Archive for October, 2006

Tilting at Wind Turbines

I’ll be testifying for Ratepayers United Colorado in the upcoming hearing starting Thursday on the Settlement Agreement reached between Xcel, regulators, and consumer advocates (representing large commercial purchasers of electricity.) 

I’ve been told that hardly anyone fights settlement agreements in these cases, but environmentalists and clean energy advocates were left entirely out of this agreement, which actually contains an incentive, refered to as the BLEB, or Base Load Energy Benefit, for Xcel to burn as much coal as it possibly can, in preference to all other types of electricity generation.Coal dominates Xcel Energy’s power generating capacity - Xcel Energy is a major US electricity and natural gas energy company based in Minneapolis, Minnesota.

Ratepayers United asked me to help out because 1) I volunteered, 2) I understand economics, and 3) there wasn’t anyone else with the first two qualifications bull-headed enough to go ahead this late in the game.

Links:

Denver Post Article

Denver Business Journal article

What I had to say afterward

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Spam Stock Tip Experiment

As readers know, I get a little hot under the collar about spammers manipulating the price of stocks.  I’ve decided to try to take a little money from them for a change…  I’ve been monitoring my spam email for a couple weeks now.   On 10/16 I received a spam recommending GDKI, on 10/17 and 10/19 I received spams pushing TXHE, From 10/20 to 10/23 I received 4 spams pushing MXXR, then one pushing EQTD on 10/24, and since then five spams pushing AUNI.

 I’ve decided to take matters into my own hands.  According to studies I’ve read, spammers tend to hit the same stocks over and over again.  I’ve placed a limit order to pick up one of these stocks after it falls when the victims of this scam realize their mistake and sell.   Looking over the charts, I placed a limit order to buy TXHE at $.063 (It’s currently at $.095 due to the spamming.)  If my order goes through, I’ll immediately place a limit order to sell around $.09, which should rob the spammers of some of their gains. 

This is an experiment, so I’m only doing it with a few thousand dollars.  The plan is to rob them of a little of their potential profit the next time they try to spam TXHE.  If I’m right about them spamming this stock again in a few weeks, I’ll have struck a blow for fair markets and pocket a nice gain (my purchase and sale should moderate price moves due to spamming.)  If I’m wrong, I’m stuck with a couple thousand dollars of a penny stock I know nothing about.

I’ll keep you informed.  If it goes well, I may try AUNI (or the next spam-of-the-week.) 

By the way, don’t try this at home, unless you can afford to lose everything you put into it.   Also note that this is not the type of thing I’d do with client money (unless specifically asked.)  I have no way of knowing that the spammers will strike again on TXHE,  my only protection is the low-ball limit order price I put in.  I could easily get caught out if this tiny, profitless company declares bankruptcy… my limit order will be triggered on the way down, and there’s no reason to assume the stock price won’t go all the way to zero.  I’ve added to my risk by telling the world what I’m doing, but I doubt spammers read my blog… they’re too busy stealing gullible investors’ money.

One further note, even if this strategy of trading off spammers works for a while, it will eventually cease working as traders do the same thing I’m doing… which is exactly what I want, because having vigilant traders buying on the way down after a spam, and selling on the way up on the next spam is the best way to ensure the spammers get the smallest possible ill-gotten gains for their trouble.

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Take care with your brokerage account

Very worth-reading article on Martketwatch today.  As with all computer crime, as more people use the Internet regularly, more people are victims of crime on the Internet.  This article talks about hacking into online brokerage accounts.

The good news: online brokers promise to make clients whole if they are victims of hacking.  And if you’re looking for discounted antivirus software, this is a good place to look.

 Like a lot of things, caution is your best defense.

1) be wary of public computers, especially abroad.

2) be wary of using brokerages over unsecured wireless networks.

3) It’s worth using your borkerage’s alert service to send you an email confirmation whenever there is activity in your account.  Then, if you’re checking your email, you’re keeping an eye on your account. (At least in this way, the Internet makes you safer, by making it easier for you to know what’s going on.)

(I know I have not written much recently, but work has crested in a wave over my head.  I hope to be back writing more deeply about Renewables in a week or two.)

