One of the two experts, Mr. Bruno Boulet, is a specialist in forest protection. Obviously, with the summer we have just had and the forest fires which burned a record area of our boreal forests, we asked questions concerning the best way to protect our forests, not only from fires, but also from diseases which risk being imported, and which threaten most species in our forests.
A Healthy Forest
From what I understand, the first step to protecting our forests is to ensure they are healthy. A healthy, vigorous forest is better able to grow quickly, defend against disease, and survive the extreme weather events happening more regularly because of global warming. Similarly, companies that are in good financial health, profitable, and vigorous will defend themselves better against competitors and will more easily navigate economic pitfalls.
I asked Mr. Boulet this question: “Would a forest owner be better off simply letting nature take its course?” As I understand it, nature does indeed do things well, but it is still better for an owner to intervene in a targeted manner and somehow help nature. For example, targeted interventions such as tree pruning, selective logging, and felling defective, diseased, or dying trees can help promote the growth of a forest. I see things the same way in portfolio management. We let our businesses develop as much as possible without too much intervention. But we occasionally intervene in a targeted manner to improve the quality of our portfolio, by eliminating certain less healthy companies.
Beware of Unintended Consequences!
Mr. Boulet was clear regarding interventions likely to alter an ecosystem. Digging ditches to irrigate a section of forest land can be a good idea, but it can also create unexpected problems for existing trees, flora, and wildlife. According to him, hydrology is a unique and very complex specialty, and one must be very careful before intervening in existing systems which have reached a good balance. For me, it’s somewhat the same in portfolio management: before adding or eliminating a security from a portfolio, you also have to think about the impact on its balance and diversification.
The Biodiversity
According to Mr. Boulet, one of the defences against the spread of fires and diseases is the diversity of a forest. Planting a large quantity of a single species of tree may be economical, but it significantly increases the risk of an accident that could destroy it. Imagine if a homeowner had planted exclusively ash trees on his property 20 years ago. Also, according to Mr. Boulet, deciduous trees are ramparts that prevent fire from spreading through a coniferous forest. In portfolio management, we also want to ensure that we obtain healthy diversification to protect ourselves from any threat that could affect a sector or region of the world.
Another element highlighted by Mr. Boulet is that, in managing a forest, it is much better to prevent than to try to cure. It made me think of Benjamin Franklin’s quote: “An ounce of prevention is worth a pound of cure.”
For a forest owner, climate change is something that must be understood and adapted to. The warming already observed in Quebec, and which is likely to continue over the coming decades requires adaptation and a certain amount of foresight. For example, Mr. Boulet told us about his decision to plant oaks on his property to replace sugar maples because he believes that warming will favour oaks to the detriment of maples. It’s the same in investment where, in my opinion, we must favour promising industries in the long term and try to avoid those which are likely to disappear. As in the environment, the global economy will undoubtedly undergo major upheavals in the years to come.
For me, there are many similarities between managing a forest and managing a portfolio. In both cases, you need to have a very long-term horizon. The ultimate objective is the same for both areas: to promote the long-term development of a beautiful heritage, whether forestry or financial, for future generations.
