Archive for September, 2006

More on Penny Stock “Tips”

Just heard a good segment on NPR‘s All Things Considered, which ties in well to the blog post I wrote last week.  

There was also a segment on the BBC interviewing Joshua Cyr about his spam stock tracker, actually demonstrating how much money you would lose if you followed these tips. 

Check out Cyr’s blog.  He has lots of interesting posts (and comments) on this subject.  I didn’t realize that there now seem to be professional penny stock “promoters” who will promote your stock, and only charge you based on the results.

One comment I saw asked, “If spam predictably boosts prices fo a day, why don’t people just short the stock and take advantage of it?”   My response: most brokers will not let people short stocks that are not traded on an exchange, or have a price below $3-$5.  

This is one way in which short trading restrictions hurt the overall market.  If it were easy to short these stocks, spammers would be able to make a lot less profit from these techniques, and they would decline to a much more manageable level without any enforcement by authorities: the market would police itself, with traders using the spam as a tip to sell instead of buy, keeping the stock price more in line with what it would have been without the spam blitz.

Another related article….

Comments (2)

You Can’t Hide from Peak Oil in Big Oil

Last week, Russian Natural Resources Minister Yuri Trutnev signed an order to cancel part of Shell’s Sakhalin-2 license on environmental grounds.  Russia is also pressuring Exxon about cost overruns in a related project.  A triumph for environmentalists over Big Oil?  Hardly.

shell.jpgMost analysts agree that this is an attempt by the Russian government to renegotiate an oil and gas deal struck when prices were low.  Thinking back on what Russia did to Yukos, and Chavez forcing foreign oil firms to renegotiate contracts in Venezuela, the trend is clear:  Countries rich in fossil fuels are increasingly re-writing the rules to their liking, with little regard to the desires of foreign capital.

Given that 90% of the world’s oil and gas is controlled by state owned firms, private companies have little bargaining power, yet desperately need access to new reserves. 

Big Oil needs Russia more than Russia needs big oil: they’re going to have to settle for a much smaller take than they negotiated 10 years ago.  As oil prices rise in response to the peaking of world oil output, realpolitik will continue to trump contracts.  Western, publicly held oil firms will be the losers, as will their investors.

How can we invest to protect ourselves from rising energy prices, if Big Oil is at the mercy of every oil-rich dictator around the world?   I see two choices: fossil fuel reserves in western countries: coal mining companies and tar sands, or renewable energy sources.

Tar sands and coal both have the problem of causing high greenhouse gas emissions.  The process of extracting oil from tar sands releases 80kg of greenhouse gasses per barrel of oil extracted (and that is before the oil is used.)  The extraction of tar sands has caused Canada’s greenhouse gas emissions to increase 24% since 1990, despite the fact that they are obligated under the Kyoto protocol to reduce emissions by 6%. 

Coal is also carbon intense.  So while both coal and tar sands are relatively safe from political risk due to opportunistic regimes, both are likely to become relatively less economic in the face of possible restrictions on greenhouse gas emissions. 

Oil Shale is a boondoggle, and requires even more energy to extract than tar sands. 

This brings us back to investing in renewable energy and energy efficiency companies, both of which will benefit from rising energy prices and restrictions on greenhouse gas emissions.  The problem here is that many of them are start-ups with little or no revenues, let alone earnings.  Right now, I like energy efficiency best, since many renewable technologies have been the subject of a feeding frenzy over the last year.  Although things have calmed down over the last couple months, energy efficiency is still more economic than most renewables, and subject to a lot less hype.

Comments off

Cows, Spinach, and E-coli

This is a little off topic, but I was really affected by this op-ed piece from the New York Times.

The E-Coli that has put us all off spinach for the last couple weeks apparently comes from cow manure of grain-fed cows.  The solution, Nina Planck effectively argues, lies in the hands of stockyards, not spinach growers, and the blame and remedies should be their responsibility.

