Why I hate solar as an investment

March 9, 2010

1.  Too many solar companies competing for the same dollars with similar technologies.

2. Too many competing technologies, it’s hard to know what will work the best and what will attract government subsidies. Remember 10 years ago when everybody talked about fuel cells and hydrogen. Remember in the 70ies when solar started out as the next big thing. Or nuclear before that. Yes, solar has huge potential, but so does algea, second generation biofuel, nuclear, natural gas, wind, waves, fuel cells, geothermal, hydro power etc.

3. Who knows who will enter this business? GE, Siemens and Suzlon were late to enter the wind power market and now are some of the dominant players. Do you really think that Sunpower, Suntech and First Solar will dominate this industry ten years from now if it grows to the moon?

4. It’s really hard to forecast the long-term profitability of a new industry. Charlie Munger says is best:

“Here’s a model that we’ve had trouble with. Maybe you’ll be able to figure it out better. Many markets get down to two or three big competitors or five or six. And in some of those markets, nobody makes any money to speak of. But in others, everybody does very well.

Over the years, we’ve tried to figure out why the competition in some markets gets sort of rational from the investor’s point of view so that the shareholders do well, and in other markets, there’s destructive competition that destroys shareholder wealth.

If it’s a pure commodity like airline seats, you can understand why no o­ne makes any money. As we sit here, just think of what airlines have given to the world safe travel, greater experience, time with your loved o­nes, you name it. Yet, the net amount of money that’s been made by the shareholders of airlines since Kitty Hawk, is now a negative figure ‑ a substantial negative figure. Competition was so intense that, o­nce it was unleashed by deregulation, it ravaged shareholder wealth in the airline business.

Yet, in other fields like cereals, for example almost all the big boys make out. If you’re some kind of a medium grade cereal maker, you might make 15% o­n your capital. And if you’re really good, you might make 40%.But why are cereals so profitable despite the fact that it looks to me like they’re competing like crazy with promotions, coupons and everything else? I don’t fully understand it.”

That said, solar may be great for a trade.

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It’s all about investments

March 9, 2010

Global growth in the coming year will have to come from investments.

Net exports is a zero sum game, not all countries can grow their net exports at the same time.

Governments from Japan to the US will have a hard time beefing up spending any further. That’s just not going to happen.

Consumers in Europe and the US have too much debt, too little equity and while employement may improve somewhat, it is unlikely to provide a major boost.

Meanwhile Japan is turning from being a nation of savers to a nation of spenders, but that is due to having the worst demographic profile in the world. The Japanese are simply spending more of their income because they are getting older and now drawing more on their retirement savings. But their income is not growing much. Spending of retirement savings have the potential to lead to higher interest rates in Japan, which will be a drag on spending. Japan is simply not in a position to boost private spending much.

And for those who have high hopes for the Chinese to lower their savings rate, I think you have to be patient. The Chinsese have a high savings rate because they save for retirement, housing, education of their children and future medical expenses. That will not change any time soon. For the Chinese to spend more they need higher real wages. While higher nominal wages are likely, there is also mounting inflation pressure in China. Clearly there could be some upside to Chinese private consumption, but in the short term i.e. the next 2-3 years I think it’s hard to envision a major boost to the global economy based on Chinese private consumption.

Which leaves us with Investments as the only possible source substantial global growth in the next few years. But we already have too much capacity in many industries. So I think you have to look towards industry where over-capacity is not a problem: mining, biotech, certain information and communication technologies, agriculture, clean/green technologies and infrastructure.

Deadline Management

March 9, 2010

At work and in our daily lives we give and receive tons of deadlines. Any good software out there for managing all those deadlines – for taking out the anxiety of not knowing if people will deliver on time, having to check up on them, reschedule deadlines when they don’t deliver, having to answer to text messages and phone calls to assure others that you will deliver on time and so on.

Someone needs to come up with an app – maybe something that’s voice mail/robocall/robomail-based.

Portfolio update

March 9, 2010

it’s been a while. Here’s my current portfolio:

Andean American Mining (AAG.V) – large position
HQ Sustainable Maritime (HQS) – large position
Arctic Glacier (AG.UN) – mid size position
TZA – mid size position
FXP – mid size position
XS Cargo (XSC-UN.V)

Carl’s Lab – a Carlsberg bar

June 30, 2009

It strikes me that there’s something unique about Carlsberg, when compared to the other multinational megabrewers like Heineken or Budweiser. Carlsberg actually makes many different kinds of beer under the Carlsberg/Tuborg brands (and also sodas btw) most of which are only sold in its home market Denmark. Pilsners, light beers, bocks, gourmet beers, strong beers, ales, wheat beers, seasonal beers (Christmas and Easter) etc.

