Survive, or thrive?

Survive, or thrive?

Biologists have discovered a way to bypass a "glitch" in photosynthesis that is drastically holding back plants' ability to efficiently turn sunlight into energy. In a recent Science article*, the research team describes a "shortcut" that could boost crop growth by 40%.

This process could have staggering implications, improving food security at a scale that could rival the advances that earned Norman Borlaug the moniker "the man who saved a billion lives".

Understanding the origin of this natural-selection "mistake"—and the potential risks of trying to "fix" it—can teach us about investing amid uncertainty.

A victim of their own success

As you may remember from high school science, plants pull carbon dioxide from the air, using sunlight and water to produce sugars and oxygen. But sometimes they grab oxygen instead, triggering an "anti-photosynthesis" process (photorespiration) that wastes energy.

This flaw didn't hinder the earliest photosynthesizers, since there was virtually no oxygen in the atmosphere. But their success triggered the Great Oxygenation Event (GOE) as their waste raised atmospheric oxygen to levels fatal to life that had specialized to the pre-GOE environment. This change paved the way for organisms that rely on oxygen (like us!), but it also caused the first mass extinction.

The ancestors of today's plants were able to distinguish oxygen from carbon dioxide. Before the GOE, this capability was useless, and may have even held these organisms back, but it ended up being the key to their survival. In the two-and-a-half billion years since then, plants have refined photosynthesis, and some plants—the "C4 crops"—developed a natural version of the photorespiration shortcut 35 million years ago.

To emulate the C4 enhancement, scientists are shutting the now-defunct pathways that had helped plants thrive pre-oxygenation. C4 crops do better in today's atmosphere, but they struggle in cool, moist conditions, and those vestigial pathways might be important to survival someday—for example, if oxygen levels change. While it's good to optimize for the current conditions, overspecialization can lead to fragility.

"Survival of the fittest"

This phrase doesn't indicate that only the strong survive; "fittest" refers to the organisms that fit best with their environment. Thriving in one set of conditions is great, but it doesn't mean much if you can't survive a change in circumstances. No investment strategy works perfectly in every environment, so how can we help our portfolios survive tail risks and also thrive in our base case? Taking a cue from evolution, we should focus on building robustness.

Robustness is vital for investors preparing for the next bear market. Investors should proactively investigate and neutralize vulnerabilities in their portfolio, but also remember that taking too little risk to avoid the pain of losses can also cause damage (through foregone gains) that is hard to repair.

Robustness is also front-and-center as we think about navigating this late stage of the business cycle. The late-cycle phase has historically seen a wide range of returns—including larger and more frequent stock market losses—but it has also offered the highest median stock returns of any part of the business cycle. We advise investors to recalibrate positioning for this environment, but we shouldn't overspecialize in case the cycle shifts.


By Justin Waring, Investment Strategist Americas

*P.F. South et. al., "Synthetic glycolate metabolism pathways stimulate crop growth and productivity in the field," Science (2018)


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