 If cattle are fedon grass for one week, this dangerous form of e-coli dies back 1000 fold.  This would make their meat much safer, and longer periods on grass, or perhaps alternating cycles on grass and fattening grain might be enough to make us safer safer eating our leafy greens.  It also might save the Salinas Valley growers, who are getting a bad reputation because of their cattle yard neighbors’ inability to control their sewage.

This a case of what economists call externailities.  The cattle yards do not bear the cost of escaping manure laden with acid-loving e-coli.  The spinach farmers do pay the cost, but they cannot dictate that the cattlemen control their own pollution.  That’s the FDA’s job, which it is clearly falling down on.  (To get back on-topic for a moment, another example of an externality is CO2: emitters don’t pay the price, so we all do in the form of global warming.)

The fact that spinach farmers pay the price for slightly cheaper beef, while we (through the FDA) pay subsidies of holding ponds that aren’t doing the trick (we should be building anaerobic digesters anyway) is what really bothers me.

I’m not a person who believes we should all go back to nature, but we have to acknowledge that when we take animals and force them to our ends, there will be unforeseen consequences, and simply trying to control things by engineering will always fail some of the time; it is best to reduce the risks (in this case, by keeping cattle from eating grain all the time), as a supplement to the engineering of holding ponds (or digesters.)

Comments (1)

Penny stock “tips”

I just got a comment from “goldguru” at the Gold Stock Bull Blog. My first thought was that he was pushing a particular penny stock as part of a “Pump and Dump” scheme… Reading his post, that seems not to be the case, but caution is warranted.  He says: As always, you should do your own due diligence, especially with bulletin board stocks that carry a higher risk profile.

  That’s good advice.  While he says he does not own any Nova, there are many others out there pushing stock they do own, and caution is always warranted. 

  It was recently shown that spammers are actually able to move the price of the penny stocks they push when they send out email about how this or that penny stock is about to “explode.”  The strategy is generally to load up on some ignored penny stock, send out a bunch of spams, and then sell as all the suckers buy.  This leaves the spammers with a tidy profit, and the suckers with stock that is more likely to implode.sc.png

Check out this chart of Petrosun Drilling.  On Aug 18 I received 3 spams from people pushing this stock, saying it was about to “explode” that same day.  If I had bought on that tip, I probably would have gotten in around $1.70.  The stock is currently trading at $.91, and never got that high in the meantime.  I think I also got a spam around Aug 30, where you see that secondary little peak, but I admit I wasn’t paying close attention.

This is why I seldom recommend stocks in my blog, and when I do it’s because I like the company, but currently think it’s overpriced (e.g. Wal-Mart.)  What I’m saying is “This one’s worth watching, but don’t buy it at current prices.”  I also try to stick to stocks with high liquidity, so whatever I say won’t have much of an effect on the stock price.  If I find a stock I like in my research, I buy it for my clients and myself. 

The goal of this blog is to give you the tools to invest profitably for yourselves.  To do that well, you need to do your own research (if you’re going to use any active investing approach.)  Passive indexers can get slightly-below-average returns for very little effort, and, as unappealing as “slightly below average” sounds, it’s a lot better than the typical retail investor does.  For those of you who do not have the time or inclination to invest for yourselves, I hope to give you some insight into my methods and character, in case you or someone you know is looking for a professional to manage their money.

So don’t come here looking for stock tips, and be very wary of any stock tip you come across in a public forum.  The more people who see a tip, the less it is worth.  That’s why you’ll probably lose money following Jim Cramer’s picks, despite the fact that he seems to be (in my opinion) highly intelligent, if highly annoying.  There are just too many people following his advice.

The only useful information in the stock market is private information: things that the market is not yet aware of, or is currently ignoring.  Do your own research, pay someone who only sells his advice to a few people, or use passive index investing.

