Month: February 2018

Coal Museum is Powered by What?

© Can Stock Photo / eunika

In the heart of Kentucky coal country is Harlan County. There you will find the Kentucky Coal Mining Museum. Thousands of artifacts depict the industry, the people connected with it, and the role coal played through history. Notably, the collection of Loretta Lynn, “The Coal Miner’s Daughter,” occupies a floor.

Over 90% of the coal used in the US is for the production of electricity1. The museum had electric bills that were running $2,100 per month, on average2.

In 2017 the museum acted to reduce its cost of electricity by $8,000 to $10,000 per year2. Solar panels went on the roof. The museum will be able to offset its power costs by selling excess electricity back to the local utility.

One might guess that alternative energy sources which compete with coal would not be popular in the very heart of coal country. But compelling economics usually triumph in the end. The museum made a business decision. Investors should pay attention.

The cost of electricity from solar is declining about 10% per year3. We concluded from this trend that the next energy revolution is taking shape. The combination of solar plus batteries may be the dominant source of electricity at some point in the future.

Change produces winners and losers. Our portfolios are already being shaped by the energy revolution. Many more opportunities and threats will become apparent as the future unfolds.

Our sense is that the pace of change is not fully appreciated by consensus wisdom. Some of the losers in the energy revolution may now be overpriced; some of the winners may be bargains. We are studying this situation intensely.

Clients, if you would like to discuss this or anything else on your agenda, please email us or call.

1Institute for Energy Research, https://instituteforenergyresearch.org/ Accessed on January 30, 2018.

2Washington Post, “Kentucky Coal Mining Museum in Harlan County switches to solar power”. April 6, 2017.

3The Guardian, “Solar panel costs predicted to fall 10% a year”. January 1, 2016.


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.

Because of their narrow focus, sector investing will be subject to greater volatility than investing more broadly across many sectors and companies.

Average Is Not Good Enough

© Can Stock Photo / vinnstock

There is a split in the investment world. One camp believes people should just buy passive products that seek to mimic the investment universe at low cost. They think it is not possible to gain any advantage by actively managing portfolios. The other camp believes there IS a benefit to actively managing portfolios and choosing particular investments.

You know where we fit: investment research, the selection of securities, and managing portfolios is about all we do—except talk to you. We are in the “active” camp, not the “passive” one. The debate rages on.

One thing is certain. The passive camp enjoys lower expenses, because they ordinarily only do a fraction of the work that we do: we research about individual companies, read annual reports, sell this and buy that to try to gain an advantage.

When you think about it, the whole universe of active investors cannot all deliver above-market returns—with their higher expenses. So the idea is the whole universe of passive investors must therefore do better than the whole universe of active investors, due to lower costs.

Our view is that the average performance of active investors is determined by some investors who are above average and others who are below average. So it is imperative for us to be above average—to be worth more than our freight—to have a sustainable business.

Once upon a time an active manager purchased a bond that had declined after it was issued, for 50 cents on the dollar. It was purchased from another active investor, who took a 50 cent loss. The bond later matured for a dollar, so the bargain-buyer had a 50 cent gain. On average, active investors broke even. But one active manager did better than average, and one did worse than average.

We do a whole lot more than manage investments, of course. Planning to help you work towards your goals, putting market action in context, answering your money questions, coordinating with your legal and tax advisors… these things are also part of our work. But striving to grow your bucket is why we get up in the morning.

Average (ordinary, middling, mediocre, unexceptional) is not good enough. Active investors need to be above the line over the long term. We have no guarantees to offer. But our goal is to be exceptional.

Clients, if you would like to discuss this or anything else, please email us or call.


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All indices are unmanaged and may not be invested into directly.

All investing, including stocks involves risk including loss of principal. No strategy assures success or protects against loss.

Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.

This is a hypothetical example and is not representative of any specific situation. Your results will vary. The hypothetical rates of return used do not reflect the deduction of fees and charges inherent to investing.

 

But is it Investable?

© Can Stock Photo / gina_sanders

One of our key tasks on your behalf is the search for bargains. Seeking the best bargains is one of our fundamental investment principles.

When we spot an idea, product or trend that is likely to become more prevalent or profitable in the future, we end up trying to figure out whether that knowledge can be effectively put into client portfolios. In other words, is it investable?

To invest is to put money into something in which you have a reasonable expectation of a return. This is different than speculating, which involves a high risk of large losses or large gains. Last and least, there are many ways to simply flush money down the toilet.

For example, without debating the merits, medical and other uses of marijuana seem increasingly likely to proliferate. But we believe the political risks inherent in federal government policy are so high that it is speculating at best—not investing.

When we look at specific marijuana securities, most of the buzz is about penny stocks. These, in turn, look to us to be more in the “down the toilet” category than either an investment or a speculation. So we have concluded that the proliferation of marijuana is not investable.

Another facet of investability has to do with price. A trend that everyone seems to be talking about is likely already reflected in the price of investments, leaving little room for gains. “What everyone knows usually isn’t worth knowing,” as the saying goes.

By 1999, everyone knew the internet was going to change how we live and work. The internet did indeed transform life in many ways. But related investments were trading at extremely high valuations, resulting in losses to investors in subsequent years.

We are selective—one might say picky—about the things in which we choose to invest. Our standard of investability is high. We sometimes talk to people who are enthusiastic about an idea that sounds exciting, but is not investable. No matter how good an idea is, if we cannot get it into your portfolio on an efficient basis, it is not investable.

Clients, for examples of things we believe are investable, look at your statements (or positions in LPL AccountView). If you wish to discuss this or anything else, please email us or call.


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.

The opinions expressed in this material do not necessarily reflect the views of LPL Financial.

All investing, including stocks involves risk including loss of principal. No strategy assures success or protects against loss.

Prepare for a Changing Market

© Can Stock Photo / kerdkanno

When we began in business twenty-one years ago, we recommended a wide variety of investment products. Over time, our efforts have increasingly focused on platforms in which our investment philosophy and research may be more effectively employed. Most of our time and energy now goes into the investment advisory services we offer through LPL Financial.

Clients, many of you have assets outside of LPL Financial. We believe it is time to re-examine these arrangements and determine whether they are still appropriate. We might have recommended strategies in the past that may not be the best ones for the future.

• A generous bull market over the past decade meant that other arrangements generally remained beneficial to you, in our opinion.
• But market conditions are likely to become more hectic, sooner or later.
• We have greater flexibility to seek bargains, avoid stampedes, and pick our spots when assets are in the LPL Financial platform, instead of another institution.

The better off you are, the better off we are likely to be—this has been a guiding principle at 228 Main. Our motivation is to be in the best position to keep your portfolio responsive to changing conditions.

If we may possibly improve your situation by taking a more active role in managing your assets, we welcome those duties. If you decide that outside investment accounts remain your best option, we’ll still be happy to work with you on that basis.

We would like to talk, having no pre-conceived notion about what is best for your specific situation. Please email us or call.


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.

The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful. All investing involves risk including loss of principal.