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Fortune 500 Blog Project: Xcel, Kinder Morgan

I decided to contribute to the Fortune 500 Blog Project after reading Jetson Green’s blog review on Wells Fargo.  I’m concentrating on energy companies (natch.)   So far it’s been a breeze: I started with Xcel Energy and Kinder Morgan Energy, but neither one seem to have blogs.

I was especially interested in reading Xcel blogs, because of the PUC rate case hearing.

No luck.  Let me know if you find any blogs of these two companies.

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How to turn $100,000 into $1M in Ten Years.

There’s a new blog someone who got tired of hearing investment professionals saying a regular person could not consistently produce good results. So s/he’s out to prove them all wrong, but trying to do it, and documenting the progress.  The goal: to turn $100K into $1M in 10 years.

There does seem to be a bit of confusion here.  The blog intro says: “Got tired of all the investment gurus saying that a regular person like me can not be a good investor. They can not consistently produce good results.”   The 26% annualized returns we’re talking about here are not “good;” they’re “stellar” or “mind-boggling.”   It’s not that a regular person can not consistently produce these results, I don’t think anyone could produce these sort of results consistently… BUT: they might be able to do it inconsistently, and it’s not unreasonable to think it might happen enough years in a row to make the 10-year goal. 

For the record, I think that the goal is achievable, but only with a level of risk that most people would be unwilling to take on.  It would take a lot of luck.  But it’s an interesting thought experiment, so I’m just going to lay out how I would go about trying to achieve those type of returns if that were all I cared about (i.e. it didn’t matter if I went broke trying, and ending up with $200K was just as bad as ending up with nothing.)

  1. Only small and micro-cap stocks.  Small stocks get much less attention from analysts, and so are more likely to be mispriced.  They are also more likely to make big percentage moves.
  2. Only buy something if I think it has potential to double or more in a year.  I’d need that performance in order to make up for the bets that inevitably blew up in my face.
  3. Little diversification.  The more diversified a portfolio, the less likely it is to achieve extreme returns.  I’d probably try to keep my portfolio to about 3-4 positions: enough to give me another chance when one of my highly risky bets imploded in my face, but each position has to be big enough that when I got the 100% to 500% return I’d be shooting for, it would actually do some good for my portfolio.
  4. No bonds.   Bonds just don’t double in price (except for the occasional junk bond.)
  5. Concentrate stock picks in one or two industries.  I’d pick energy, because I know it, and I believe the long term outlook is good.  Most of the choices the blogger listed are too steady-eddie for the type of returns I’d be looking for:  travel related industries are at risk from rising oil prices, and are very capital intensive; retail typically has low margins, which means they are unlikely to double within a single year.  Financials also tend to be slow movers.  I do like metals and mining, and technology if you’re looking to take on a lot of risk to get excess returns.
  6. Pre-Earnings companies.  Companies which do not yet have earnings usually go up a lot before and as they transition to profits.  Clearly many never get there, but that’s where to look of companies that might double within a year.  Many renewable energy stocks are suitable for this sort of stock market gambling.
  7. I’d try not to do a lot of trading.  I’d make my picks, and hold on to them until I thought they were screamingly overvalued.    I’m talking about buying a pre-profitability company and holding on to it through the first couple years of profitability.  You have to wait for the company to stop bleeding money and start raking in the cash, and for other investors to catch on.  That takes years, not months.
  8. I wouldn’t bother much with options.  While it is true that you can get spectacular returns buying options, you can only buy options on larger stocks, which I would be avoiding.  The companies I’d concentrate on already have option-like returns.  In the real world, I’m a great fan of using cash secured puts and covered calls for income and market timing, but it simply would not be an option with the stocks I’d be buying, and that’s really a better strategy for boosting your overall returns by a fraction of a percent per annum and reducing risk.  Multiplying your money ten times is not about reducing risk; it’s about taking risks and crossing your fingers.

Please keep in mind that the strategy I outlined about is basically stock market gambling.  It breaks most of the rules of prudent investing, most importantly diversification.

If I were to follow this strategy, I might even be able to get that 10x return in less than 10 years, but the most likely result would be turning $100,000 into $10,000.  So I guess I’m like all the other investment professionals, and I don’t expect this experiment work, especially in the current climate of over-valuation.  But then, most investment professionals aren’t good at managing money, either.

