HIERARCHY OF INVESTMENT CAPITAL, or WHY WE DO WHAT WE DO
Our structured way of thinking originates with a SeaSpire principal when he managed a private portfolio for a billion dollar family. It was applicable then and is applicable today for those seeking to manage risk in an ever-changing environment, over long time periods.
Mazlow’s Hierarchy of self-actualization is a well-known social science concept. It describes the social path of individuals rising to realize their full potential. While appropriate for understanding progressive human social needs, the converse analogy is appropriate to investing needs.
The Hierarchy of Investment Capital intuitively illustrates that the more complex the investment, either in structure or based on human needs, the greater the correlation risk and the higher the chance for “black swan” events. The Margin of Safety comes from Benjamin Graham’s portfolio analysis process where he favored investments which had some additional factor(s) that would act to buffer profits against stress environments encountered by a specific company or stock investment. This Margin of Safety is important to investors and advisors when selecting investments to make and projects to develop.
The lower the level on the pyramid, the greater advantage to select investments as all-weather investments. We assert the truth of this hierarchy across developed, developing, emerging and frontier countries, markets and environments. Focusing research effort and investment capital to select investments in the lower levels of the pyramid is a means to allocate financial capital and human/social capital to situations with lower risk per unit of return. This clarity of purpose provides more opportunity to source investments that make a sustainable difference to human capital needs.
SeaSpire Advisors uses this investing model to focus its efforts on initiatives in the areas of renewable energy, sustainability, and related direct business development, where we have resources that add value.