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
Read
this in full at http://www.investorideas.com/news/2017/renewable-energy/04191RuleOfInvesting.asp
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:
- Various relative strength
measures
- Some technical measures and
- 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 happening” NOT 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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