Warren Buffett goes Solar

The world is on the tipping point of switching to 100% solar.

This will be another huge disruption, on a similar scale to electric cars replacing gas cars. Warren Buffett is not going to miss this party.

“Warren Buffett Has Started The Biggest Energy Revolution”

Solar is now CHEAPER than fossil fuel energy.

“In most parts of the world today, solar is the cheapest source of new power generation. So why hasn’t the world switched the plug to solar just yet?”

The only thing holding back the world from going 100% solar is the battery.  “MIT researchers estimated battery costs must sink to $20 per megawatt hour if we ever want to switch 100% to solar power.”

Buffett is investing in a solar farm that will store electricity in batteries for $13 per megawatt hour (MWh). That’s $7 less than MIT’s threshold. Combined with generation, the solar farm’s electricity will cost $33 per MWh. That’s $37 less than the $70 for natural gas.

Massive change is coming.

People all over the world are going to switch to solar, not just to make the world greener, but to make their wallets greener.

“The best news for investors, we are still in the early innings of this energy revolution. While the Invesco Solar ETF rallied 51% last year, it’s still down 88% from its highs…In the grand scheme of things, it has barely budged. With so much room for growth, solar stocks could easily double, triple, quadruple, or better in the coming years.”

There are many ways to invest in solar. There are many panel manufacturers, installation companies, financiers of solar installations, solar farm companies such as Warren Buffett’s, etc. But there are mainly just two inverter manufacturers: Enphase (which I own) and SolarEdge. This is similar to smartphones where there are mainly just two smartphone makers, Apple and Samsung. Another way to play solar is with Tesla, which is making batteries for utility companies and solar roofs.

7 Extraordinary Trades

I have made bad, mediocre and good trades. Here are the extraordinarily bad and good trades.

MESA AIR GROUP

I bought this in 2009. This went to ZERO. Bankrupt.

TRICO MARINE

I bought this in 2009. This went to ZERO. Bankrupt.

NIVS

I bought this in 2011 and was defrauded. NIVS turned out to be one of many fraudulent Chinese reverse-takeovers that listed on the NYSE. This got delisted and went to ZERO.

BITCOIN

I bought a few in approximately April 2013 for approximately $40 each. Then it went to $10,000 each in 2017 and crashed in 2018. However, it has recovered some since 2018 and I believe it will fully recover or reach new highs.

ENPHASE

I bought this in 2015 for approximately $12 per share. It dropped by approximately 50%, so I put three times more money into the stock (by selling my other stocks) at approximately $6 per share. But it continued to drop until it went down approximately 95% to 72 cents or less in May 2017. Since then, it has shot up to $30 or more.

This has to be the wildest rollercoaster ride that I have ever been on. Who needs to go to Disney World when you can ride Enphase? The next time your kid wants you to take them to Disney World, buy them some Enphase stock.

Enphase is a good example of how the stock is much more extreme than the business metrics. Enphase’s revenue declined in 2016, but the long term future looked okay to good. Prices of solar components continued to decline. If this continues, it will be cheaper than the grid. Nevertheless, shareholders panicked and dumped the stock.

If you cannot handle this kind of volatility, buy ETFs because you will lose money with stocks.

ROKU

I bought $880 worth for my kid in November 2017 for approximately $27 per share. I watched it climb to $70 per share in 2018. Then it started dropping. When it dropped to $44, I thought it was an opportunity to get in, so I bought some in November 2018. But it kept dropping. I waited and waited until it bottomed, which it did at $27, which was 32% lower than the $44 that I bought it at. After it bounced, I bought approximately three times more for myself for approximately $30 per share in December 2018. Since then, it has rocketed to as high as $160.

Since I bought so close to the bottom in December 2018, I wonder if the SEC is going to be suspicious of insider trading.

TESLA

I started researching this company in early 2019 and determined that they make the best car in the world, but the world doesn’t know it yet.

However, bad news were coming out. Tesla had missed street expectations for one or two quarters. Sales dropped from 2018. They had to make a secondary offering to raise cash. Short sellers were bashing Tesla incessantly. Bears used the TSLAQ symbol to imply bankruptcy. They mocked Elon Musk’s “Funding secured at $420” tweet. They mocked Elon Musk’s unfilled claims. They posted news about Tesla cars on fire and Auto-pilot killing its driver. The stock kept declining. I waited and waited and waited until it would bottom. It bottomed at $180. Then it bounced and I bought it at approximately $206 per share in early June 2019.

Like Roku, I bought Tesla near the bottom. Tesla’s stock had been range bound for over 5 years. After the June 2019 bottom, it has rocketed up to $728 per share. The SEC must be convinced that I have insider information now. They are probably spying on me as I type this.

I can unequivocally tell you that I do not have insider information and I do not know Elon Musk personally. I do not even know the janitor at Tesla.

I am simply very bullish on the company. You can read my other posts for my reasons. However, I did not think that it will shoot up this quickly. It would seem that it is due for a correction, but I have no idea what it will do in the short run.

