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Wednesday, April 19, 2017

Renewable Energy Expert Corner with Peter Lynch; “My Portfolio Selection Criteria and the #1 Rule of Investing”

Renewable Energy Expert Corner with Peter Lynch; “My Portfolio Selection Criteria and the #1 Rule of Investing”

New York, New York Investorideas.com and Renewableenergystocks.com release the next edition of Renewable energy expert corner with Peter Lynch.

The Renewable Energy Expert Corner with Peter Lynch can be found at http://www.investorideas.com/Companies/RenewableEnergy/ and www.renewableenergystocks.com

Back in 2010 – 2013 I explained our criteria for rating all of our solar and other renewable energy (RE) stocks. At that time there were seven stocks that met my criteria - "The Solar Seven" these were the strongest stocks in the industry at that time based upon my criteria.

The “solar seven” ended up 2010 up 42% vs the major markets being up 14% - a 3X outperformance.

For the 4 year period we were up 56% per year while the market was up 14% - a 4 X outperformance.

My rating system to select the "strongest" stocks is a proprietary combination of:

  1. Various relative strength measures
  2. Some technical measures and
  3. A number of fundamental parameters

What we have learned since that time in 2010 is that there are always stocks going up somewhere, even in a terrible market and even in a weak underperforming sector (solar) and if you select the "strongest" stocks in a given market segment you will, on average, do quite well.

Even if, the strongest stocks are all umbrella companies and we are in a drought - regardless of what you "think" you know or "think" should be - always remember that "what is - is" and always buy the strongest stocks in a sector or market. You may not always know "why" something happens, but you will, on average, do much better than most investors and most likely better than the market.

It is possible today with all the information that is available at every moment (much of which is NOT well thought out) to actually over analyze a situation and because there is so much data available it can lead to "analysis paralysis". Sometimes it is easier and more profitable to not think as much and follow simply "what is". Sounds easy, but in reality it is very difficult.

As Yogi Berra once said, "you can't hit and think at the same time" - sounds silly but it may be true. He is a legendary Hall of Fame baseball player and it worked for him.

What is important to understand is when to buy them and when to sell them and the basis for knowing when to buy or sell something is based upon simple supply and demand. Stocks go UP when there are more buyers than sellers and stocks go DOWN when there are more sellers than buyers – it is just that simple.

This generally requires utilizing some form of system and being consistent in following the system. The system can be as simple as buying when a stock goes ABOVE its 50 day MA and selling when it goes BELOW, but an investor needs to utilize some form of system that takes the emotion out of buying and selling. When buying stocks – remember – you and your emotions are your worst enemy.

What you should NOT do is to buy stocks because you "think" you know what they should be doing. A perfect example of this type of investor thinking is the great General Electric (GE).

Most people would say that it is a “great” company and, in fact, one of the best companies in the world. But given that we all “know” it is a great company – is it also a great stock?

The answer is absolutely NOT! Over a recent ten year period (2003 – 2013) General Electric stock returned a NEGATIVE 15% to its shareholders! In fact it has been a terrible stock. It did better than only 3 other stocks in the DOW 30 and over the same 10 years the DOW was up approximately 70%, roughly 6X better than GE.

Remember. It is as simple as the fact that there are more sellers than buyers or more sellers than buyers - that is the ONLY thing that you know for sure at any time. If you make your decisions based upon emotion or what you "think" a stock should do, that will, without question, leave you with far less money than when you started.

You have to look at "what is" (whether you like it or not) and NOT what you think should be.

Remember the two key rules from the legendary investor Warren Buffet on how to make money in the stock market:

1. Never lose money*
2. Never forget rule #1

*What Buffet “really” means by "never lose money" is to cut your losses short (minimize your losses) and let your winners run as long as they are technically strong (maximize your return).

Market Psychology
The HARDEST THING for investors to do is know when to sell. That is why you have to set specific, non-emotional prices to exit if things do not go right. You cannot allow your emotions to get involved and take over your thinking.

Remember: markets fool the majority of investors by "Climbing a Wall of Worry" which is exactly what it is doing now. Once losses start and keep getting worse then  investors generally get on the "Slopes of Hope" and hope that their stocks comes back - trust me, the "I hope my stock comes back" technique will NOT work.

