Speculating Because You "Like" To Have Something

[TripleB]

I'll refer to this as speculating and not investing, as HB would use the terms.

When I was younger, I'd hear people say things like "invest in products you use." For example, you drink soda so invest in Coca Cola. You smoke cigarettes, invest in Philip Morris. The idea being that you know and understand the product.

Of course, that's a complete bunch of nonsense; just because you use a product and understand the product has no bearing on what the financial condition or management of the company is doing.

However, I have to say that I started using Apple computers exclusively (over Windows) in 2001 when OS X first came out. Had I followed this principle, I'd have a huge return on at least one chunk of money. Of course this is survival bias at work, because if Apple didn't become the biggest company in the US, then we wouldn't be having this conversation, just like Nike Sneakers didn't go up 5000% and I'm not talking about them in this post because they didn't.

I do like Berkshire Hathaway and I own a small chunk in my small variable portfolio. I get psychological value out of seeing it in my portfolio when I log into my account.

Does anyone here speculate in various companies simply because you gain psychological value from holding them? Maybe a company that does social good? Or a company that makes products you enjoy? Or a company run by a CEO that you have read all his books and hold great respect for? Or another reason?

[Odysseusa]

For my variable portfolio (VP), I invest mostly dividend stocks that offer 3% to 4% in dividend yield which gives me almost 1% of dividend every 3 months. Psychologically speaking, when I see the dividend of almost 1% every 3 months, it gives me an assurance that investing is paying off for me, instead of speculating that the share price will appreciate within a few years, which is too far for me. I would rather get the dividend every 3 months instead of seeing the price of the stock doubling every 3 years.

[MediumTex]

I enjoy living in an industrialized economy that depends for its survival upon the ready availability of fossil fuels, and thus I do a little VP investing in oil and gas companies.

[Jan Van]

Does anyone here speculate in various companies simply because you gain psychological value from holding them? Maybe a company that does social good? Or a company that makes products you enjoy? Or a company run by a CEO that you have read all his books and hold great respect for? Or another reason?

Yup.... Amazon, Apple, Google.

Of course, I do need to apply this: Apprenticed Investor: Stop-Loss Breakdown

[smurff]

I do like Berkshire Hathaway and I own a small chunk in my small variable portfolio. I get psychological value out of seeing it in my portfolio when I log into my account.

TripleB, I  hold shares of Berkshire Hathaway in my VP for the same reason.  Also, it means I get to go to the annual meeting (AKA "Woodstock of Capitalism") if I have the time and inclination.

[Bob]

In the early 1980s when I was in grad school, I bought gas at an Exxon station.  I thought, why not invest in Exxon since I buy gas there every week so, I scraped together $900 and bought 30 shares on Exxon.  I did the same a few years later with Chevron.  Today, those two investments provide me with about $3,000 a year in dividends - and it grows every year as Exxon and Chevron increase their annual distributions.  Obviously $3000 a year is not a huge amount of money but as my mom used to say, it is better than a kick in the shins.

Like MT, I too primarily have oil/gas holdings in my VP beyond my positions in XOM and CVX.  The monthly/quarterly dividends that these companies provide a nice addition to my VP.

[Indices]

Just remember folks, "trees don't grow to the sky" as a Benjamin Graham liked to say. At some point our society may come up with an oil replacement(s) and the stock price will plummet.

[MediumTex]

Just remember folks, "trees don't grow to the sky" as a Benjamin Graham liked to say. At some point our society may come up with an oil replacement(s) and the stock price will plummet.

Look into the matter more deeply and you will see how unrealistic what you are suggesting really is.

It's not overstating things to say that fossil fuels are to industrial capitalism as oxygen is to the human body.  You don't replace it, you just hope you always have enough of it to meet the minimum requirements.

The reason that there can never be a replacement for fossil fuels that will provide MORE energy is that fossil fuels basically have a million year headstart on anything we might try to replace them with.

To date, all we have come up with to replace fossil fuels are comically poor substitutes for the versatility, portability, and energy density provided by oil, coal and natural gas.

Any alternative to fossil fuels is basically a niche application, and even within that niche doesn't necessarily provide a superior source of energy to fossil fuels.

At some point, humanity will definitely move into some sort of post-fossil fuels type of economy and society, but it won't be because the price of fossil fuels collapsed, it will be because we adopted a new set of economic, cultural and social norms in response to the feedstock of industrial capitalism basically no longer being available at prices that can support what we have come to think of as a normal economic configuration.  Note, too, that what we have come to think of as a "normal" set of economic conditions is one in which economic output is increasing at some rate north of zero, which means that natural resource inputs must also be increasing at some rate north of zero (you don't get economic growth from declining raw material inputs).  In other words, we find ourselves within a system which basically relies upon perpetual and exponential economic growth as a baseline for "normal" functioning.  What we are talking about here is basically a "trees growing to the sky" situation with respect to the entire world economy, which is of course impossible.  It may just take a few more decades for this reality to come into sharper focus.

