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Seeking Alpha: How To Encourage Thinking Inside the Box

Seeking Alpha (SA) has long been a good website aggregating content about stocks from around the web, and they’ve come up with some useful innovations, such as paying authors for original content (1 cent per page view). The money isn’t great, but I know of at least one seasoned writer (Dana Blankenhorn) who is actually making a decent living on it… and I was the one who told him about the opportunity.

SA has been republishing about 2/3 of my content since 2007 – a little over 300 articles so far, although I have not participated in the exclusive content program, for two reasons. First, because my other blogs (AltEnergyStocks.com and Forbes.com) pay more (although still not much) and they don’t say that I can’t republish elsewhere afterwards.

Part of the reason they pay more is because Seeking Alpha is set up to favor conventional, easy-to-categorize content: About two years ago, they changed their categorization system to only include the traditional industry groups: Utilities, Consumer Goods, Etc. In the process, they eliminated the category Alternative Energy. Now, writers who focus on one traditional sector such as IT tend to be featured more prominently on the website.

My articles, on the other hand, are about green investing, a cross-cutting theme if there ever was one. Much of the time, they do not get categorized at all.

To be fair, I’ve talked to Eli Hoffman, who owns the site, and several other employees about this several times over the last few years. They are aware of the problem, and agree that it needs to be fixed, but they certainly have not made it a priority. Which is weird, since the claim that the main purpose of their site is to help people be better investors.

Since when did promoting conventional thinking make anyone a better investor?

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Five Top 10 Lists for 2009

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Top Ten Lists: My Stock Picks for 2008 and Most Blogged Stories of 2007

I did two top Ten lists to bring in the New Year. First, I picked ten speculative plays in renewable energy and energy efficiency that I think will do well. This was a 3 part series:

Part I: LED Stocks and Ultracapacitor stocks
Part II: Batteries, Distributed Generation, combined Heat and Power, and Electricity Transmission
Part III: Geothermal, Wind and Wave Power stocks, and a Solar Short

My second Top 10 list is plain fun… we used an algorithm to see what stories cleantech bloggers were linking to in 2007, and I did a short summary of each. Here is my Ten Most Blogged Cleantech Stories of 2007

Enjoy!

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Top Five Environmental Stocks for Gifts

For the Shopping season, I’ve just publised an article on a gift that’s greener than just giving more “stuff.” Help your young ones prepare for their future (and the future of the planet) with my Top Five Stocks to Give as Gifts this Holiday Season.
Green Gift

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Socially Responsible Finance Jobs?

Live Earth seems to have had a big effect… both this (my personal blog) and Alt Energy Stocks have seen a big boost in readership this week.

So if you listened to Live Earth, and had a life-changing experience, you might be just looking for a new, socially responsible career. I can tell you one sector that does not have enough good talent: Socially Responsible Finance. The folks over at the ForEx Blog have put together a list of Four Careers in Social Finance, although they call it 13 (perhaps because there are a few tips and pointers thrown in as well.) This neatly deflates two myths about money-men:

1. Some of us do want to make the world a better place
2. Not all of us are good at math.

I do have one major gripe: They didn’t mention my job: Renewable Energy Investment Analyst/Advisor/Writer. Maybe because it’s too long… or actually three jobs… but, really, guys, there’s no real competition. C’mon in, the water’s fine!

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The fine line between ads and spam

Here’s an article by Davis Freeberg it because it confirms my thoughts about stockpicking… if you find out about a company because of an ad, you’re probably best staying away. A healthy dose of suspicion is worth it’s weight in gold.

No AltEnergyStocks column this week… I’m trying to dig myself out after coming back from vacation. But I did catch up with my Economist reading… they now have an audio version (free to subscribers) which is great for long drives.

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Fortune 500 blog project: Utilities ain’t got blogs

It’s a slow day for me, with the markets closed out of respect for President Ford, so thought I’d dust off some old to-do’s I’d written myself.  One was to help out with blog reviews for the Fortune 500 blog project.  I like to review energy companies, so I decided to pick on Atmos Energy.  Same problem as last time: no blogs.  

