What Is Natural Selection?
Let me explain natural selection to you directly: in modern biology, it's the process where species with traits that help them adapt to their environment survive, reproduce, and pass those genes to the next generation. This means adaptable species grow in numbers and eventually dominate over those that can't keep up.
Through natural selection, a species adjusts its genetic makeup across generations to better fit its surroundings—these shifts are usually gradual, spanning thousands of years, but they can happen faster in species with short lifespans and quick reproduction.
When you apply this to finance, the idea is straightforward: over the long haul, only companies that adapt to shifts in the financial and business landscape will stick around and thrive.
Key Takeaways
- In biology, natural selection lets adaptable species survive and pass on their traits.
- In finance, companies that adapt to changes will succeed, while others risk losing market share or going bankrupt.
Understanding Natural Selection
You might know the classic example from biology: the English peppered moth. These moths came in various colors, but before the Industrial Revolution, the light gray, spotted ones were most common because they blended with lichen-covered trees, hiding from predators like birds. The darker ones stood out and got eaten more often.
Then came the Industrial Revolution from about 1760 to 1840, pumping out pollution that killed the lichen and blackened buildings. Suddenly, the light moths couldn't camouflage anymore and became easy prey, nearly vanishing. The dark-winged moths, now better hidden, survived and multiplied.
Translate this to finance, and you see that the business world is dynamic and complex—only a few companies last for decades. If a company doesn't adapt, competitors eat into its market share, and eventually, it might go bankrupt. The same goes for traders or investors: fail to adjust to market changes, and you'll lose money, potentially getting forced out as your capital dries up.
Remember, natural selection never stops—adapting to recent changes shows capability, but it doesn't promise you'll handle every future shift in the environment.
Example of Natural Selection
Look at the 2008 credit crisis: several big brokerage firms collapsed under the pressure. Bear Stearns, founded in 1923, Merrill Lynch from 1914, and Lehman Brothers from 1850 all lost their independence. Bear Stearns got bought by JPMorgan Chase, Merrill Lynch by Bank of America, and Lehman Brothers straight-up filed for bankruptcy.
The Bottom Line
Before 2008, people thought some institutions were 'too big to fail'—but that crisis proved otherwise. In natural selection terms, size isn't the key; it's all about flexibility and quickly adapting to new realities, whether you're a business or an investor.
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