April 15, 2021

Of all the animals that migrate across great distances, perhaps the monarch butterfly is the most majestic. Up to 1,000,000 butterflies make the semiannual trek covering an area from Mexico to southern Canada. The northward leg of their journal is currently underway as they will travel well over 2000 miles in about two months.

Interestingly, the trip is so long that it exceeds the normal lifespan of monarchs, which is generally less than two months for those born in early summer. The first generation only makes it as far north as Texas and Oklahoma. It is usually not until the fourth or fifth generations that they complete the entire round-trip journey.

The study of monarch migration is relatively new, as it wasn’t until the 1970’s that scientists began to fully understand the distances they travelled and the manner in which they chose their ultimate destinations. The mechanism that the monarchs use to travel these great expanses are not completely understood. It is believed that they use a combination of a circadian clock and the positioning of the sun to navigate their way.

Regardless of the scientific details as to how the butterflies migrate, the why they migrate is a bit clearer. Butterflies fly north for two primary reasons: food and habitat. Their main food source, milkweed plants, begins to bloom in the spring and dies back as winter approaches in the north. Also, the migration allows monarchs to escape habitats where parasites have accumulated at the end of the summer.

Over the past few years, however, the monarch population has severely declined to the point where some scientists fear they are on the brink of extinction. Western monarch butterflies, for example, reached a record low in 2020 with a count of fewer than 2000 – a significant decline from about 35,000 last year and millions in the 1980s. Recently, though, the US Fish and Wildlife Service announced that it would not recommend protection for the species under the Endangered Species Act.

Reasons for this decision are numerous, but generally focus on the belief that resources are needed for “higher priority listing actions” according to the government agency which oversees such rulings. Simply put, they believe there are a number of other animals deemed to be more endangered than the monarch. Also, it is believed that since the lifespan of the butterfly is so short, their count is more susceptible to variance and that they have a greater chance to “bounce back” after low breeding seasons.

This last aspect of the monarch butterfly is interesting on a few levels. A short life span, from an evolutionary standpoint, might not sound desirable, but it can have unexpected benefits. As the insects make their arduous journey each year, many do not make it for a variety of reasons. The stronger, more adapted varieties, fare the best as they are better equipped to handle uncertainties that they may face. Lack of food, inclement weather and predators are just a few of the challenges the butterflies will encounter over their multi-week trek.

An analogy can be made comparing the migration of the monarchs to our investment philosophy. What they both have in common is the idea of “passing the baton.” In the case of the butterflies, this is evidenced by noting that along their journey multiple generations are involved, which helps to ensure the strongest, most fit, survive and make it to their destination. Our style of investment management is similar in that we also believe in the concept of rotating to the strongest and fittest. In our case, it involves actively monitoring all available investment options and measuring the attractiveness of each. We move away from those which are weak and migrate towards those which are showing strength.

The monarch butterflies complete their seemingly impossible journey each year through a combination of evolutionary adaptions and perseverance. Not all complete the trip, but enough do which enables the species to live to see another mating season. Again, tying this to investments a similar concept holds. Not all of your individual positions need to go up in value in order for your whole portfolio to reach its goal. As long as you have a plan in place, which is able to adapt to ever shifting conditions, you are on the right path.

The article above is an excerpt from the Q3 Quarterly Market Commentary. Here is a link to the most recent issue. Complete the form below if you would like to get this emailed to you each quarter.