The Ultimate Stock Market Buy and Hold Investors are Betting Big Here
Stock-Markets / Investing 2009 Oct 08, 2009 - 12:21 PM GMTBy: Q1_Publishing
We’re entering earnings season once again and most investors are on edge.
Will companies be able to top estimates again? Earnings estimates are low, but they’re not as low as they were last quarter when 70% of the S&P 500 beat estimates.
Will the $3.5 trillion parked in money market funds continue to make its way back into the market? Once cash and bank deposits are added in, there’s $9.55 trillion ready to be spent once consumer confidence returns or that could go chasing after stocks.
Will the Fed put an end to the party and start raising interest rates sooner than later? Australia’s central bank started raising rates yesterday.
These are all questions for the short-term though and, if they’ve been on your mind, you know how easy they are to get caught up in. But I want to step aside from the daily upheavals and look at where some of the savviest investors with a time horizon of three to five years see the biggest rewards.
Buy and “Can’t Sell” Investing
Imagine you were forced to buy and hold a stock for five years. You cannot sell out early, take partial profits, or anything like that. You must hold on for five years.
What sector would you invest in? Biotech, healthcare, gold, energy, etc?
Kind of a tough choice, huh?
Well, there are some investors who are faced with this question every day.
They’re venture capitalists. They invest in private businesses – start-ups, mostly – and they’re in them for the long haul. In most cases there’s no early or easy out. Either takeover or IPO is the only way to really cash out. That’s why venture capitalists are true long-term holders.
And for the first time in history, they’re betting on a completely new sector which has an exceptionally high upside.
Last quarter, venture capitalists (as a whole) drifted away from the traditional mainstays of biotech and software and moved into clean energy technologies. Deloitte & Touche reports 27% of all venture capital investments flowed into clean tech. Meanwhile, biotech, software, and medical devices moved to the back of the line with 24%, 18%, and 17% respectively.
The clean tech investments were spread across all sorts of sub sectors. Solar led the way with the most investment dollars and was followed by energy efficient building materials, advanced batteries, hybrid cars, etc.
The investments were spread around the world too. Two-thirds of all clean tech venture capital investments were in North America. Europe and Israel took 29%. And 4% went to Asia and India.
The Next Big Thing
Although this news didn’t make too many headlines, it does signify a very important trend.
You see, in exchange for being “tied up” in a high-risk investment for years, venture capitalists need to see the potential for massive rewards. After all, many of the companies will fail (I’ve seen estimates as high as 60% of all venture capital investments fail completely). And many of those venture capital investments that do “succeed,” they may never turn out to be anything more than a dozen guys installing solar panels in Arizona.
That’s why venture capitalists have to go after the big prizes and it’s always good to keep an eye on where they’re putting their high-risk/exceptionally high reward investment capital.
It looks like they see what we see…
- Much higher energy prices – inevitable result of inept nationalized oil companies, offshore drilling ban, and inflation
- Government mandated energy efficient – fuel efficiency, building codes, light bulbs
- Consumers turning green – green is the new black, being green is “cool,” etc.
There are a lot of drivers for an ongoing rally in green energy.
Pockets of Strength
Prosperity Dispatch readers know, there are two ways to make money in the stock market.
There’s the contrarian approach, which entails buying stuff no one wants and waiting for it to be in demand again. This is perfect at inflection points in the market.
Then there’s the herd approach. This involves catching onto a major trend and riding it to the top. The Internet in the mid 90’s is a good example. The modern Internet was around for over a decade, yet it was for geeks only. Then in the 90’s, thanks in large part to the efforts of AOL and billions of low-cost free CDs, the Internet turned mainstream.
You certainly wouldn’t have been the first to buy into the Internet in the mid-90s, but you certainly weren’t the last either. And that was a bubble that turned more regular investors into millionaires than any one I can think of.
That’s the key thing to remember in the clean technology field. You certainly won’t be the first in, but at this point you certainly won’t be the last either.
Clean technology, regardless of its relative efficiency or the seriously flawed global warming/climate change arguments (ironic how a lot of folks blame the computer models which helped create the housing bubble now implicitly trust the climate change computer models which predict the end of the world), is going to be a big winner in the years ahead.
Earlier this year I called clean energy the “next big bubble” and yesterday I told Prudent Investing readers it’s “like 1995” in clean tech. It’s still coming together and it’s just another positive sign the venture capitalists are getting on board too.
Good investing,
Andrew Mickey
Chief Investment Strategist, Q1 Publishing
Disclosure: Author currently holds a long position in Silvercorp Metals (SVM), physical silver, and no position in any of the other companies mentioned.
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