I’m beginning to see a pattern here.  Regulated monopolies in general, and utilities in particular tend to be laggards when it comes to change.  We not only see this in the giant boom in the building of new coal plants when we need carbon neutral generation and more energy efficiency and demand side management.  We also see it in their lethargy in adopting new types of communication, such as blogs.

 I thought I’d test my theory and see what other utilities in the Fortune 500 I could find without blogs.  Here’s the list:

Cinergy (which is now merged with Duke Energy).  No blogs for either.  

Northeast Utilities(and I didn’t find blog for any of the utilities under their umbrella, either)

I did find a blog for Chesapeake Energy , but it’s just an automated news blog, pulling headlines from other sources on the web, with no original content, nor affiliation with the company.

I think I’ll try some non-utility energy companies the next time I haul this off the back burner.

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A Solar Business Model that Makes Sense

Joel Makower wrote today about Wal-Mart’s RFP (Request for Proposals) for solar panels on their roofs.  This got me thinking about two things:

  1. I’ve sure been writing a lot about Wal-Mart’s sustainability push recently. (see July 30, Dec 3 entries) 
  2. Third party ownership in photovoltaics seems to be the wave of the future.

Wal-Mart is asking suppliers to build, own, and maintain the PV systems, and sell the electricity to WalMart, allowing them to avoid the large up-front cost, and having to branch out from what they are good at: selling products to consumers.  I say that this is the model of the future for the same reason I like CitizenRE’s model: a business focused on installing and maintaining systems will be able to do it much more cheaply and efficiently than a building owner, who may not know anything about solar.  In the residential space, there is the added advantage that the federal tax credit is not capped at $2000, and the ability to take advantage of accelerated depreciation.

Update: 5/7/07 Wal-Mart has completed the RFP. According to the press release the winning bidders are SunEdison (as I predicted below), BP Solar, and PowerLight. Thanks to Marc Gunther for tipping me off to this.

Separate ownership is nothing new on the utility scale: electricity generation is often built and operated by a third party, who receives payment for electricity produced.  For instance, the new solar farm to be built by SunEdison for Xcel Energy in Colorado’s San Luis Valley.

Speaking of SunEdison, I will be very surprised if they do not bid on  the Wal-Mart RFP.   I heard their CEO Jiggar Shah talk about their model at Solar 2006, and he wasn’t talking about installing solar one residential rooftop at a time.  I admit I was somewhat skeptical at the time… I thought solar installations would take much longer to ramp up than he was saying.  I’ve changed my mind since then.

Solar power is still a business totally reliant on government policy.  If the customer had to pay the current $6-$9 a watt of installed DC power, the only locations where it would make sense would be off-grid, but with companies able to capture a combination of rebates and tax credits worth up to 80-90% of that price in states with good incentives (the same states, incidentally, in which Wal-Mart is issuing its RFP: California, Colorado, Connecticut, Hawaii, and New Jersey) it’s a whole different ball game.  And, with the Democrats taking power in Washington and many states, the outlook for renewable energy incentives is definitely bullish.

 What does this mean for the investor?  Buying solar electricity will have a negligible effect on Wal-Mart’s bottom line, except if they manage to use the publicity to brighten their public image, which could have some indirect benefits for the bottom line.  However, so long as federal and state support for solar remain strong or increase, it’s good news for PV manufacturers and suppliers.  But don’t just buy anything on the list: do your homework, and look for companies that already have a working technology, and are ready to rapidly increase volumes within 1-2 years.

Update 1/18/07:  It turns out that there is a company in South Africa called NuRa using this same model.  When it comes down to it, people want electricity, not solar panels.

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Vision of a sustainable energy future

I’ve been meaning to write an article outlining a vision of a sustainable energy future, where biomass is converted into fuel and electricity through pyrolysis and the waste product, carbon is used as a fertilizer a-la terra preta to produce more biomass.  The good news is I don’t have to.  The Engineer Poet did, and it’s just part of a much broader vision you’ll find here.   He also goes into a great discussion of transportation technologies and efficiency which would never have made it into the article I’d write.  I like it when other people crunch numbers, so I don’t have to.

Give yourself a half hour to read the whole article.  It’s worth it.