Compare U.S. to Canada

People might deny it, but for most, the most important issue is money. Consequently, the number one political issue at every election for most voters is money. They might disguise it as jobs, healthcare, education, daycare, etc. But those are all money-related. If people had lots of money, they would care less about those. If they had tens of millions of dollars, they would not need a job and not worry about healthcare and education, because they can pay for the best in the world.

Therefore, the most important mandate for the country’s leader is: Has he/she improved the prosperity of voters?

Compare Canadian to U.S. stock performance, since Justin Trudeau was elected as Prime Minister. The S&P/TSX Composite index has gone up 25.1% from Oct 25, 2015 to Jan 31, 2020. Meanwhile, the U.S. S&P 500 has gone up 58.8% over the same period. (S&P/TSX closed at 13,841.90 on Oct 25, 2015 and 17,318.49 on Jan 31, 2020. S&P 500 closed at 2,030.77 on Oct 25, 2015 and 3,225.52 on Jan 31, 2020.)

Below is a graphical representation of the difference, though I was not able to get Yahoo to show the lines to Jan 31, 2020.

Here is more data to show Trudeau’s underperformance.

Canadian annual GDP growth (%) for 2016: 1.10
Canadian quarterly GDP growth (%):
2017 Q1:  0.6
2017 Q2:  1.2
2017 Q3:  0.4
2017 Q4:  0.4
2018 Q1:  0.5
2018 Q2:  0.4
2018 Q3:  0.6
2018 Q4:  0.2
2019 Q1:  0.2
2019 Q2:  0.9
2019 Q3:  0.3

U.S. annual GDP growth (%) for 2016: 1.57
U.S. quarterly GDP growth (%):
2017 Q1:  2.3
2017 Q2:  2.2
2017 Q3:  3.2
2017 Q4:  3.5
2018 Q1:  2.5
2018 Q2:  3.5
2018 Q3:  2.9
2018 Q4:  1.1
2019 Q1:  3.1
2019 Q2:  2.0
2019 Q3:  2.1

If Trudeau did not bring in 3 times more immigrants than the U.S. (on a per capita basis), Canada’s GDP growth would be even lower, probably in recession.

This is partly why I’ve allocated 100% of my portfolio to U.S. equities for many years.

Note that immigration is how most politicians try to boost GDP. However, this is not important to voters. GDP for the country does little for them. They care more about GDP-per-person, or more specifically, income. After many years of mass immigration, the average income has been relatively flat. This is because most political leaders are incapable of increasing GDP-per-person. Increasing GDP is easy. Simply increase immigration.

Fear of Draw Downs

A common term used in the investment world is “draw down”. It simply refers to the amount that your stock portfolio went down in value, which was caused by a correction, dip, crash or bear market in the stock market.

Investors panic over this. They care more about this than gains. That is, their fear emotion about this is stronger than their greed emotion to make money.

Consequently, investment professionals, such as hedge fund managers and investment advisors are very acute to this and try to minimize it. In fact, they have “mandates” to do this, otherwise they lose clients or get sued by clients. Hence, they hedge and create balanced portfolios with fixed income.

However, this is the major factor that causes under-performance, as explained in my article Why Most funds Underperform. Many investors are willing to forego gains in order to avoid draw downs.

Warren Buffett wrote an article about students of Ben Graham and David Dodd, who became super-investors:

The Superinvestors of Graham and Doddsville

These students became full-time fund managers who outperformed the market, by approximately 8-16% per year on average. However, they under-performed in these years (corresponding to lists in their tables):

  • Walter Schloss:  1, 9, 16, 17, 19, 24
  • Tweedy:  8, 14
  • Sequoia:  1, 2, 3, 4, 9, 10  
  • Charlie Munger:  3, 8, 10, 11, 12
  • Pacific:  5, 7, 8, 9, 10, 15

So, even if you under-perform some years, you can become rich from the stock market. Buffett is the only fund manager who did not under-perform a single year.

They all became rich by outperforming the index over many years.  However, during some years, they had “draw downs” that caused their funds to go negative.

Despite these “draw downs”, Buffett considers them to be the best investors in the world. Were they afraid of draw downs? No. Buffett has said that he and Munger have seen their portfolios drop by 40%, multiple times.

If you look at Charlie Munger’s performance in Buffett’s article, you will see that Munger had draw downs of -31.9% in 1973 and -31.5% in 1974. After those two years, his fund dropped by 53%. Most investors would panic and their hair would burst into flames if they experience this kind of draw down.

Despite this, Buffett considered Munger to be such a superior investor that he asked Munger to be his partner at Berkshire Hathaway.

This is because Buffett and Munger focus on Business Metrics, and less so on stock prices.

If you freak out over draw downs, you will lose money or be a mediocre investor.

You will also see that Munger’s fund was extremely volatile. As explained in my article Why Most funds Underperform, a Wall Street firm would not consider me because my portfolio was volatile. But, the less volatile your portfolio is, the less likely you will outperform.