The first real banana business began in the 1860s. It was literally a race against time. Profits were dependent on getting from port to port as quickly as possible, so as to avoid spoilage. Sail too long and they’d lose everything.

But once that first company sprung up, other’s soon followed. By the late 1890s, the market for bananas was booming.

Then just before the turn of the century, it stopped.

Like most booms, it could not last. Not because there was anything wrong with the product: the banana is perfect. Not because there was any scarcity in demand: people loved bananas from the start — the average American now consumes seventy a year. But because supply was uncertain… Most firms got their fruit from a single farm or valley, greatly increasing this vulnerability. The entire supply of many early traders could be wiped out by one bad storm.

This became painfully clear in 1899, the Year Without Bananas. There had been a heat wave, a flood, a drought, a hurricane. The market sheds were shuttered, the pushcarts stood empty. Dozens of firms went under. It was like the natural disaster that wipes out all but a few impossible-to-kill species.

The lessons from 1899 became obvious to the few surviving businesses. Since investing is very business-like, those same lessons transfer over. Continue Reading…