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3c hapter - Index of
3c hapter - Index of
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Buy Local, Eat Local . . . Invest Local 39<br />
leveraged derivative trades or special- purpose investment vehicles or<br />
engaging in risky, complex activities that could blow up—quite literally,<br />
as BP shareholders discovered after the Deepwater Horizon oil<br />
rig exploded in April 2010, killing 11 workers, unleashing millions <strong>of</strong><br />
gallons <strong>of</strong> oil into the Gulf <strong>of</strong> Mexico, and evaporating $88 billion<br />
<strong>of</strong> shareholder wealth in a matter <strong>of</strong> weeks. 4<br />
Diversification<br />
As an asset class, local companies can help diversify a portfolio.<br />
Locally rooted companies are less likely to be buffeted by the global<br />
disruptions and Wall Street mischief that rock the markets with<br />
increasing frequency. The fl ip side, <strong>of</strong> course, is the concentrated<br />
geographic risk: If an area is hit by a natural disaster or a localized<br />
economic setback, investments in that area would be impacted.<br />
That’s why most locavestors invest just a portion—anywhere from<br />
5 percent to 20 percent, although some have gone much higher—<br />
<strong>of</strong> their investment dollars in local and regional enterprises.<br />
Diversifi cation is an accepted strategy to minimize risk in an<br />
investment portfolio. But what about an economy? Local investing<br />
can help us move away from the systemic risks embedded in our<br />
Too Big to Fail system. For the nation as a whole, a more diversifi ed,<br />
distributed economy—just like a smart, distributed electric grid or<br />
computer network—makes for a more resilient system, less vulnerable<br />
to a shock to any one part, whether the failure <strong>of</strong> a major bank,<br />
sovereign country, or political regime. And that benefi ts all investors.<br />
Indeed, sophisticated investors have been casting about for<br />
alternative investments that can earn a decent return and, more<br />
importantly, diversify their holdings so they are not so tied to<br />
the increasingly volatile stock market. In their quest, investors<br />
have poured millions <strong>of</strong> dollars into ever- more speculative and<br />
questionable investments—from catastrophe bonds that essentially<br />
bet on a gentle Mother Nature, to loans to young Dominican<br />
athletes in return for a cut <strong>of</strong> their future signing bonuses, to bets<br />
on the premature death <strong>of</strong> life insurance policy holders. 5<br />
Local companies, I submit, are an alternative investment class<br />
you can feel good about.