The key to understanding when any system is going to break is to indentify what the "least abundant necessity" is with respect to the normal functioning of the system.  I believe that in the case of industrial capitalism the least abundant necessity will ultimately be fossil fuels below a certain price threshold.  What will happen once those fuels are no longer available below a certain price threshold is not that a new form of energy will take its place; rather, what will happen is the economy will, of necessity, see many structural changes that will be responsive to the new set of underlying conditions.

You know what will happen once we reach this threshold and the economy undergoes dramatic changes?  Do you know what form of energy we will be using then?  It will still be for the most part fossil fuels, except it will be fossil fuels at a much higher price point, but still at a price point lower than most of what we think of as "alternative energy."  The key to understanding why alternative energy will forever be a niche in our overall energy needs is that as fossil fuel prices rise, so too will the cost of alternative energy, since so much of alternative energy relies upon fossil fuel inputs in the first place.  Thus, when fossil fuel prices rise, so too does the cost of alternative energy.

The thing about alternative energy that leads people so far from the underlying realities is the various science fiction narratives in which energy inputs at some point become almost magically available in near-infinite quantities.  The ironic reality is that the only time this narrative was actually close to what was happening in the real world was in the 1950-2000 period when fossil fuels were available in near infinite quantities.  The idea that there will be some post-fossil fuel source of energy that will also be available in much greater quantities than fossil fuels ever were (presumably with fewer environmental impacts as well) is, IMHO, likely to remain science fiction.

As usual, I may be wrong, but I would encourage everyone to be aware of the ways in which "magical thinking" creeps into what we think of as rational perceptions of the world around us and the shape of the future.

To me, the basic question, on a 10,000 year timeline of human progress from the dawn of agriculture to today, is whether the last 100 years are more likely to be an anomaly in which human population and tecnhological progress leapt forward in response to a one-time allotment of an immensely useful but non-renewable source of energy, or do the last 100 years suggest that humanity has somehow set off on a historically unprecedented trajectory of growth and progress that will continue into perpetuity?  The exciting thing about being alive today (among other things) is that many of us will likely get a definitive answer to this question during our lifetimes.

[clacy]

The large global oil companies will likely be a major factor in any new technological advances.  They will gobble up alternative energy companies as they transition away from fossil fuels.  That process will take 50 years, and will be similar to the way the large pharma companies are swallowing up the biotech firms.

I see no way that the major oil companies aren't still very relevant 30 years from now.

[stone]

Medium Tex, there is plenty of solar energy to be harvested:
http://en.wikipedia.org/wiki/Solar_energy
The total solar energy absorbed by Earth's atmosphere, oceans and land masses is approximately 3,850,000 exajoules (EJ) per year.[6] In 2002, this was more energy in one hour than the world used in one year.

When you say it is too expensive, it is worth digging into quite what is meant by that. There are 20M? unemployed people in the USA and a mind boggling number of unemployed or underemployed people world wide. It is just semantics to say that it is more "expensive" to have people unemployed (or sitting in an unused taxi in a taxi rank or doing the more pointless end of investment banking) rather than assembling solar power infrastructure. I guess you are correct and we will not use fossil fuels to set up for the day when they run out. As you suggest we will be like the people on Easter Island who cut down their last tree and so doomed themselves to starvation. But it will be because we are stupid and greedy not because we didn't have a choice.

[stone]

Medium Tex, if energy were roughly equally affordable for all 7B people on Earth, then I guess fossil fuels would already be far from able to meet demand. We would presumably already be in an alternative energy economy.

[MediumTex]

Medium Tex, if energy were roughly equally affordable for all 7B people on Earth, then I guess fossil fuels would already be far from able to meet demand. We would presumably already be in an alternative energy economy.

Do you understand what I mean when I say that alternative energy is just another fossil fuel product?

Where do you think solar panels come from?  They come from an industrial infrastructure that has fossil fuels as the primary energy input. 

When the price of fossil fuels go up, so do the price of solar panels.

IMHO, alternative energy is mostly based upon cargo cult thinking--i.e., eventually science and technology will deliver us a form of energy superior to fossil fuels, even though there is no real reason to believe this will happen (since almost everything we think of as "alternative energy" is really just a derivative of fossil fuels).