Trust in your system and follow it regardless of what you think "should happen". Once you try to impose your will on your portfolio you will stop paying attention to what is most important – and what is most important to understand is “what is actually happeningNOT what you think should be happening.

If you looked at the portfolios of the most successful investors you would, in general, see the following pattern:
Approximately 80% of trades would be either small losses and/or small gains and approximately 20% would be very significant gains. This is exactly how we dramatically outperformed the markets in 2013, 2012, 2011 and 2010.

Current Market Update

At the current time the general market is in a “higher” risk status, based upon my technical indicators.

This does NOT mean that the market is going to have a major correction, stock markets can and have stayed in similar high risk status for months and even longer. As a result you may want to set your stop loss points closer to protect the portfolio’s profits. (I will have more on stop loss points in the next article) – in short they (stop loss points) are the “KEY” to the most important stock market skill – cutting your losses and letting your profits run”.

Remember – you will never be able to catch the very bottom of a stock’s movement or the very top. When that happens it is plain and simple – luck. The key thing to always keep the number one rule of investing foremost in your mind:

Cut your losses short and let your profits run

We have been in a Bull Market since March 2009, close to 8 years. The average Bull Market is 3.8 years – so this market is growing long in the tooth. But I have not seen any “serious” indications of the end of this market. But when the market is in a higher risk area – the changes can come quickly – so we have to adopt a defensive posture.

Especially then the stocks in our portfolio will likely be higher Beta stocks.  Beta measures how volatile a stock is – for example if a stock you owned had a Beta of 1.7 – it would mean that it is on average 1.7 times MORE volatile than the general market (the market always has a Beta of 1). This high beta is good on the upside and bad on the downside so an investor needs to be aware of this increased risk.

 There is no way to really predict the future and its timing – but renewable energy (RE)  is the fastest growth area in the world, even in the U.S.- last year (2016) year was the first year ever that RE put in more capacity than fossil fuel sources worldwide and this trend is accelerating. The trend has changed and for the first time RE is cheaper than all other forms of fossil fuel energy and this price advantage and numerous addition societal benefits will make it a terrible business decision to NOT choose RE power generation. Businesses and utilities all over the world agree and are accelerating their use of RE.

The general press in the U.S. has still not caught on to the current “RE boom” or is “scared” to write about it for fear of offending some financial backers or their media bosses – but the tide has turned and the future will be renewable and fossil fuels will fade away and become, well, fossils.

Change is coming, like it or not! As a result, there will be huge investment opportunities in the RE field that will be open to savvy investors. In my opinion, we are seeing the end of the age of fossil fuels and the beginning of the age of Renewable Energy

Background Analysis Notes
Keep in mind there are two basic types of equity (stock) analysis. Below are a brief description of each and its primary purpose:

Fundamental Analysis (“what to buy”) - this is the analysis of the fundamental financial condition of a company to identify which stocks you may want to buy when the timing is right. This form of analysis will give you NO timely indication of the best time to buy a stock or sell a stock. It utilizes a company’s past numbers to try and project what the future will be.

Technical Analysis (“when to buy”) - this form of analysis will tell you "when" to buy a stock and when to sell the stock. It will do this by showing you (in chart format) the basic interaction of supply and demand and when the two change and shift which will indicate a time to buy or a time to sell.
Mr. Lynch has worked, for 36 years as a Wall Street security analyst, an independent security analyst and private investor in small emerging technology companies. He has been actively involved in following developments in the renewable energy sector since 1977 and is regarded as an expert in this field. He was the contributing editor for 17 years to the Photovoltaic Insider Report, an early publication in PV that was directed at industrial subscribers, such as major energy companies, utilities and governments around the world. He is currently a private investor and has from time to time been a financial/technology consultant to a number of companies. He can be reached via e-mail at: SOLARJPL@aol.com. Please visit his website for the promotion of solar energy – www.sunseries.net.

The Renewable Energy Expert Corner with Peter Lynch can be found at http://www.investorideas.com/Companies/RenewableEnergy/ and www.renewableenergystocks.com


Peter Lynch – Renewable energy expert corner 

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