Comments (7)

Investing in renewable Energy workshop, Oct 17

I’ll be teaching a workshop on “Investing in Renewable Energy”on Tuesday, October 17, from 6 to 8 pm, at the National Renewable Energy LaboratoryPhoto of NREL Visitors Center Visitor’s Center in Golden (pictured).  This will be geared towards people who do not have a lot of experience in the financial markets, and I’ll cover several different approaches to take depending on your sophistication, risk tolerance, and investable assets.

There should also be plenty of time for quesiton and answer.

The workshop is sponsored by the Colorado Energy Science Center, who provide workshops and information to the public on Energy Efficiency for the public.  They also publish Smart Energy Living,

 an excellent magazine which explains how your home uses and wastes energy, and gives you the tools to make educated choices.

The workshop cost $10 at the door, or $5 for Smart Energy Living or Colorado Renewable Energy Society members.  All revenues go to support CESC.

Space is limited, so make sure to Register if you plan to attend.

Directions to the NREL Visitor Center are here.

Comments (2)

Want to be Rich? Grow up First.

  Here’s a great article in the New York Times about people who got rich and then managed to lose it all.  It includes parts of an interview with George Foreman, who came very close to losing it all, but managed to rescue himself from the brink of financial disaster.  He says:

“A lot of people just don’t grow up,” he says. “I mean, 65-year-old men. They just don’t grow up. They don’t understand that money does not grow on a tree and that you’ve got to respect every dollar. Like Rip Van Winkle — the guy who slept — they party, party, party, then they wake up. ‘Oh my God!’ And they do something desperate trying to recapture what they had. And it doesn’t work like that. You must stay awake.”

What does this have to do with the readers of this blog, few of whom are ever going to make millions of dollars in their jobs?  The same rules apply to the rest of us: if we don’t treat money with respect, if we approach the stock market, or life in general, like a gigantic virtual slot machine, we’ll lose everything we have.  Money does not have the power to rescue us from ourselves. 

It is possible to make money in the stock market at random, by the luck of the draw.  The problem with this is we’re not good at acknowledging that it was just dumb luck.  When we think back on our luck, we’re much more likely to think that hunch we had was our brilliant intuition or a message from a higher power. 

If there is a higher power out there giving stock tips, She has a mean sense of humor, because I don’t know of any religous figures who are making out in the market.

So we get lucky in the market, and it goes to our heads.  We look at the $10,000 we managed to turn into $20,000 with a couple lucky picks, and we start thinking that if can just have a couple repeat performances, we’ll be able to pay off our mortgage.  So we follow a few more hunches, and pretty soon we’ve got $5,000.  Easy come, easier go.

 As the stories in the article suggest, it may be even easier to lose money by simply spending it than it is to lose it in the market… and at least you had some fun along the way.  Either way, you end up broke, and, worse, you lose you confidence in yourself.

What’s my point?  If you have dreams of ever being rich, now is the best time to get ready, and learn self discipline.  Michael Jackson is a prime example of the fact that there is no amount of money an overgrown child can’t spend his way through. 

Learn self-discipline and respect for your money now, before there are millions riding on the line, and you’ll be able to keep those millions when you get there.  Self discipline is also a great help in getting there.

Don’t know where to start?  Try Suse Orman’s The Laws of Money.  In my mind, each of her five laws boils down to acting like an adult around money; respecting it, but not letting the idea of money have power over who you really are.   And she’s a lot better at persuading people than I am.

Yes, I keep recommending the same books.  If that bothers you, you can do one of three things: 1) Stop reading my blog, 2) Complain, or 3) Read them. 

Comments (2)

Watts and Revolts- more Intermountain Rural Electric controversy

 

In the September issue  of Watts & Volts, IREA management attempts to make three arguments:

  1. They say the investment in Comanche 3 will save their customers money relative to gas generation.
  2. “There is no way to produce large amounts of reliable power without CO2.”
  3. They attempt to brand members who oppose their actions as extreme environmentalists who want to ruin our economy and send us back to the Stone Age by imposing gigantic taxes on CO2 emissions.

