The Inconvenient Truth seems to be that investments in Clean Energy have fallen lately. And that trend is going to continue for quite a while. Investments in green energy fell by 14% in the third quarter of 2013 compared to the previous quarter. Only a Christmas shopping spree in clean energy can prevent 2013 from being the second year in a row with falling investments in renewables and energy-smart technologies.
The major challenge is that most Clean Energy Technologies are still in an early face of their product life cycle. Heavy investments are needed for Research & Development and the rewards for investors when the product goes to market are far from guaranteed. This is why government subsidies are necessary to mature this market.
In the US President Barack Obama has done what he could to help the green cause. This has brought good results in the form of employment and more environmentally safe technologies being installed (electricity generation from wind and solar power increased nearly 71 and 40.3 percent between 2008 and 2010) . But unfortunately the costs have been too high.
According to figures from The Institute for Energy Research $34.4 Billion have been invested and 2,298 permanent jobs have been created. An average of $14.49 million of tax payers’ money per job. With the recent budget crises in mind it’s probably safe to bet that the US will not be ramping up its Clean Energy investments any time soon.
And the same picture shows up all over Europe with Germany the most notable country to limit and/or withdraw subsidies. The government subsidies for installing solar panels used to be so generous in Germany that nobody could afford to not have solar energy. But since job creation has halted even governments have to be efficient with how they’re allocating funds.
To end on a positive note, though, if the light at the end of the tunnel is fueled by green energy it should still be burning when government subsidies are ready to return.
I am fascinated by numbers. What fascinates me the most is telling the stories Behind The Numbers. JPLisdorf @ twitter.com
Thursday, October 17, 2013
Saturday, October 5, 2013
What Stephen Levitt didn’t understand about ”Good to Great”
A little while back Stephen D. Levitt, co-author of “Freakonomics”, wrote a blog post criticizing Jim Collins’ seminal book “Good to Great” . Unfortunately, everything he criticizes only underlines how little he understands about business and stock markets.
And I mean that in the nicest way possible.
No joke, Levitt will even be the first to admit that he doesn’t know anything about stocks, markets or general economic patterns. “If you ask me about whether the stock market's going to go up or down, if you ask me whether the economy's going to grow or shrink, if you ask me whether deflation's good or bad, if you ask me about taxes-I mean, it would be total fakery if I said I knew anything about any of those things" he says in the foreword to Freakonomics.
What then prompted him to go out of his way to criticize Collins’ book is beyond me. But it doesn’t stop me from defending a book I find to be very insightful.
Levitt has misunderstood the basic premise of the book since he thinks the book is about companies that made “the transition from good to great, but they also had the sorts of characteristics which made them “built to last” (which is the title of Collins’s earlier book).”
Although he is right about the part that Collins’ earlier book was called “Built to Last” the book’s stated theme is not as he writes. “Good to Great” is simply about companies who were good (part of the S&P 500) and became Great (beating the average market return three times over a 15-year period). It is about the strategies that these companies utilized and what sets them apart from other companies. The book describes periods of different companies and what they did during a particular 15-year period of their history. Nowhere in the book does it guarantee that these companies are going to keep giving continued above-average returns.
Levitt has noted that Good to Great companies don’t guarantee perpetual above-average returns, but his message “Overall, a portfolio of the “good to great” companies looks like it would have underperformed the S&P 500” only proves that he doesn’t know anything about investing. Timing is the essential art of investing. If Levitt read the book thinking he was going to find the magic formula for getting continuous risk-adjusted returns above the mean he’d be wrong. There’s no secret formula for finding companies that will always get you returns above the S&P 500. If there was a secret formula by the time the book came out the market would have adjusted prices to predict such future returns.
The fact that Levitt hasn’t even taken the time to research if the companies stuck to the strategies that helped them make the leap from Good to Great further accentuates that his blog should not be taken that seriously.
But the timing of the blog post is curious at least. As published on July 28th 2007 Levitt ends up looking like one of the last passengers on the Titanic saying that the course of this ship is not safe. Only a few months later the whole market crashed (including the Good to Great companies) and no one could predict who would outperform the S&P 500.
