DEFINITION of 'Natural Selection'

Natural selection is a process whereby species which have traits that enable them to adapt in an environment survive and reproduce, passing on their genes to the next generation. Natural selection means that species which can adapt to a specific environment will grow in numbers and eventually greatly outnumber those species that cannot adapt. The natural selection process enables a species to better adapt to its environment by changing its genetic configuration with every passing generation. These changes are gradual and may occur over thousands of years, although in some instances natural selection may occur much faster, especially in species with short life spans and rapid reproduction rates.

BREAKING DOWN 'Natural Selection'

One of the most well-known examples of natural selection in the field of biology is that of the English peppered moth. Although they were found in a number of shades, until the Industrial Revolution in England, the light gray, spotted variety was the most abundant, as they were easily camouflaged against lichen of a similar light color. On the other hand, dark-winged moths were easy targets for birds and other predators. But the Industrial Revolution produced massive pollution that killed the lichen which covered most rocks, while white-colored buildings turned black with soot. As a result, the light gray moths could no longer blend in with their surroundings and were easily spotted by predators, which led to their near-extinction. The dark-winged variety was now better-camouflaged and had a much better chance of survival than their lighter cousins.

Natural Selection in Finance

In the financial context, natural selection means that over the long term, only those players who can respond and adapt to the many changes in the financial and business environment will survive. The dynamism and complexity of the business environment means that only a handful of companies can remain in business for very long periods. For example, General Electric is the only remaining stock of the first 12 constituents of the Dow Jones Industrial Average when it was introduced in 1896.

Another example of natural selection in the financial context can be seen in the fate of brokerages such as Bear Stearns, founded in 1923; Merrill Lynch, founded in 1914; and Lehman Brothers, founded in founded in 1850, during the credit crisis of 2008. As a result of the dramatic deterioration in the financial landscape in 2008, these brokerages were unable to retain the independence they had had for decades, and were either acquired by larger banks (Bear Stearns by JPMorgan Chase and Merrill Lynch by Bank of America) or forced into bankruptcy (Lehman Brothers).

  1. Adaptive Selling

    Adaptive selling is a tailored client centric approach to selling, ...
  2. Natural Gas ETF

    A natural gas ETF is an exchange-traded fund designed as a commodity ...
  3. Natural Capital

    Natural capital is a reference to the stock of natural resources ...
  4. Predator

    A predator is a powerful company that grabs up another company ...
  5. Adaptive Expectations Hypothesis

    Adaptive expectations hypothesis is a theory that states individuals ...
  6. Lehman Investment Opportunity Note ...

    A Lehman Investment Opportunity Note - LION was a type of zero-coupon ...
Related Articles
  1. Investing

    The collapse of Lehman Brothers: A case study

    Lehman Brothers survived many financial crises in its long history until it was driven into bankruptcy. Learn more about the history behind this famous scandal.
  2. Investing

    Beware Cheerios’ 'Bee-Friendly' Wildflower Seeds

    Food giant General Mills' effort to save a declining bee population had some kinks in it.
  3. Investing

    A Natural Gas Primer

    Learn why natural gas is playing a larger role in the energy industry.
  4. Investing

    Top 4 Natural Gas Stocks as of April 2018

    These four companies that develop natural gas may be strong in 2018.
  5. Investing

    Winners and Losers of Low Natural Gas Prices

    Chemical and fertilizer manufacturers benefit from a low price for natural gas, while utilities and natural gas producers are adversely affected by it.
  6. Investing

    Weak Natural Gas Supply Reverses Bear Trend

    Long-term weakness in natural gas may be over thanks to weaker supply growth and the chance of long-term declines.
  7. Financial Advisor

    Why Advisors Should Consider Natural Resource ETFs

    Natural resource investments, such as ETFs, can be an attractive long-term addition to a client's portfolio.
  8. Investing

    Natural Gas ETF Future Prospects

    Natural gas ETFs are burning bright into the future.
  9. Investing

    Do Natural Gas Prices Always Follow Oil Trends?

    Prices for oil and natural gas are highly correlated. But investors should be aware of different factors affecting the prices of these commodities.
Hot Definitions
  1. Portfolio

    A portfolio is a grouping of financial assets such as stocks, bonds and cash equivalents, also their mutual, exchange-traded ...
  2. Gross Profit

    Gross profit is the profit a company makes after deducting the costs of making and selling its products, or the costs of ...
  3. Diversification

    Diversification is the strategy of investing in a variety of securities in order to lower the risk involved with putting ...
  4. Intrinsic Value

    Intrinsic value is the perceived or calculated value of a company, including tangible and intangible factors, and may differ ...
  5. Current Assets

    Current assets is a balance sheet item that represents the value of all assets that can reasonably expected to be converted ...
  6. Volatility

    Volatility measures how much the price of a security, derivative, or index fluctuates.
Trading Center