None of these arguments hold water.  I will deal with each in the order I’ve listed them above. Read the rest of this entry »

Comments (2)

That “Free” set-top box isn’t free

Here’s an article from Reuters about the hidden costs of set top boxes… up to $76 a year in electricity bills for a cable set-top box.

This is one of those opportunities for energy conservation that I really like to push: you not only can save energy, but money as well, and it does not require sacrificing quality of life.  CFLs and Passive Solar architecture also come to mind… there are so many energy saving opportunities that pay for themselves, it breaks my heart.

Most consumers don’t see the money or electricity they’re wasting here, and so they don’t know that they need to be more discriminating.  These hidden cost provide a great opportunity for useful government regulation.  Requiring that A/V equipment have a sleep mode that uses 1 watt instead of 30 watts would only add marginally to the cost of most equipment (See this great Economist in-depth article on the subject from this spring)  Oops- it’s only available to subscribers.   Some highlights:

 STRANGE though it seems, a typical microwave oven consumes more electricity powering its digital clock than it does heating food. For while heatictq237.gifng food requires more than 100 times as much power as running the clock, most microwave ovens stand idle—in “standby” mode—more than 99% of the time. And they are not alone: many other devices, such as televisions, DVD players, stereos and computers also spend much of their lives in standby mode, collectively consuming a huge amount of energy. Moves are being made around the world to reduce this unnecessary power consumption, called “standby power”.

In 1998 … standby power accounted for approximately 5% of total residential electricity consumption in America, “adding up to more than $3 billion in annual energy costs”…. results, published in 2000, revealed that standby power accounted for as much as 10% of household power-consumption in some cases.

…In 1999 the International Energy Agency, based in Paris, adopted Dr Meier’s proposed “one-watt” standard as a target for standby consumption. In 2000 Australia became the only country to adopt this standard nationally, in the form of a voluntary scheme that began in 2002. The aim is for most new products to meet the one-watt standard by 2012.

In addition to these various voluntary schemes, there have been some mandatory measures. Perhaps surprisingly, one of them was introduced by President George Bush, as a result of the California energy crisis of 2001. That year, Mr Bush issued Executive Order 13221, which states that every government agency, “when it purchases commercially available, off-the-shelf products that use external standby power devices, or that contain an internal standby power function, shall purchase products that use no more than one watt in their standby power consuming mode.” Given that Mr Bush is not renowned for his environmental credentials, this came as quite a surprise to those in the industry.

That law does not apply to consumers, and there are a ton of energy hog products out there.

What can you do?  Buy Energy Star  rated products.   I also have a tester called a Kill-a-Watt from P3, to see which of the gadgets I already have are energy hogs.  Some nonprofits have these available for loan, and if you live in Denver, I’ll loan you mine.  The Center for Resource Conservation in Boulder has a nice little calculator you can use with it, too.

If you find you already have products that use a lot of power on standby (and you probably will,) consider plugging them into a power strip, and turning them off that way.  That’s not always an option, though.  I found that my VCR/DVD combo uses 30 watts all the time, and it would lose it’s programming if I turned it off with a power strip.   I’m thinking about replacement.

I also think this is a great argument for laptops over desktop computers… laptops are designed to conserve power, because they have to make the battery last… most desktops are not.  If you want a big screen and a keyboard, you can always use a docking station. 

Comments off

There’s Ethanol and then there’s Ethanol

In the renewable energy community, Ethanol has a bad rap, due to some often-quoted, seldom checked studies on energy payback.

It’s received wisdom that ethanol from corn has an energy return on energy invested (EROEI) of somewhere between 0.8 and 1.0; i.e. you get less out than you put in.  The persistence of this idea is possibly due to some great cartoons.  I’m probably going to undermine my whole argument here, by including this one…

Then again, I expect that my audience is highly intelligent, and not easily distracted.  If you weren’t, you probably wouldn’t still be reading my extremely dense and often-tortured prose.  You deserve a good cartoon every now and then…

Back in the world of ethanol, times have changed.

