Slow Money

Bringing Money Back Down to Earth

Oodles of money zip around electronic banking networks every minute of every day. The movement is so quick, the transactions so frequent, the companies so complex, and the forms those investments take so myriad, the average investor has lost track where their money is and for what it’s being used. There are trillions of dollars being invested in abstract financial instruments called “derivatives.” It’s basically money betting on money (or some market movement). It’s legalized gambling. Bankers can come up with anything they want to “bet on” and make a market out of it– from pork belly futures to North American home mortgages. But derivatives are dangerous. They are twice, thrice or fourfold removed from the actual product or service touching an actual consumer. High-concept, high-complexity, low-touch… and by-definition elitist.

A derivative is a measure of rate-of-change. Say I have a car. It moves from position A to position B. The derivative of position is the rate-of-change-of-position, or velocity (speed and direction). The derivative of velocity is the rate-of-change-of-velocity, or acceleration. The derivative of acceleration is the rate-of-change-of-acceleration, otherwise called jerk. Imagine being able to gamble on a NASCAR race entrant’s acceleration or jerk, instead of it’s average velocity over the course of a race. Stupid, right? Like, who cares who accelerated the fastest or jerked the most. It’s just a number. It seems arbitrary and trivial. But it might not to a bookie if they felt they could get people to gamble on changes in those abstract numbers.

And so it is so with bankers… clever MBAs with nothing better to do than invent new abstract ways to make money off of money. One way or another, there are trillions of dollars committed to “legalized gambling” in the form of complex derivatives that bet on 2nd, 3rd and 4th-order derivatives far removed from real product or service. Gives whole new meaning to the mathematical term for the third-order derivative “jerk.”

All of this in the name of making money. Big money. Fast money.

But what if “big” and “fast” weren’t the overriding operating tenets guiding financial wizards. What if the pressure for double-digit returns in single-digit number of years was mitigated, or eradicated. There is some evidence to support the idea that unbridled capitalism-at-any-price isn’t really sustainable. Gordon Gecko’s “greed is good” was turned from an intended cautionary tale into an industry mantra. What if a few modifiers were added to the mix– “big enough” and “not so fast.” And a few more adjectives thrown in like “sustainable,” “ethical,” “local,” and “high-touch” (read: touches humans, not simply bits whizzing through computers).

Slow Return is Better than No Return

… and slow money investing likely has intangibly-tangible benefits to community through sustainability.

I find it infinitely more interesting to investigate, study and autopsy how my investment in, say, community-supported agriculture or urban agriculture ripples through my community and the general economy than I do figuring out where a hedge fund in which I might invest puts their money, if they’re taking fair pay, and if the world derivatives markets in which they’re dabbling are sound. I think I’d rather regularly meet with a human that I can see prospering, see a product I can see, feel, taste, smell and touch the value of. Sound quaint, parochial and Pollyanna-ish? Maybe.

But real businesses can be built on slow money. You may not become a dot-com or bio-tech billionaire (and I’d most certainly make a *great* billionaire), but does any one person really need a billion dollars. Really?

Time Magazine has featured the slow money movement. So has the Wall Street Journal, which showcased former venture capitalist Woody Tasch, who took “a page from the Slow Food movement, which calls on consumers to take the time to savor home-cooked meals, Mr. Tasch dubbed his philosophy “Slow Money.”

The crux of the movement is persuading investors to put some of their assets into businesses they can see, smell and even taste — to measure growth not by the flashing numbers on a stock ticker, but by the slow ripening of a tomato.

Location, Location, Location

Slow Money Alliance poses several questions on their website, but the one that piqued my interest most was:

What would the world be like if we invested 50% of our assets within 50 miles of where we live?

It’s more than “sustainability,” though it is indeed sustainable. Wouldn’t it be interesting to see investors take some portion of their investment portfolio and localize it? Take some of that dough out of the hands Wall Street-centric czarist financiers, and put some of it with a local guy or gal with the a great idea and great execution skills, one you can meet periodically face-to-face to check on their progress. Or perhaps find or found a group focused on financing those local businesses.

Alas, convincing investors they’re going to make less money more slowly is no easy task. Perhaps a wee bit easier in times like these. But slow return is most definitely better than no return… especially if there is an additional “ROI” beyond receiving a multiple on your investment.

If we’re going to delve into the complexities of “investment,” let’s focus on the impact ripple effect a company or product has on the system. Stop focusing on leaps, shorts and futures, and instead invest in “restoration and preservation instead of extraction and consumption,” as Woody Tasch put it so well.