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My thoughts on Analysts: Jim Cramer

Jim Cramer 

He’s the bad boy of the investing world, making trading look like a frat party. 
But I agree with Rick Aristotle Munarriz when he writes on the Motley Fool today that “I think that he is housing one of the most brilliant investing minds inside that noggin of his.”  Well, maybe not “most brilliant.”  I have a feeling the most brilliant investing minds out there are probably hiding from the limelight, not seeking it, like my hero Warren Buffett did before he got too bloody rich to hide from the limelight anymore.  I think there’s another generation of Buffetts out there, quietly raking in the cash for themselves and a few lucky or perspicacious investors.

            Case in point for “lucky investors:” my wife was on the Board of a nonprofit in Tucson, the Tucson Centers for Women and Children for a short time while we lived there.  Another one of the directors, and the biggest benefactor of the Centers, owed his fortune to the fact that he was Buffett’s neighbor in Omaha when Buffett was just starting out.  My guess is that Buffett was simply the savviest financial guy he knew, and so he gave Buffett some money to invest for him.  Now he buys buildings for nonprofits.

            Back to Cramer.  He may be brilliant, but it’s no longer possible to make money on his stock tips because too many people follow his advice.  His antics also make my life a lot harder.  I taught a workshop on investing in alternative energy stocks earlier this week, and tried to focus it more on the basics of investing, rather than stock tips.  I talked about paying off your debt, diversification, and started in on how to pick your own stocks, with the crowd getting more and more restless: They wanted to know which stocks and renewable industries I thought were a good deal right now.  In short, they wanted Cramer.

            I wanted to teach the attendees how to fish, but the instant gratification TV culture that Cramer is an iconic part of for the investing community has trained them to look for handouts of fish. 

I’m sad to say: I gave in.  At least, I did list stocks to look at in various industries, staying away from saying anything was a “buy” or a “sell” right now.  I save that for my clients.  And I did tell them which industries I like better: Energy Efficiency, Wind, Geothermal, some biomass.  (Note: I bet most of my readers, and that means you, got a lot more interested when you read that last sentence.  Case in point.)

Knowing what to buy now will never make anyone the sort of money they could make by knowing how to decide when to buy and when to sell.  When are they going to sell the stocks they are going to buy just because I mentioned them?  For most of them, at the wrong time. 

Superior investing performance is all about knowing yourself, and making rational, not emotional decisions, a skill we all think we are better at than we actually are.  And that was the skill I was trying to teach in my workshop.

In the end, we all get what we deserve.  I only regret that the attendees who really were open to the skills I was trying to teach could have learned a lot more if I hadn’t pandered to the instant gratification crowd.

 

Okay, that wasn’t really about Jim Cramer, and he’s not responsible for the instant gratification culture we live in, but he does pander to it.  I think he is brilliant, but intelligence and wisdom never were the same thing.  You’re not going to make real money following his advice.  If you want to make real money, you have to have the luck and insight to find the right advisor before he becomes too successful to want your account, or you have to learn to do it yourself.

Maybe I’ll call my next workshop “Making Money the Hard Way in EE/RE Investing.”  I’ll probably have an attendance of two, but at least they’ll know what they are getting into.

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Off topic agian – back on Spinach and E-Coli

There’s an excellent article by Michael Pollan, author of the Botany of Desire and The Omnivore’s Dilemma in the NY Times Magazine from last weekend.   It ties in nicely to my thoughts on Spinach and E-Coli from a couple weeks ago. 

 Unfortunately, it does not have a lot to do with investing or alternative energy, so feel free to stop reading now, if that’s why you’re on my blog. 

If you’re worried about the industrialization of our food supply, and don’t want to get more worried, you probably should find another blog to read as well.   Here are the main points I got out of it:

1) Industrialized farming is the root cause of the health problems we’ve been having with our veggies.

2) But the likely proposed solution is not less industrialized farming, but more.

 3) The problem has to do with the industrial mindset of the regulators. 

4) Yikes!

Read the Veggetable-Industrial Complex article.  If you can figure out something to do about it, leave a comment.

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