Even though cellulosic ethanol is still very much in its technological infancy, a lot of companies and people are doing a lot of interesting things with corn ethanol to make the process more efficient, and, get those energy inputs in the form of “free” waste heat from some other process, or from renewable sources such as cow manure or landfill gas.

I’ve been educating myself a lot about this reading C. Scott Miller’s Bioconversion blog.  I admit I’m having to do a lot of catch up on this, because I was one of those people who believed ethanol was a total government subsidized boondoggle until recently.

All that said, even at an EROEI of 1.25 to 1.8, ethanol is not much of an energy “source.”  Sure, we’re getting a little energy out of the process, but one way to think about EROEI is how much effort it takes to get our energy. 

As a rough illustration, at an EREOI of 2, there has to be one person working to get energy for every person doing something else.  So if civilization were to exist one out of every 2 people would have to be employed in the energy sector… the other 50% would then have the energy they needed to do other useful things, like be doctors, politicians, soldiers, engineers, builders, investment advisers, bloggers, artists, manufacturers, scientists, psychologists, food farmers (as opposed to energy farmers), talk show hosts, etc.

 You might argue that some of those professions aren’t very useful (investment advisors and politicians perhaps), but even if we eliminate all those “useless” professions, I think the more useful professions like talk show hosts and artists might start finding themselves a little squeezed.

There is a reason that the human race was 95%+ farmers or hunter gatherers for most of of our history: the energy sources we were using were not powerful enough, with too low EROEI to sustain higher forms of civilization, such as talk show hosts.

If you don’t believe me, read this great article on “Peak Wood,” the cause of the iron age.

Back to ethanol: it’s not going to solve our world energy problem.  It’s a useful way to turn non-liquid fuels (manure, biogas, or coal) into something you can put in your car, but if we in the U.S. are  looking for a domestic source of energy that will wean us off the Middle Eastern oil teat, we can do it, only if we want to be a nation of farmers, witha much smaller population and lower standard of living than we have now.

Ethanol is big business these days, and it will make a tiny dent in our oil addiction, so all the investment is probably doing some good.  I predict that the biggest beneficiaries will be the farmers, and considering how hard farming is, that’s not a bad thing.  It’s probably better than out-and-out farming subsidies.

Basically, I’m no longer worked up about ethanol subsidies and mandates.  There are a ton of better ways we could be spending the money, but it’s hardly the stupidest thing our government does with our money.   I’d even be happy about it if they’d simply replace the money spent on all farm subsidies with subsidies for farm based energy.

I just don’t want it to distract from the important work we have to do to deal with the twin probems of peak oil and global warming:

  1. Improve energy efficiency (especially of our vehicle fleet.)
  2. Develop high ERoEI energy technologies: Wind, Solar concentrating, Geothermal.  PV will probably make it on this list as the technology improves.
  3. Displace some of that oil in transport with renewable electricity, via plug-in hybrids.  (Economic fuel cells are still too far away to make hydrogen a viable transportation fuel in the next 20 years)

Comments (8)

Books meme

I’ve been blog-tagged by PK at Jetson Green.

My assignment, tell about the books in my life.   I’ve actually been planning on writing a book-recommendation blog for some time.

I’m currently reading:

Against the Gods: The remarkable story of Risk, by Peter L. Bernstein.  The first couple chapters were very interesting to me, because I kept on coming across names I had heard in math classes, but didn’t know a lot about.  Now I’m getting bogged down in the history of statistics, which I’m already familiar with.  I’ll probably skip ahead a few chapters…

I’ve already talked about Suroweiki’s The Wisdom of Crowds.

I think everyone who will ever get a paycheck should understand Suse Orman’s The Laws of Money.  I think of her content as Money 101.  It’s a prerequisite for getting into the financial markets.

A book I’ve been meaning to read 

I’m looking forward to reading Travis Bradford’s Solar Revolution.  I heard him speak at Solar 2006 about the silicon industry.  He seemed quite intelligent.