[stone]

Medium Tex, initially before you have solar power infrastructure, it is very hard to make solar power plants without using fossil fuels. Once you have a solar power infrastructure in place it should be possible to harvest solar power using just solar power and human ingenuity/labour. We have massive amounts of untapped human ingenuity and labour at the moment. We also have massive amounts of untapped solar power. "Cost" is just an arbitary monetary construct. "Cost" sometimes comes accross to me as being little more than what Goldman Sachs sets it at.

[Lone Wolf]

We have massive amounts of untapped human ingenuity and labour at the moment.

What supply do you mean?  So long as a massive welfare state exists, what is supposed to be the impetus for unemployed, unskilled workers to transform themselves into solar panel designers?  You can't simply swap one human for another.  Not all people have the same talents, interests, and motivations.

"Cost" is just an arbitary monetary construct. "Cost" sometimes comes accross to me as being little more than what Goldman Sachs sets it at.

I know you're upset that this problem isn't solved, but the reality is that this is simply hard, expensive and will take time.  Semiconductor materials and the process of making solar panels are, quite simply, costly things.  These processes will gradually improve (ideally at a rate that outstrips the rising price of fossil fuels.)  For now, though, they are environmentally messy and take a lot of fossil fuels as inputs.

IMO, this stuff will work itself out in due time.  Still, for the reasons that MT mentioned, don't expect solar to do all the heavy lifting on its own.  I think that the near future is likely to be a blend of fossil fuels, nuclear power, and alternative strategies like solar.

[Indices]

Medium Tex, if energy were roughly equally affordable for all 7B people on Earth, then I guess fossil fuels would already be far from able to meet demand. We would presumably already be in an alternative energy economy.

Do you understand what I mean when I say that alternative energy is just another fossil fuel product?

Where do you think solar panels come from?  They come from an industrial infrastructure that has fossil fuels as the primary energy input. 

When the price of fossil fuels go up, so do the price of solar panels.

IMHO, alternative energy is mostly based upon cargo cult thinking--i.e., eventually science and technology will deliver us a form of energy superior to fossil fuels, even though there is no real reason to believe this will happen (since almost everything we think of as "alternative energy" is really just a derivative of fossil fuels).

Yes but some of these fossil fuels are not at this moment past peak production. Natural gas has not reached its peak. Coal has not reached its peak. Uranium has not reached its peak.

Also much of our power comes from renewables already. Hydroelectric is the biggest. There will come a point, rather soon, where renewable energy will be the energy used to construct more renewable energy plants. Yes oil production is down due to peak oil having occurred, but that is only one energy source. We have several others. Clearly natural gas is not near its peak as demand is skyrocketing and the price continues to fall. While I think there is potential for a strongly negative outcome in the near future, there is also potential for a positive one.

[stone]

Lone Wolf "What supply do you mean?  So long as a massive welfare state exists, what is supposed to be the impetus for unemployed, unskilled workers to transform themselves into solar panel designers?  You can't simply swap one human for another.  Not all people have the same talents, interests, and motivations."
I don't agree that building solar power plants requires human resources that this planet does not currently have spare. People are motivated more often than not simply by wanting to earn a living.
For a supply of people see:
http://www.metro.co.uk/news/878903-500- ... land-store

If you look at the wider world, the amount of under-employed people is immense. I agree that the welfare state is set up in a disasterous way. I'd rather have a citizen's dividend that people could earn on top of. Nevertheless, if you advertised for jobs building a solar power plant you could fill them. If people thought it would pay the bills, they would train to be solar power engineers. In the 1960s very few people trained to worked in finance. Nowadays that is the default thing for UK people to do if they are numerate. Those could be the people designing new renewable energy technologies. The only reason most of them are doing the jobs that they do is because those are the jobs that are available.

[MediumTex]

Yes but some of these fossil fuels are not at this moment past peak production. Natural gas has not reached its peak. Coal has not reached its peak. Uranium has not reached its peak.

The points I am making are unrelated to peak oil, peak natural gas and peak coal.  I am simply making the point that any system that is premised upon an ever-increasing supply of any finite resource in a closed system will eventually run into barriers to further expansion. 

IMHO, one of the problem with economics is that it imagines that there will always be a substitute for any input necessary for economic growth.  While this is usually true, it is not always true, and in the same way that economics provides no answer to the person who has run out of air to breathe ("maybe you could just breathe some of this Co2 instead") or water to drink ("maybe you could just drink some of this seawater"), economics has provided no answer to what happens to industrial capitalism once it becomes impossible to increase the supply of fossil fuels each year (which is what economic models currently take as a given).

