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Buy Local, Eat Local . . . Invest Local 39
leveraged derivative trades or special- purpose investment vehicles or
engaging in risky, complex activities that could blow up—quite literally,
as BP shareholders discovered after the Deepwater Horizon oil
rig exploded in April 2010, killing 11 workers, unleashing millions of
gallons of oil into the Gulf of Mexico, and evaporating $88 billion
of shareholder wealth in a matter of weeks. 4
Diversification
As an asset class, local companies can help diversify a portfolio.
Locally rooted companies are less likely to be buffeted by the global
disruptions and Wall Street mischief that rock the markets with
increasing frequency. The fl ip side, of course, is the concentrated
geographic risk: If an area is hit by a natural disaster or a localized
economic setback, investments in that area would be impacted.
That’s why most locavestors invest just a portion—anywhere from
5 percent to 20 percent, although some have gone much higher—
of their investment dollars in local and regional enterprises.
Diversifi cation is an accepted strategy to minimize risk in an
investment portfolio. But what about an economy? Local investing
can help us move away from the systemic risks embedded in our
Too Big to Fail system. For the nation as a whole, a more diversifi ed,
distributed economy—just like a smart, distributed electric grid or
computer network—makes for a more resilient system, less vulnerable
to a shock to any one part, whether the failure of a major bank,
sovereign country, or political regime. And that benefi ts all investors.
Indeed, sophisticated investors have been casting about for
alternative investments that can earn a decent return and, more
importantly, diversify their holdings so they are not so tied to
the increasingly volatile stock market. In their quest, investors
have poured millions of dollars into ever- more speculative and
questionable investments—from catastrophe bonds that essentially
bet on a gentle Mother Nature, to loans to young Dominican
athletes in return for a cut of their future signing bonuses, to bets
on the premature death of life insurance policy holders. 5
Local companies, I submit, are an alternative investment class
you can feel good about.