Someone recently sent me a link to a Motley Fool piece entitled “10 Stocks to Last the Decade, Revisited“. It appeared on Feb. 2 so some of you may have already read it. For those who have not, I thought it might be an interesting read because so many parallels can be drawn between the tech euphoria of the ’90s and the cleantech euphoria of today. In a nutshell, the author looks back at a summer of 2000 Fortune article in which 10 stocks were identified as sure winners for the next decade based on how hot they and their industries had been in the recent past. I don’t want to take anything substantive away from The Fool so I’ll let you read the article (it’s short). As you’ll see, if Fortune had been your portfolio manager back in 2000 and had kept insisting on a buy-and-hold strategy to this day (provided you hadn’t fired it yet)…well…you might not be completely broke as there are still 3 years to go to the decade, but let’s just say that you’d be missing out on a pretty fun party. Cleantech Will Revolutionize The World, But… There is very little doubt in my mind that cleantech and alt energy will continue to gain prominence the world over and that, as investment categories, they will continue to offer very attractive opportunities. After all, those who claimed back in the early 1990s that information technologies and the internet would revolutionize the way we organize our lives and do business couldn’t have been more right. Tech impacts modern economies more than ever before and very few people even remember how they coped before the Crackberry. Nonetheless, North America is awash with stories of people who got burned when the tech bubble burst. Valuations in the sector got driven to preposterous heights on the belief that these technologies were going to fundamentally reshape society. The belief was entirely right; the investment approach (i.e. fully thematic with no regards for business fundamentals) was highly risky. Many cleantech and alt energy firms are not yet profitable, and, of those that are, profitability often depends on government support. These securities are thus not particularly well positioned to weather a massive shock to financial markets, such as a lengthy correction. Overall, cleantech and alt energy remain very volatile asset classes. Now I’m sure there are plenty of traders out there who will be able to successfully turn the volatility into strong gains; I’ve done quite well trading in and out of a few alt energy stocks even though that’s not a style that I favor. But in the medium and long terms, if you really want to be sure to pick the winners (and there will be some big winners), you should always keep a healthy focus on good ol’ business and financial fundamentals like top-line growth, margin improvements, debt, and the ability to remain at the cutting edge of technological developments. Remember, the belief is correct, but is the investment strategy appropriate?