Also much of our power comes from renewables already. Hydroelectric is the biggest.

It's about 10% overall, 6% for hydro.

http://en.wikipedia.org/wiki/Renewable_ ... ted_States

There will come a point, rather soon, where renewable energy will be the energy used to construct more renewable energy plants.

I understand that this is a common belief, but I am suggesting that it is based upon some flawed assumptions.  I would encourage you or anyone else to think about these assumptions more deeply.  Start with the concept of "net energy" and think about whether any form of renewable energy generates enough surplus energy to undertake the incredibly capital intensive effort that large scale renewable energy infrastructure requires.  If you look at it this way, the necessity of fossil fuel inputs for the construction and maintenance of renewable energy infrastructure is easier to see.

Of all the renewables, hydro is probably the best (i.e., creates most surplus energy without disruption), but most of the world's favorable hydro-power locations already have dams in place, so this is an area of renewable energy that is unlikely to see dramatic growth from its current position, which in the U.S. is about 6% of our total energy needs.

Yes oil production is down due to peak oil having occurred, but that is only one energy source. We have several others. Clearly natural gas is not near its peak as demand is skyrocketing and the price continues to fall. While I think there is potential for a strongly negative outcome in the near future, there is also potential for a positive one.

There is clearly the potential for a positive outcome, but I would suggest that part of that positive outcome is recognizing that the world economy will see dramatic changes in coming decades.  The high-consumption lifestyle we have come to think of as normal will go away, much of the third world will never experience the prosperity that it imagines is right around the corner, and there will continue to be chaotic international political relations driven by the increasing desire to secure fossil fuel reserves.

Humanity won't cease to exist, but it will cease to exist in the form to which it has become accustomed over the last century or so (i.e., based upon the dogmatic belief that growth in material prosperity and human population can continue uninterrupted into perpetuity).  IMHO, many of our current views on these matters are the equivalent of the clerics refusing to look into Galileo's telescope for fear of what they might see. 

I just offer this perspective as a counterpoint to the science fiction-driven narratives of the future, many of which have failed to materialize.  Here are a few examples:

1. The speed at which humans travel has not increased in decades.

2. The distance manned space missions have achieved has remained static for almost 40 years (and arguably a manned moon mission today would be impossible, so we may have actually taken a large step backward in recent decades).

3. Life expectancy gains are seeing diminishing marginal returns, and in many cases there is little quality of life in the extra years of life science has provided.

4. Food production gains are seeing diminishing marginal returns, along with some nasty externalities in the form of possible problems with genetically modified food.

5. In the 1950s, the belief was that nuclear power would lead to a future in which electricity became "too cheap to meter" and energy would essentially be free.  Today, 60 years later, 14% of the world's energy is produced by nuclear power and no one has come up with any solution to storing nuclear waste or preventing nuclear power accidents.  Overall, I would say nuclear power has been an enormous disappointment.

The good news is that human beings are basically the same creatures that we were before we got outfitted with all of this fossil fuel-powered gear, and when the fossil fuel age passes, we will find that we are resilient and will find new ways of living that are responsive to our new conditions, even if those conditions by today's standards might be considered shocking backward steps.

When you open the historical aperture a bit wider and put on the energy-as-driver-of economic-activity lens, you see that from an energy perspective we are living through a golden age in human history.  While it is possible that humanity has reached some kind of permanently high plateau of wealth, prosperity and progress, history would suggest otherwise.  Note, though, that the trough of the next dip in human affairs (perhaps in coming decades as a result of unanticipated shortfalls in energy inputs) is still likely to be shallower than the last dip in human affairs in the dark ages, which means that even if we saw dramatic declines in standards of living, the multi-milennia secular bull market in humans would remain intact.  So we've got that going for us, which is nice.

[stone]

Medium Tex, I think it is a mistake to equate increasing energy consumption and population growth with "prosperity". If you take some other measure of "prosperity" such as low infant mortality rate then countries such as Singapore, Sweden and Japan that have the lowest rates also have very low (or negative) population growth. Prosperous living need not entail ever increasing energy consumption. Technical inovations mean less energy and materials are required to do the same thing. I don't see why a slowly declining global population using human ingenuity to harvest renewable energy couldn't lead to a situation in the future where a global population of say 1B was living in a world largely reforested with replenished fish stocks providing plenty of food. Perhaps the gun enthusiasts would still have plenty of bears to shoot etc etc. Ofcourse the choice is in our hands. It would be much easier to turn it all to a waste land. Mainstream economics is, I agree, all about forcing 99% of the world's population to scavenge whilst 1% screw everything up.

