mature relationship to our environment? Extinction debt, by looking at trends from the past, points us, however, to the near-end of the cycle. Like the stock cycle above, similarly in extinction debt there is seen first an expansion (overpopulation, extension into all habitats) followed by a contraction (underpopulation).
The Timing (and Speed) of the Market
There is always a lot of talk about timing the market: whether it is possible, and whether you should attempt to do it or never try. Is it pure speculation, or are there signs and signals that point the way to market ups or downs? Clearly, there are cycles, even if they are only uncovered in hindsight and/or by insights from paper trading. For example, I have written in a previous post about whether a stock split is always a good sign.
Whether you can draw any inferences between extinction debt and the markets is a fine line, for sure. But I find the comparison interesting: our existence on this earth as measured by the current overpopulation, and the ensuing underpopulation that is predicted, is happening at what seems to me like warp speed (world population doubling in five decades).
The same can be said for the market’s rapid moving pace between cycles. The bear cycle of 2020 (during Covid) was the fastest bear market ever.
Degradation and Diversity in the Market
Digging a little deeper, a discussion of extinction in general and particularly the idea of extinction debt has two important trends (among others) to consider:
- habitat degradation, and
- low or no genetic diversity
The degradation of habitat is covered extensively elsewhere. As has been reported, environments around the world have been profoundly damaged by humans, you could say, unfairly to other species.
The degradation of the stock market can also be described as unfair and moving extremely rapidly. For example, private-equity owners decided to retain control of Chewy by awarding their shares 10 times the voting rights of the shares being sold in the IPO (called super-voting shares). One vote per share is being questioned and in the cases of Google, Facebook, and Dropbox, erased completely and replaced with dual class share structures.
Unfair to the Small Investor
When companies create multiple share classes, not only does more of the appreciation in stocks go to private investors but, when those companies do go public, they increasingly use dual-class shares. Fairness and diversity are related: when a market is not a level playing field, it becomes less diverse.
Also important to note is that when multiple share classes are allowed, index funds can be negatively affected. Founders and upper executives in companies can influence a company towards their own long-term goals, not necessarily in the best interest of short- or mid-term investors, such as retirees who depend on index funds. but Excluding large, influential companies who choose dual class shares from indices weakens and changes the indices.
Is Debt Good?
Whether or not personal debt is a good thing is up to each person and their financial risk tolerances, overall budgets and income, and financial styles, but clearly debt is here to stay and has been for a long time. According to author David Graeber in his book, Debt: The First 5,000 Years, debt has been around for at least 5,000 years (even before cash or coins), and debtors and creditors have been in close relationship since then.
Well, Sometimes It Is…
Societal expectations around credit and debt are hardwired into our finances today. Without debt, most of us could not own homes, drive cars, or invest in real estate. That isn’t to say that it isn’t very risky and fiscally dangerous, individually or for all of us as groups or institutions.
But the interesting (and maybe the only hopeful) thing to come out of the thinking around extinction debt is that it is the very delay in extinction (the debt) that gives humans time to remedy the situation (clean up and begin to restore degraded habitats, for instance, or allow and encourage more biodiversity in human-controlled habitats).
Most Importantly, What Do YOU Think?
What is a Thought Piece?
*A Thought Piece is a piece of writing that is intended to get the reader thinking. It can be highly speculative or even fantastical (as this one is) and juxtapose several opposing or unrelated points of views or theories with the writer’s opinion scattered throughout the piece.
Thank you for “trying out” this idea with me.
NOTE: I am not a scientist; my sincerest apologies for any incorrect or inexact descriptions, definitions or expressions of the biological science in this piece. I have a deep respect and gratitude for science and the in-depth and thoughtful research that scientists do for us.
Links to references in this post
Humans Are Doomed to Go Extinct (Scientific American)
Extinction debt: a challenge for biodiversity conservation (Science Direct)
How to Be Sure a Stock Split Works in Your Favor (Wealthy Nest)
Limit, Don’t Ban, Dual-Class Share Structures (A16z)
Debt: The First 5,000 Years (on Amazon)
The degraded stock market (Axios)
Want MORE MAKE MONEY IDEAS?
Disclaimer: All the information provided above and on this site is for informational purposes only and should not be considered as professional investment, legal, or tax advice (or scientific advice). You should conduct your own research or consult with a professional financial advisor when investing.