Green Energy Investing For Beginners: How Many Stocks Should You Own?
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...
Shorting The Least Green Companies
Newsweek recently released its 2009 Green Rankings for America's 500 largest corporations. Investors would do well to examine the bottom of the list, as well as the top. Tom Konrad, Ph.D., CFA I'm getting more and more company in worrying about a market peak. If you, like me, are Interested in green investing, and hedging your exposure to a market decline, you should probably also be interested in turning Newsweek's Green Rankings upside-down, and use some decidedly un-green companies as a hedge against the market risk of your greener portfolio. If you believe that...
Ten Clean Energy Stocks for 2020: Trades
by Tom Konrad Ph.D., CFA
Four weeks ago, I predicted that the 12% market correction we had seen would turn into a true bear market. Bear markets are often defined as a decline of more than 20% for the major market indexes, but I find it more useful to focus on long term changes in investor sentiment.
What I did not predict was just how severe the effect of the coronovirus shutdown would be on the economy. I thought we would need the combined of the effect of the shutdown and investors re-assessing their risk tolerance to bring us into full...
Why I Sold My Utility Stocks
In times like these of financial uncertainty, regulated utilities have traditionally been considered a safe haven. But that is changing. The Dow Jones Utilities Average was down 30% in 2008, vs. a 34% drop in the Dow Industrials. Not much of a safe haven. In a recent interview, utilities analyst Daniel Scotto noted, that the utility industry offers "a lot less security" than it used to. His reasoning is based mainly on the fact that the regulated portion of utility company's business is smaller than it has been in previous recessions, making them vulnerable to lower growth (or even...
When Market Calls are Wrong
Tom Konrad, Ph.D., CFA. My recent market call now looks premature. What lessons can we learn? When we make market predictions, we will inevitably be wrong some of the time. I stuck my neck out at the start of June, saying "We're near the peak." I later gave some numbers to allow readers to objectively judge if that call was right or wrong. I said that we should consider it an accurate call if the S&P 500 fell 20% (to 756) before it rose 5% (to 992.) The S&P 500 has not yet come near 756, but it closed...
The Difference between Reality and Pandering
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...
Opportunity Hiding in Plain Sight
Information asymmetry, climate investing and the active management edge.
By Garvin Jabusch
The theory of efficient markets says all stock prices are perpetually accurate, because investors always have complete and up-to-date information about their holdings.
But as any casual observer knows, information and topical awareness are not evenly distributed, even among professional analysts. Reality is always far more complicated than equity markets can quickly assimilate, meaning information asymmetry is a constant. While usually considered a type of market failure, information asymmetry is frequently used as a “source of competitive advantage.” The person with the most information is best equipped to make the best...
Calling for a Marshall Plan, not a Manhattan Project
Electricity too cheap to meter. For many renewable energy advocates, that is the holy grail… new technology which will not only solve the problem of carbon emissions, but be so transformative that we no longer have to worry about turning off the lights when we leave the room. We could argue for days about the viability of any such technology, be it cold fusion, hydrogen, or photovoltaic nanodots. I personally have strong opinions about the likelihood of any technology to produce energy so cheaply that it would not make sense to use some mechanism...
A Quick Clean Energy Tracking Portfolio
Yesterday, I outlined a strategy to approximately replicate the performance of a Clean Energy mutual fund at much lower cost, with only a couple hours of effort. I gave a cost example based on $5000 invested in 5 stocks, with another $1000 worth of a single stock added in each subsequent year. This is the procedure I would use to select the initial five stocks. Collect all the top five or ten holdings of the available Clean Energy mutual funds. This data is available from Morningstar, and on fund sponsor's home pages. A few of these holdings may...
State of the Union Address: Alt Energy Sectors and Stocks to Watch
So it came and went, the much anticipated State of the Union Address. While the pundits will inevitably focus the bulk of their attention and commentary on the Iraq question, there were undoubtedly some very interesting nuggets of alt energy info in that speech. Above all things, one crucial variable has changed from a year ago: Congress is now controlled by the Democrats and already the slew of alt energy and climate change proposals brought forth by various senators leads one to believe that, as far as the federal government is concerned, 07' should see more than just...
My #1 Rule of Investing
Tom Konrad CFA Rules of Investing Warren Buffett says "The first rule of Investing is don't lose money; the second rule is don't forget rule #1." Jim Hansen at Ravenna Capital Management and publisher of the Master Resource Report about oil and other energy news has a "prime directive" (a la Star Trek) about oil prognostication which is "never predict prices." These rules have to be taken metaphorically, not literally. Buffett's rule is too general to be useful. I take his message to mean that care to avoid losses is more effective than...
UltraPromises Fall Short
When I first came across ProShares' UltraShort ETFs, I thought they were a brilliant idea. They seem to promise a multitude of advantages for investors: The ability to hedge market or sector exposure without having to go short. (Going short requires a margin account, and US law prohibits the use of margin in most retirement accounts.) They should have a better risk profile than shorting. With an UltraShort, you can't lose more than your initial investment. With true shorting, the potential losses are unlimited. As the underlying index rises, each percentage gain creates a smaller dollar fall, while...
The Short Side of Clean Energy
Green Energy Investing For Experts, Part I Tom Konrad, CFA You don't have to be long Renewable Energy stocks to have a green portfolio. Shorting, selling calls, or buying puts on companies and industries which are heavily dependent on dirty and finite fossil fuels not only makes a portfolio greener, it can protect against the effects of a permanent global decline caused by peak oil. Nate Hagens presented this slide at the 2009 International Peak Oil Conference: It shows his conception of the different schools of thought among those of us who understand peak oil. Those represented in...
Woulda, Coulda, Shoulda
With the market's rapid rebound from March lows and the Nasdaq Composite stock index closing higher than it was at the end of last year, many of us are probably asking ourselves:
Did I miss my chance to buy at the lows?
or:
Will I ever make up for my losses?
These questions point to dangerous emotions for stock market investors. Fear of missing out often leads to investment mistakes. This is why investment advisors always tell their clients that they are better off not looking at their portfolios in a downturn.
A big loss makes some people want to sell everything, for fear...
Step By Step Fossil Fuel Divesting With Mutual Funds
by Tom Konrad Ph.D., CFA
A large and growing number of individual investors are showing an interest in divesting from fossil fuels. Where in the past I have been asked to give a talk on divestment once every year or two, I’ve spoken on the subject three times so far in 2020. (Here is a recording of a presentation I did for my college alumni association.)
The response to these talks has been overwhelmingly positive, but I’m left with the impression that a lot of the less financially sophisticated attendees are still not sure where to start. For most of these...
Green Energy Investing For Beginners, Part IV: Model Portfolio
Tom Konrad, CFA My target sector allocation for Green Energy Sectors: How much to put in Solar, Wind, Geothermal, Biomass, Biofuels, Energy Efficiency, Alternative Transport, and enabling technologies such as Smart Grid and Transmission. In Part I of this series on green energy investing (see also Part II and Part III), I suggested readers "structure your portfolio to reflect the technologies which are actually going to make a difference." This is not the same as investing in a market portfolio, because the market tends to overemphasize the most exciting or familiar (as opposed to the most useful) technologies. This...