[Lone Wolf]

Anyone have thoughts on the E-Cat technology that's supposed to be demoed on the 28th?  On paper, this thing is supposed to do cheap cold fusion.  Really cheap materials assembled to create really cheap power.

http://www.forbes.com/sites/markgibbs/2 ... -new-world

What say you all?  Are we set for a changed world on the 28th or yet another "too good to be true" alternative energy disappointment? 

[MediumTex]

Anyone have thoughts on the E-Cat technology that's supposed to be demoed on the 28th?  On paper, this thing is supposed to do cheap cold fusion.  Really cheap materials assembled to create really cheap power.

http://www.forbes.com/sites/markgibbs/2 ... -new-world

What say you all?  Are we set for a changed world on the 28th or yet another "too good to be true" alternative energy disappointment?  :)

I will believe it when I see it.  

Thanks for posting the story.  I love following stuff like this, partly because I appreciate how important it would be if true, and partly because I love the drama of a scam being exposed.

[AdamA]

There's a great book about this called "Sun in a Bottle." http://www.amazon.com/gp/aw/d/067002033 ... 169&sr=8-1

It chronicles the history of the search for cold fusion, which is full of scientific drama. 

[Lone Wolf]

I will believe it when I see it.  

Thanks for posting the story.  I love following stuff like this, partly because I appreciate how important it would be if true, and partly because I love the drama of a scam being exposed.

Exactly true!  If it doesn't really work, you can't help but wonder what the trick was that made it look so convincing.  One of the main ingredients is that we all badly want to believe that things like this are possible.  That certainly helps make illusions all the more convincing.

And if it does actually work... well, in short, whoa.

The ultimate unlikely, ironic twist would be that the tech is real and will be demonstrated on October 28th... but the world ends on October 21st when serial doomsday-proclaimer Harold Camping predicts it will and we never get to see it. 

[MediumTex]

I will believe it when I see it.  

Thanks for posting the story.  I love following stuff like this, partly because I appreciate how important it would be if true, and partly because I love the drama of a scam being exposed.

Exactly true!  If it doesn't really work, you can't help but wonder what the trick was that made it look so convincing.  One of the main ingredients is that we all badly want to believe that things like this are possible.  That certainly helps make illusions all the more convincing.

And if it does actually work... well, in short, whoa.

The ultimate unlikely, ironic twist would be that the tech is real and will be demonstrated on October 28th... but the world ends on October 21st when serial doomsday-proclaimer Harold Camping predicts it will and we never get to see it. 

My birthday is the 28th, so it would be a nice treat to see a world changing technology unveiled...or it might just make for an interesting trick if it's a scam.

It looks like the 28th demo is just the latest in a series of demos, so I suppose the real test will be when a third party such as NASA is able to independently confirm that the device is doing what the creators say that it's doing.

[stone]

If cold fusion works well and can be economically harvested then great, yippee etc. If it doesn't, then lets not forget that we have a massive fusion reactor at our disposal and the technology is already developed to harvest it. It is called the sun. http://en.wikipedia.org/wiki/Solar_thermal_energy

That developer of cold fusion is obviously taking a very idiosyncratic route to revealing it- bypassing conventional scientific ways of communicating such as submitting a paper to a mainstream journal such as Nature or whatever. perhaps he is a maverick. I presume he is just a bullshitter. I hope I'm wrong.

[Lone Wolf]

My birthday is the 28th, so it would be a nice treat to see a world changing technology unveiled...or it might just make for an interesting trick if it's a scam.

Happy birthday!  Yes, it seems we're in for an interesting trick no matter how this plays out.

Stories like this are a lot of fun.  I like watching the eternal battle of faith vs. reason play out inside my own head.  Even though this has so many of the hallmarks of a scam (completely secret methods, strange "closed" tests of the tech, promises that are simply too good to be true), it pushes all the right buttons for the part of us all that wants to believe a Star Trek-style future is humanity's birthright. 

One thing that is unique here is that there appear to be some mainstream scientists that are impressed with the results so far.  This was a bit of a surprise.

Ultimately, though, this is simply not the way that the world works, at least from what I've observed.  These deux ex machina-style solutions to enormous problems are archetypes that humans love to fantasize about but rarely (if ever?) materialize.  You could make the argument (and to some extent, MT, I think that you do) that fossil fuels were just such a blessing.  But in general, life's just not this way.  Things tend to just grind forward a bit at a time.

The cavalry never comes but we muddle through anyway.  I imagine it'll be the same story here.