Solar Stocks Commentary with J Peter Lynch at Investorideas.com
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Current Portfolio Status
Since early March (3-6-2012) our solar portfolio has been out of the market and 100% in cash.
The total return of the 2012 portfolio has been a gain of 18.98% with a total holding time of 7 weeks. Once our indicators told us to exit our stocks, we moved quickly and sold our positions.
Remember that the HARDEST THING for investors to do is know when to sell. There is so much emotion, fear of missing out and general over all doubt. This is exactly why you have to set specific, non-emotional prices to exit if things do not go right. You cannot allow your emotions to get involved and take over your thinking.
Trust in your system and follow it regardless of what you think "should happen". Once you try to impose your will on your portfolio you will stop paying attention to what is most important - "what is" NOT what you think it should be.
General Market Comments - Red Flags Flying, move to the sidelines.
At this point the general market is what I would characterize as being in a RED FLAG environment in which I would move to the sidelines and wait for the market to run its course. In addition, we have entered the markets seasonably UNFAVORABLE season (May - Oct) which historically has been a terrible time to be invested. In addition, all of my technical indicators have signaled sell signals.
Keep in mind that there is NO WAY to know if this is the end of a short correction or the beginning of a longer market downtrend - all we can do is listen to our indicators and follow their lead. When we do that we eliminate "emotion" i.e. what we THINK should be happening from our investment equation and follow our time proven indicators that show us what is REALLY happening regardless of our opinion.
Solar Stocks Status
Since solar stocks as a whole have much higher volatility (beta) than the general markets we have seen then fall much further than the market in general - this is not unexpected and is the reason our indicators told us to exit ALL our solar stocks in early March 2012.
The industry and the solar marketplace are currently undergoing extreme turmoil with negatives everywhere and nothing positive in sight:
- Lower prices on solar panels than anyone had predicted
- Compressed margins, to the point that 90% of companies are losing money
- Worldwide finger pointing as to who is a fault
- Elimination of the very successful 1603 Treasury grant program, forcing the industry to fall back on Tax Equity - which adds two problems for the industry: there is not enough of it to handle demand and it adds a significant cost to large commercial solar projects.
- A growing number of solar companies around the world are going out of business generating all sorts of media comments that are really inaccurate and based on very little knowledge of how industries grow and develop overtime.
- All of these negatives have created investors #1 fear - uncertainty. Where growing uncertainty exists, investors do not come. As a result you can see from the table below that the industry has had a tough year and all stocks are STILL in down trends:
Well there are a couple of things we can look at and say that they may be the early beginnings of some good news and maybe the first sign of a buying opportunity:
- It is really hard to imagine that the news can get worse - so maybe good news will somehow fill the void.
- There is an old saying on Wall Street, attributed to Baron Rothschild - "The time to buy is when blood is running in the streets" - certainly a contrarian point of view and without question - the blood is running in the streets in the solar industry. But in the stock market when all of the selling is finished (after all the bad news is out) there is really nothing left but early buyers.
- After a number of years of downward movement - solar stocks are down an average of 76.66% since 2010 stocks tend to rebound and outperform and average year by close to 3 fold.
- Small positive changes are starting to show up. One of our solar stocks - CSIQ has had its recent price move above its 50 day moving average - a positive short term sign. A couple of the stocks now have positive monthly momentum - all of the others have negative momentum and mostly all have negative weekly momentum….
Background Analysis Notes
Keep in mind that there are two basic types of equity (stock) analysis. Below are a brief description of each and its primary purpose:
Fundamental Analysis - this is the analysis of the fundamental financial condition of a company to identify which stocks you may want to buy when the timing is right. This form of analysis will give you NO indication of the best time to buy a stock or sell a stock.
Technical Analysis - this form of analysis will tell you "when" to buy a stock and when to sell the stock. It will do this by showing you (in chart format) the basic interaction of supply and demand and when the two change and shift which will indicate a time to buy or a time to sell.
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