The Hindu Business Line : <I>Stocks and bees </I>

Even the experts are not sure about the origin of the phrase "the birds and the bees." This phrase is often used to explain human sexual behaviour to children. Some attribute the phrase to Cole Porter who sang it in his 1928 song, Let's do it. But what do bees have to do with economics?

Consider portfolio diversification. It refers to investing money in more than one stock. This process ensures that you do not lose a lot of money because all stocks may not go down at the same time. The concept is simple and elegant. Now, shift to biology, or more specifically, zoology, and consider the lives of the bees. Studies show that bees have an interesting way of finding food.

Bees, we know, live in hives. First, some bees are sent to scout the areas surrounding their colony. Each bee goes in a different direction. When a scout bee finds nectar, it comes back to the hive and does a jig. The other bees simply follow the signal and track the nectar site.

Notice the similarity between you, the investor, and the bees. The scout bees move in different directions because none of them knows where the food is. By spreading themselves out, the bees cover a larger area, and this lowers the risk of not finding food — for the same reason you spread your money on more than one stock.

Researchers have been so impressed with bees that they have now developed an algorithm to optimise business processes based on the bees' dance! There is, indeed, more to "birds and the bees" than its typical meaning.

(The author is based in Toronto, Canada)

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