 Book that changed my life:

Elizabeth Moon’s Deed of Paksenarrion.  What can I say, it was the right book at the right time in my life.  Mostly, it’s a great fantasy adventure, but it helped form my ideas of what true courage is. 

Elizabeth Moon is one of the most successful graduates of the Austin, TX based Slugtribe, which I was an active participant in from 1999 to 2002 or so (Elizabeth was a member long before I showed up.  She didn’t attend Slug meetings anymore, but she was in Austin often, so now I have a signed copy of the Deed of Paksenarrion.)  I wanted to be a science fiction writer, and they helped me develop the skills.  Along the way I realized that I had wanted to write in order to have written.  My favorite part of the meetings was helping other members with their stories, and seeing them come back with better stories that incorporated my suggestions.

A book that I wish had been written:

Dead Cat Bounce, a Sci-Fi adventure of the future’s equivalent of a commodities trader (she traded orbital slots in a crowded system) in a world where a lot of people have been mentally modified to have forms of Asberger’s Syndrome and Tourette’s which make them serf labor who are either biological computers or super-warriors.)  That was the novel I was working on when I stopped writing SF.

So I’ll blog-tag Wendy Wheeler, the unofficial SlugTribe organizer, and the reason (Along with Jennifer Evans) that it has lasted almost 20 years now, Jayme Lynn Blashke, whom I’ve lost touch with, so it will be interesting to see what he has to say, and Tim, who is thinking about ways to profit from unmasking untruths in the market.

(I totally messed up this meme… going off on my own tangents.  If my tag-ees want to get it back on track, here’s a link to the original post that started it all). 

Comments (1)

National (and Colorado) Tour of Solar Homes, October 6

Note: This post was originally for the 2006 Tour. The 2007 Tour of Solar Homes will be on October 6, 2007. See the original post after the break.

———————Info about 2007 Tour of Solar homes————————

Colorado Solar Tour link
Colorado Tour of Solar Home Flyer
For Southwest Colorado, there’s some info on the SWCRES website.
For Fort Collins area tour, see NCRES Website
For other states, go to the National Solar Tour link

———————Info about 2006 Tour————————
Read the rest of this entry »

Comments (1)

Investor self profile (Revised)

I’ve gotten some feedback on the investor self profile I posted yesterday, and here is an updated version.  To save me from having to repeat myself, please read yesterday’s post now, if you have not already.

Investor Self-Profile

1 point 2 points 4 points Why

1. When making an important decision I first…

Consult with friends and family.

Do what feels right.

Research the subject.

Independent decision making.

2. I have too much to do…

All the time.

Sometimes.

Hardly ever.

Research can’t be rushed.

3. My past mistakes…

I don’t make mistakes.

Keep me awake at night.

Have been learning experiences.

 

You need to be able to recognize your mistakes, and get out before it’s too late.

4. Money…

Will solve my problems.

Lets me buy things I want.

 

Is a means to an end.

Needing the money badly makes it hard to be objective.

5. I live for…

Meaningful relationships.

 

Excitement.

Winning.

See my contrarian blog entry.

6. I can invest this much and not spend it for 10 years.

Less than $50,000.00

$50,000 to $200,000

Over $200,000

Commissions can eat a small account alive.

7. I want to make money in the market…

So I can quit my job/ because I lost my job.

To achieve future financial goals.

Because the market is fascinating.

 

This is about being objective about the results.

8. I buy things…

To make myself feel good.

Only when I need them.

Only when they’re on super-clearance.

 

Stock picking is all about bargain hunting.

9. When I have free time I…

Relax or have some fun.

Catch up on projects around the house.

Try to learn something.

Being compulsive pays.

10. My answers to this profile

Were fudged a little.

Were honest, but not deeply considered.

Were the result of deep introspection.

You have to be honest with yourself and your money.

Scoring:

Points

Investing strategy
1-16

 Work hard, save as much as you can, and let an adviser you trust manage it.