Why not open a few bars in major cities (NYC, Tokyo, Paris, Singapore, Copenhagen) featuring only Carlberg products?

I could see the following benefits from such a strategy:

  • A place to test the market for new products
  • A place to get a more intimate understanding of customer preferences
  • A way to differentiate the Carlsberg brand – not just another megabrand selling beer that tastes like everything else, but actually a serious brewer
  • A place to tell the Carlsberg story, which is very rich and positive
  • Take beer seriously – take the lead in making beer-bars cool

Conversation Starter – the anti-game

June 30, 2009

I think there are a lot of us who want to turn off the television and have more and better conversations with our partner. Great, but what do you talk about? Where do you start?

After a while you want something deeper or more interesting than how was your day, where do you want to go on holiday this summer, what are we going to do this weekend and what do you want for dinner? The problem is that often we don’t have the energy or the creativity to come up with great questions.

I think there is a need for some type of “game”, a Trivial Pursuit/Bezzerwisser-type game with hundreds of great conversation starters. An anti-game where the purpose is not focused on beating your opponent, but getting to know her/him as well as getting to know yourself. Different versions could be made for different types of relationships e.g. parent-child, co-workers (think team-building) or friends.

Portfolio update

June 30, 2009

current holdings:

SRS – large position
FAZ
HQS – large position
XSC-UN.TO – tiny position
50% cash

Ten Reasons Why I Like Chinese Pharma Stocks

May 25, 2009

1) The Chinese Government will be making huge investments in health care and give huge support to companies in this field in the coming decade.

2) A number of US-listed Chinese pharma stocks trade OTC but are in the process of getting listed on major US exchanges.

3) Chinese hospitals are solid customers but they are very late payers. Therefore, many Chinese pharma companies trade at very low PE ratios due to their very high working capital requirements. At some point they may find a way to lower their working capital through factoring or negotiated faster payments from the hospital. If this happens, PE multiples could expand significantly.

4) Institutional investors like “Aging” as an investment theme, but they are concerned about future profitability of Western pharma companies, as Western governments face pressure to reign in health care costs. Emerging market pharma such as Chinese pharma allows them to continue to have pharma/aging exposure without the gross margin risk of Western pharma companies.

5) For historical reasons, the biggest pharma companies in the world are in the US, France, Switzerland, Denmark, Germany and other European countries with good health care systems and good education. Considering the huge population in China, the government’s new focus on health care and a very large number of world class scientists and low cost production, it is not hard to imagine that China in ten or twenty years will have a number of pharma companies joining the ranks of the largest pharma companies in the world.

6) At some point Western pharma companies will want to buy Chinese pharma companies as a way to more effectively penetrate the Chinese market.

7) China is rapidly becoming a medical tourism destination especially for cancer treatments.

8) Potential for existing players to buy state owned enterprises at compelling valuation (without truly competitive bidding processes) and run them much better than today.

9) Generally speaking, there are a lot of compelling valuations combined with the potential for Chinese pharma to develop into a bull story in the coming years.

10) Most Chinese pharma stocks have little or no debt

Of course one has to be very careful with Chinese stocks – lots of poor management, fraud, dilution, poor disclosure and pursuit of growth for its own sake.

I currently have no positions in Chinese pharma stocks but I’m doing research on Jiangbo Pharmaceuticals (JGBO.OB) and China Pharma Holdings (CPHI.OB).

Bring back the Volksvagen Microbus

May 25, 2009

Cooper updated the Mini with great success. Volkswagen did the same with the Beetle. Now Fiat is doing very well with its updated 500.  Maybe its not as easy as it looks (think Ford Mustang), but someone at Volkswagen should seriously consider bringing back an updated version of the original Microbus aka Volkswagen Type 2.

Seriously, can you look at a picture of a VW Microbus and not smile? Do you know anybody who does not like the look of this vehicle?

Buttonhole accessories

May 20, 2009

They say that a gentleman has only a few ways to accessorize: watch, ring, cuff links, maybe a necklace, tie, handkerchief or colorful socks.

But one space is terribly overlooked: the mighty suit lapel buttonhole. Why is only used for flowers on wedding days or horrible pins? Why is Tiffany not developing elegant silver designs, e.g. something classy and floral themed? Why is Rag & Bone not coming up with something funky, Etro why not something crazy from you guys, like a silk flower on acid or something?

And for the Japanese and other fine people who care about leaving the last sleeve button open on a tailor-made suit: why not some bling or something understated for that hole too or instead? I’m thinking a cuff link of some sort for the suit instead of the shirt.

Does that make me crazy?