( Terra Preta: I got a comment from Erich J Knight on terra preta here that went into a lot of depth, but I deleted it by mistake.  Forturnately, he says pretty much the same thing in his blog.  I first heard about terra preta from Ron Larson, chair of the American Solar Energy Society, who is very active in the local (Denver) renewable energy scene.  If you haven’t heard about terra preta, and are concerned about globabl warming or soil fertility without fertilizers from fossil fuels, it’s worth looking into.)

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Spam stocks warnings

I’ve noticed I’ve been getting a lot of hits from search engines looking for information about stocks they’ve gotten spam stock tips on, so as a public service, I’m publishing a list of stocks that I’ve gotten tips to buy from spammers recently. 

Do not buy any of these stocks because you got an email saying to they’re about to go to the moon, or making any sort of prediction of quick gains.  Spamming stocks does work (for the spammers, not the buyers.)   If you buy right after a “tip,” you’ll be rushing in with a whole bunch of other buyers at the same time, and pay too high a price.  If you get a spam, research the company, and think you must buy a bit of the company, do yourself a big favor and wait a week or two for the spam-induced frenzy to die down.  You’ll end up paying a good deal less, because when the promised gains do not materialize, many of the people who initially fell for it will sell, and drive the price down, often below where it might have been without the initial spamming.

These may be great companies, and they may be dogs, but right after you get a spam is always the wrong time to buy.

Companies about which I have received spams:

Received from 10/16 to 11/11 EGLY; FCTOA; GSNH; EQTD; MXXR; TXHE; GDKI

Received from 11/12 to 12/14 HTLJ; VSUS; AGHG; USBO; FPMC

12/14-12/17 DIAAF;VGYI; FPMC.pk; USBO

12/17-12/24 FPMC.pk; SORD; DKGR; TTEN; and (an encore from early November) GDKI.

Merry Christmas!

12/25/06-1/8/07 GCME, VMCI, LITL

1/8/7 to 1/13/7 CBFE

2/22/07: Things seem to be slowing down, but I got a blizzard of “tips” for PHYA.PK yesterday and today.

 Joshua Cyr has an interesting site dedicated to this topic.

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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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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….

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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.

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Contrarian Investing is Hard

I just came across an apparently defunct blog (no posts since June.)  It’s called Big Mike’s contrarian investing blog, and it seems that he advocated a lot of the same things I was recommending to clients.  The difference is that my clients are still in them… I have my doubts about Big Mike and the readers of his blog.

 [9/4/06 Note: It seems like my guesses about Big Mike were off the mark...  see his comment below.  Regardless, I stick by what I say about investor psychology... the best time to buy is often when things are most discouraging.  And that is precisely when it's hardest to buy... or  recommend someone else buy.  ]

 For those of us who were commodity bulls in this spring, times seemed tough.  To be a successful contrarian, you need to keep the long perspective.  As Jonathan Graham said, “In the short run, the market is a voting machine, in the long run, it is a weighing machine.”  If you invest based on fundamentals, you have to be ready for the market to turn against you for months or years.  I’m get the feeling that Big Mike, despite his MBA, BS in economics, and 6 week stint as a broker, did not have the financial or emotional resources to stick it out when the votes started going against him.

John Maynard Keynes once said “The market can stay irrational longer than you can stay solvent.”  Big Mike seems to be a case in point.

The moral of the story is that you should never invest money that you need to fund your current expenses.  If you place money into an investment because you know that the long term prospects of that investment are good, you have to be willing and able to leave that money there for the decade it might take for the market to stop voting and start weighing again.

Gold’s nowhere near the $730 an ounce it hit in May, and Oil is not much better (ditto for alternative energy stocks), but for those of us who feel certain that the US$ is headed for the trashcan, and uncertainty and fear are only going to increase (which will be good for gold), and that Peak Oil is already showing its effects in the energy markets, the volatility this spring and summer were easy to bear.

Rules to keep in mind:

  1. Don’t invest on a hunch.  You have to have conviction.
  2. Don’t lose your conviction just because prices move against you.
  3. If the reasons you became convinced in the first place change, get out!

One last quote from Keynes: “When the facts change, I change.  What do you do, sir?”  (but don’t change unless the facts change.)

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