17-23

 Set up an account at a low cost mutual fund family.  Choose an asset allocation based on your risk tolerance (most mutual fund families and discount brokers have quick online questionnaires to help you with this), save as much money as you can every month, and throw away the monthly statements except when you rebalance the portfolio every 1-2 years.

24-30

 As for 17-23 points, but you probably won’t get into too much trouble looking at the monthly statements.

31-40

You might be ready to invest your own money.  Try not to lose too much (you will lose some… taking intelligent risks is what it’s all about.)  Don’t let early success go to your head.  Overconfidence is the most dangerous emotion for an investor.

Comments (1)

Should you manage your own investments (Self-profile)

I’ve recently been working with a client who has asked me to teach him how to invest his own money.  This has been very difficult, and I’m beginning to think the best thing I can teach him is that stock picking and trading is not for him. 

Yes, I’m admitting that I can’t teach everyone how to invest for themselves. 

This is one of my underlying themes: Most people are not cut out for investing.  Unfortunately, most mutual fund managers and advisers aren’t either, so just finding someone to manage your money is perhaps harder than doing it yourself.  The good part about finding a skilled money manager is that once you’ve done it, you are done looking.  Managing your own money is an ongoing task… the reward being the fees you avoid. 

That said, what makes a successful do-it-yourself investor?  There are certainly examples.  While the vast majority of new day traders lose money, a few (between 1% and 10%, depending on the study quoted ) consistently make money.   The more sedate world of picking your own investments, is similar, but has lower stakes.  For investors who buy and hold individual stocks (as opposed to day traders, who typically close out their positions at the end of the day), the it is a choice between underperforming and outperforming the market.  Most individual investors underperform, but again, a few outperform.  Considering that an individual investor is saving himself mutual fund and advisory fees, and the fact that most mutual funds underperform their indices, the risks for the do-it-yourself investor are a lot milder.Westcoast Mystery Shopping - Is It Time For a POP QUIZ!

In any case, if you are making the decision “Should I do this myself,” it would be helpful to know beforehand if you have the qualities that put you in the much smaller winners category.  Without further ado, here’s a little quiz I’ve designed to help you make the decision.  This is just based on my reading on the qualities of successful investors, and my observations of people who have done poorly and done very well.

Wannabe investor self-profile (Beta).  Please note: your score on this test is no guarantee of anything.  If you want a guarantee, you have no business dabbling in the financial markets.

Choose the answer that best describes you or your attitudes.

[NOTE: There is a revised version here.]

  1 point 2 points 4 points
When making an important decision I first…

Consult with friends and family.

Do what feels right.

Think about what might go wrong.

My past mistakes…

I don’t make mistakes.

Keep me awake at night.

Have been learning experiences.

 

Money…

Will solve my problems.

Lets me buy things I want.

 

Is for keeping score.

I live for…

Meaningful relationships.

 

Excitement.

Winning.

I want to make money in the market…

So I can quit my job/ because I lost my job.

To achieve future financial goals.

Because the market is fascinating.

 

I buy things…

To make myself feel good.

Only when I need them.

Only when they’re on super-clearance.

 

When I have free time I…

Relax or have some fun.

Catch up on projects around the house.

Try to learn something.

Keep in mind that a high score does not make you a better person.   In fact, people who score high on this test are probably not a lot of fun to spend time with.  My investing hero, Warren Buffett’s, idea of a good time is reading financial statements.  If this is your idea of fun, maybe investing is the right thing for you.

A high score is an indicator that you have some of the qualities I think make a successful investor, based on my experience and readings in behavioral finance.  This is something I’ve spent a lot of time thinking and reading about, but it’s a lot more of an art than a science.  I’ve tried to write questions so that people who are prone to common investing mistakes will choose an answer in one of the first two columns. 

The qualities I’m trying to point to with the questions above are (in the same order as the questions: overconfidence, introspection, feeling that money is more powerful than you are, independent decisionmaking, a degree of detachment from the results, a bargain-hunter’s instinct, and an obsessive curiousity about everything.  There are probably other qualities that help with the emotional aspects of investing.  I’ll flesh them out based on readers’ feedback, or as I think of others.