The fact that the accompanying graphs to Levitt’s blog post show the intra-day movements of 3 Good to Great-companies once again proves that the Freakonomics-team isn’t in the investment business. Only Day Traders pay any attention to intra-day price changes. And Day Traders don’t read Jim Collins.
To quote the honorable Jay-Z:
“Audemars that's losing time, hidden behind all these big rocks
(Ball so hard) I'm shocked too, I'm supposed to be locked up too”
Unfortunately, that’s not really a cool way to finish off this post. Especially because I haven’t expressed my deep respect for Levitt and most of his writing. “Freakonomics” and “Super Freakonomics” were hugely inspirational reads for me. But in those books he and Dubner wrote about subjects where they’d done the necessary research to make bold statements. The same can’t be said about his ramblings about “Good to Great” where he in a hastily-put-together blog contradicts a researcher whose team has spent the equivalent of more than ten person-years researching for the book.
To quote Jay-Z from the song “U Don’t Know”
“The coke prices up and down like it's Wall Street, holmes.
But this is worse than the Dow Jones, your brains are now blown”
And I mean that in the nicest way possible.
No joke, Levitt will even be the first to admit that he doesn’t know anything about stocks, markets or general economic patterns. “If you ask me about whether the stock market's going to go up or down, if you ask me whether the economy's going to grow or shrink, if you ask me whether deflation's good or bad, if you ask me about taxes-I mean, it would be total fakery if I said I knew anything about any of those things" he says in the foreword to Freakonomics.
What then prompted him to go out of his way to criticize Collins’ book is beyond me. But it doesn’t stop me from defending a book I find to be very insightful.
Levitt has misunderstood the basic premise of the book since he thinks the book is about companies that made “the transition from good to great, but they also had the sorts of characteristics which made them “built to last” (which is the title of Collins’s earlier book).”
Although he is right about the part that Collins’ earlier book was called “Built to Last” the book’s stated theme is not as he writes. “Good to Great” is simply about companies who were good (part of the S&P 500) and became Great (beating the average market return three times over a 15-year period). It is about the strategies that these companies utilized and what sets them apart from other companies. The book describes periods of different companies and what they did during a particular 15-year period of their history. Nowhere in the book does it guarantee that these companies are going to keep giving continued above-average returns.
Levitt has noted that Good to Great companies don’t guarantee perpetual above-average returns, but his message “Overall, a portfolio of the “good to great” companies looks like it would have underperformed the S&P 500” only proves that he doesn’t know anything about investing. Timing is the essential art of investing. If Levitt read the book thinking he was going to find the magic formula for getting continuous risk-adjusted returns above the mean he’d be wrong. There’s no secret formula for finding companies that will always get you returns above the S&P 500. If there was a secret formula by the time the book came out the market would have adjusted prices to predict such future returns.
The fact that Levitt hasn’t even taken the time to research if the companies stuck to the strategies that helped them make the leap from Good to Great further accentuates that his blog should not be taken that seriously.
But the timing of the blog post is curious at least. As published on July 28th 2007 Levitt ends up looking like one of the last passengers on the Titanic saying that the course of this ship is not safe. Only a few months later the whole market crashed (including the Good to Great companies) and no one could predict who would outperform the S&P 500.
The fact that the accompanying graphs to Levitt’s blog post show the intra-day movements of 3 Good to Great-companies once again proves that the Freakonomics-team isn’t in the investment business. Only Day Traders pay any attention to intra-day price changes. And Day Traders don’t read Jim Collins.
To quote the honorable Jay-Z:
“Audemars that's losing time, hidden behind all these big rocks
(Ball so hard) I'm shocked too, I'm supposed to be locked up too”
Unfortunately, that’s not really a cool way to finish off this post. Especially because I haven’t expressed my deep respect for Levitt and most of his writing. “Freakonomics” and “Super Freakonomics” were hugely inspirational reads for me. But in those books he and Dubner wrote about subjects where they’d done the necessary research to make bold statements. The same can’t be said about his ramblings about “Good to Great” where he in a hastily-put-together blog contradicts a researcher whose team has spent the equivalent of more than ten person-years researching for the book.
To quote Jay-Z from the song “U Don’t Know”
“The coke prices up and down like it's Wall Street, holmes.
But this is worse than the Dow Jones, your brains are now blown”
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