Strategy

Tom Konrad, CFA Before you consider green stock market investments, invest in yourself. A reader of my article on asset allocation for green energy investors brought up an important point: we may have green opportunities in our own lives, such as improving the energy efficiency of our homes, which will return much safer and higher returns than green stocks, especially when the market as a whole is as overvalued as I currently believe it is. Homeowners typically have a large number of high-return energy efficiency investments they can make.  Since energy efficiency reduces energy use, it both produces returns...

Vote With Money Instead by Garvin Jabusch Many people assume that engagement with public companies through proxy voting and resolution filing is the best  if not only  way to see positive environmental, social, and governance outcomes from your investments. For me, this approach misses a fundamental point of market-based solutions: you make in investments in the most compelling ideas that reflect what you think is likely to grow, where you think the economy is headed, and yes, outcomes you support. That means using investments to favor firms that are already making innovative sustainable contributions to the global economy...

Tom Konrad, CFA When I called the peak a year ago, it was too soon for the broad market, but not for clean energy stocks.  I think both have room to fall, but clean energy may bottom first.  Almost a year ago at the start of June, I wrote saying "we're near the peak" of the stock market.  I was too early, and admitted it in August.  But I also said that it was a bad time to be in the market: the risks of a decline far outweighed the potential gains of remaining in an...

Tom Konrad CFA Storm Sailor (Photo credit: Abaconda) Sailing into a Storm Despite the unresolved European debt crisis and America’s fiscal cliff, stock markets remain buoyant.   With politicians bickering, that is mostly due to aggressive action from central banks.  Yet despite the Federal Reserve’s third (and largest) round of quantitative easing (QE3) and the European Central Bank‘s unlimited bond buying program, politicians still have the capacity to throw a monkey wrench in the world economy.  Worse, doing nothing is all they have to do to mess things up.  Doing nothing is what politicians...

Tom Konrad, CFA My Green Energy Investing for Experts series looked at ways shorting could both protect your portfolio against market decline, and make it greener by shorting decidedly non-green companies.  This is an index of the entries, plus one more industry for you to consider. Green Energy Investing for Experts, Part I made the case that shorting stocks that are particularly vulnerable to peak oil or climate change is a good way to hedge a portfolio of green stocks against a market decline while making the whole portfolio greener. Green Energy Investing for Experts, Part II looked at...

It's that time of year again.  I've started studying for the third (and final) CFA® exam, and my readers are "treated" to my theories of the market and trading.  No stock picks today; put your thinking caps on!  CAPM: Nice Theory, Too Bad About the Market In Level II of the exam, we studied efficient-market theories, such as CAPM and APT.  I actually like an elegant theory (I spent nearly decade of my life studying mathematics), but as a market practitioner, I know the market doesn't work that way.  I learned this lesson the hard way.   Early in my...

Tom Konrad, CFA If you don't know what could go wrong in 2010, it could still hurt your portfolio. In Nassim Taleb's Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets, he describes an exercise at one of his early jobs.  In order to become aware of risks they otherwise might have overlooked, they were to assume that they would lose all the money under their management in the coming year, and they work backwards to figure out how that might have happened. This struck me as an excellent idea, which investors...

Tom Konrad, CFA In stock portfolios, deciding how many stocks to own involves weighing a trade off.   A smaller portfolio can be built (and sold) with fewer commissions, and also requires less time to research.  On the other hand, a portfolio with fewer stocks will gain fewer benefits of diversification, and likely be both more volatile and harder to sell in a crisis.  These trade offs are also affected by the size of the portfolio, and the market capitalization and liquidity of the companies in the portfolio. Diversification is widely accepted as a nearly costless way to reduce...

Garvin Jabusch Innovation and increasing economic efficiency have always been the keys to profits and wealth. Getting more value out of systems without commensurate increases in inputs is the definition of growing efficiency, and it has been the engine of human economies since someone figured out how to use energy from a water wheel to grind grain instead of doing it by hand with a stone bowl and pestle. With that development (to simplify), a couple family members could run the wheel, freeing up everyone else for other pursuits. This kind of gain is the hallmark, to greater and...

Tom Konrad, Ph.D., CFA Often, knowing more about a company is less useful than knowing just a few of the right things.  Knowing the right questions to ask can help investors wade through a sea of mostly irrelevant information. Take a moment to answer the following poll: Suppose you want to know if fictional solar Company MySolar will outperform other solar stocks. Which fact would be most useful in your decision?(poll) The key to this question was the stated goal of "outperforming other solar stocks."  An investor who is only hoping to achieve returns equal...

A Worse-Case Scenario I believe that a large part of global warming denial is fear: fear that if we acknowledge that global warming is happening, we will be morally obligated to do something about it, and that the problem is too large for us to do anything effective.  I also believe that denying the problem is certain to render us all ineffective in dealing with it. But getting over our global warming denial is not the only obstacle in our way to dealing with it.  Global warming is already happening, and  future temperature rises are already inevitable given the...