Scoring:

Points Investing strategy
1-12  Work hard, save as much as you can, and find someone else to manage it for you.
13-17  Set up an account at a low cost mutual fund family.  Choose an asset allocation based on your risk tolerance (most mutual fund families and discount brokers have quick online questionnaires to help you with this), save as much money as you can every month, and throw away the monthly statements except when you rebalance the portfolio every 1-2 years.
18-22 As for 13-17 points, but you probably won’t get into too much trouble by looking at the statements.
23-28

You might be ready to invest your own money.  Try not to lose too much (you will lose some… taking intelligent risks is what it’s all about.)  Don’t let early success go to your head.  Overconfidence is the most dangerous emotion for an investor.

I appreciate feedback on this.  I’d love to know how people score, and what their experiences have been investing their own money.  I know a lot of people with low scores are going to try to do their own investing, anyway; I want to hear from them, too.

Comments off

Distributed Water

Ever since the green revolution of the middle of the last century, food, at least in the developed world, has not been a scarce commodity.  By the introduction of more productive varieties of cereals, mechanization, as well as the (often unsustainable) application of chemical fertilizer and
irrigation, yields increased dramatically, leading to food becoming a smaller and smaller portion of the budget of the first-world 
 consumer.

 

That green revolution has gone about as far as it can go.  A combination of more erratic and warmer weather due to global warming, and the over-exploitation of aquifers are making water for farming a much scarcer resource.  Meanwhile, rising fossil fuel prices due to increasing demand, combined with flat or diminishing supplies are making chemical fertilizer a much greater cost to the farmer, as well as making it much more costly to run farm equipment.

 

On top of this, biofuels are a new and growing source of demand for agricultural products. 

I see a new pattern emerging.  Water, food, and energy are each becoming scarcer, and as it becomes easier to convert one into another of the triad, their prices are becoming increasingly coupled, as they rise in unison.

 

I’ve written elsewhere how conventional electricity generation technologies require vast amounts of water.   Biofuels allow us to use food as energy.  As cities turn increasingly to desalinization, energy can be converted to potable water.

 

Rising energy prices are generally a good thing (so long as they don’t rise too quickly), in my mind, because they increase the incentives to switch to new, less polluting forms of energy.  Rising food prices will be a force for rural revitalization in the rich world, and may make third world farming more economic… so long as they have reliable access to water, which makes wise investment in water infrastructure all the more important.

 

A study from the Consultative Group on International Agricultural Research finds that large scale water projects are much less cost effective than small scale efforts.  I can’t find a link to the study, but here are some excerpts from the Economist article where I read about it.

 

A recent study of vegetable farmers in
Ghana, for example, found that those irrigating their fields with wastewater carried by buckets earned a 230% return on their investment, versus 30% for big state-sponsored schemes.

 

The assessment argues that modest outlays on rain-fed agriculture, in particular, could drastically improve the productivity of farming in poor countries and so help both to raise farmers’ incomes and also to cut the need for an expansion of agriculture elsewhere. More than half of the world’s food comes from rain-fed farms, as opposed to irrigated ones. If the rains fail, so do the crops. Channels to harvest and direct rainfall and small, sealed reservoirs or tanks to store it, would not only see farmers through dry spells, but also allow them to entice bigger or more valuable harvests out of the same fields. More reliable income, in turn, allows farmers to invest more in seeds, fertilizer and machinery.

 

Like our energy infrastructure, our water infrastructure needs to become more diverse and distributed.  “Think globally, act locally,” as they say.  I like to add, “Unless you can act globally,” which is what the financial markets allow us to do… but this is one problem that the financial markets are not suited for.  Just because I have a hammer, does not mean every problem is a nail, and wishing it were so will not change that.

 

Comments off

Follow

Get every new post delivered to your Inbox.

Join 150 other followers