Friday, September 07, 2007

The Solar Bubble and Non-Bubble

It is 2007, ten years after the Internet boom started becoming obvious, so it's time for another bubble.

It has been over two weeks without a blog post. I have been exploring how to invest my money. Investing in things that can be done completely on the Web with a few clicks provides the best financial return on energy with chronic fatigue syndrome. After selling the condo, I walked into the local First American Title Company office and the receptionist handed me the biggest check I've held since paying Stanford tuition each quarter (oh, except for when I made the down payment). Surprisingly to me, she didn't ask to check any identification. Recovering a small down payment for a condo in the Bay Area is a nice chunk of money.

I didn't actually make any money from owning the condo for only two years, and investing the down payment in stocks would have been a much better return. Having just started to earn money, I had just started to pay attention to the stock market. But each time I found myself thinking, I should buy that stock because the company is awesome (and most people don't know how awesome it is yet), I didn't have any cash or I needed it for the down payment. I was actually only interested in two stocks, at IPO, and . By my calculation, that would have been an average over 300% return in 3 years! Much better than zero return on real estate.

SPWR is currently trading at around 300 price/earnings ratio with market capitalization of 5 billion. By now, plenty of people have caught on to the solar energy market potential. China itself has had about a dozen IPOs for various solar equipment manufacturers in the last 3-6 months. The other day I saw one go up 10% in a day, and it was tempting to take a gamble and catch the wave. Chances are, this is only the beginning of the bubble. But I don't know enough about it.

I tend to think the opposite of what my dad thinks for investment choices, but one good advice he mentioned is, invest in what you know, from Peter Lynch, famous for managing a long-time very profitable Fidelity mutual fund in the past. One of his books, Beating the Street, was one of the first (and only) books on investing that I finished reading. It is in "English" and very readable. What I recall of the basic idea is, just take your favorite and best companies that you already frequent, from shoe stores to restaurant chains, and pick those stocks to research and invest in. (In our household, that might mean Nordstrom, Ross, Coca-Cola, Pepsi, Apple, and Google.) Because if you like it and are buying from it, most likely a lot of other people are too. And you'll probably know more about the company and be interesting in following it.

Despite the dot-com boom level P/E ratio, I still think SPWR is a worthwhile long-term investment. Mathematically-speaking, as a young company is just turning from loss to profit, with financial statements showing multiplying revenue and profit, the P/E ratio is likely to go down fast. And regarding a market capitalization of 5 billion, if I think long-term, that's tiny. What's the market size potential for solar energy? And alternative energy? For alternative energy, I say it is eventually almost the entire energy market currently dominated by oil and coal, which is enormous. Of course, the time frame for reaching that potential needs to be accounted for. My guess is faster than people think. (Not unlike back in 2002 when people doubted that significant numbers of people would buy more expensive hybrid cars, which is now only a few years later the most popular car in the Silicon Valley.) Competing companies also need to be accounted for. Which is why I'd bet on SunPower which looks to me like the top company instead of the sprouting solar mushroom companies in China and elsewhere.

I had been reading about and its record-setting solar panel efficiencies with unique out-of-the-box design several years before and independently of thinking about investments. They also purchased , a solar systems provider based in Berkeley that I had been reading about, not for investment purposes but because they were interesting and cool. They seem to have the best quality at many levels of the business chain. (And one time a few years ago, I took a wrong turn in Sunnyvale and ended up in their parking lot. That was a sign that I should take notice of the company. ;) )

Now to really go off on a tangent, back then if you searched for SunPower using Google, the first search result was this company in Ohio. They also have the URL so I often ended up at this company's Web site reading about free-piston Stirling engines instead of solar cells. Although I still don't know what free-piston Stirling engines are, they did mention some indirect application to solar projects. Anyway, the tangent was that the last name of the inventor and founder is Beale, and around this time I joined Danse Libre and the name rang a bell. I had been curious to ask our friend if he has any relation to this since he had mentioned being from Ohio and is also an engineering stud, but have so far forgotten to.

Back to the sprouting solar companies. Reading a little tells me that most of them are manufacturing the lower efficiency, lower quality, and cheaper polycrystalline wafers, and most of them only produce at one level of the supply chain. Some have questionable management experience. And a few of them are already in trouble because of rising costs of polysilicon.

Anyway, the solar bubble is already underway. So it's time for me to look into lesser known alternative energy such as... poop. That might be another post topic after I research it.

The alternative energy bubble is scarier than the Internet bubble. With the Internet bubble, there might have been a lot of junk created but it mostly existed virtually inside computers. With the solar bubble, we could have companies producing tons of inefficient panels, making false claims, and end up covering large amounts of rooftops and land with junk material. Material that needs to be manufactured with people wearing space suits. With windmills for wind power, we can end up covering miles of pristine land with skyscraper windmills. As with bubble companies, what if they don't know what they're doing? Not to mention genetically altering our food supply for biofuels and claiming that seeds and pollen won't escape a field.

Anyways, stay tuned for more financial topics, including my experimentation with the new Web 2.0 peer-to-peer lending.