Stability Cascade
Concentrated portfolios face the inverse: instability forces short-term thinking, which reduces diversification investment, which increases fragility.
Diversity begets stability, which begets more diversity, which begets more stability. The converse also holds: simplification begets instability, which begets collapse.
Diversity mechanisms interact and amplify each other. The portfolio effect stabilizes total abundance, which reduces competitive exclusion, which maintains diversity, which maintains response diversity. Response diversity ensures that when disturbance affects one functional group, another compensates, maintaining function, maintaining resource availability, maintaining conditions for diverse species to coexist. Diversity begets stability, which begets more diversity, which begets more stability. The converse also holds: simplification begets instability, which begets more simplification, which begets collapse. Coral reefs demonstrate this cascade - diverse reefs maintain herbivore guilds that prevent algae from smothering coral; low-diversity sections flip to algae dominance and haven't recovered after 30 years.
Business Application of Stability Cascade
Successful diverse portfolios create positive feedback loops: stability enables longer time horizons, which enables better capital allocation, which funds more diversification, which increases stability. Concentrated portfolios face the inverse: instability forces short-term thinking, which reduces diversification investment, which increases fragility.