So I also agree that speculation on the energy transition is a tricky, long-odds game unlikely to produce extraordinary profits by direct investment without special luck or skill.
Let's pretend that the energy transition is wildly successful. That doesn't mean that retail investors will make money. The Railway Mania in 19th century Britain was wildly successful at transforming the economy and society. But retail investors lost a lot of money. The same thing is true for the dot com bubble. Innovative companies ran fiber across oceans only to go bankrupt and wipe out their shareholders. Today we use that fiber. The internet revolution was successful for society but not the investors in Global Crossing.
Those are 3 excellent examples
@PDXTabs. It seems some new technological transitions make their investors money and others do not. I'll add the rise of China as another example where a massive trend didn't fully trickle down to the outcomes of common shareholders.
Yet there are some transitions where there was definitely money to be made. Microsoft, Apple, and IBM were the clear leaders to invest in back in 1990 if you could have foreseen we were in for a digital transformation within the decade. Now we have an entire generation conditioned to pile into anything remotely resembling that era, so any transformation narrative is probably over-crowded. Opportunities like the computer revolution arise out of malaise, crisis, skepticism, and pessimism, not FOMO. So when I hear the energy transition or cryptocurrency or Tesla hype, I'm hearing that a lot of people have already bought into a narrative in which the investments themselves actually have long odds. By the time you hear about it on Yahoo finance, it's usually late in the game.
Transitions/transformations only happen when a new
technology way of doing things results in more efficiency or scalability. The personal computers of the 1990s increased workplace and manufacturing efficiency, for example. 19th century railroads increased both the efficiency and scale of transportation. The internal combustion engine was a weight-to-power efficiency improvement over the steam engine. E-commerce increased the scale of what inventory a store could hold, and the efficiency of shopping.
So first we have to ask: Would the proposed transition increase economic efficiency or scalability?
In terms of clean energy, the answer is yes. Solar energy has already fallen below the cost of coal. Wind power plants are profitably churning away across the world. Unfortunately, "green" investment as an idea has attracted lots of retail investor interest, and it's hard to justify paying 71x earnings for FSLR or 86x earnings for SEDG.
Nuclear energy, after literally generations of development, remains the highest-cost option though, even before we account for the expense of storing waste for thousands of years and dealing with accidents like Fukoshima. This information is sufficient to conclude nuclear is not the future, barring some technological breakthrough such as cold fusion that transforms the cost/improvement curve.
For cryptocurrency, the answer is an easy no. After a dozen years of development it is still not showing signs of reducing its costs to perform basic transactions, and incumbent technologies are outpacing crypto in efficiency gains. Adoption is near zero, outside of speculators.
Will BEV's become more efficient than ICE vehicles? Definitely. Even today's primitive BEVs, which are equivalent to the Model T in the ICE vehicle development timeline, are showing superior drivetrain reliability and cost-of-ownership characteristics if you exclude the massive margins TSLA is currently earning. They are increasing in performance and falling in price at a faster pace than ICE vehicles. Unfortunately it's hard to pay 77x earnings for TSLA or a negative PE ratio for NIO or XPEV, when single-digit PE companies like GM and F are projected to lap these companies in US sales of BEVs within a couple of years, but by cannibalizing their own sales. Again, the narrative is too popular among retail investors.
There is one pending technological transition that isn't gathering enough attention: the work-from-home trend. Processing power, software reliability, and network bandwidth are now sufficient to allow office workers like accountants, customer service reps, analysts, content creators, and all sorts of operational office workers to do their tasks remotely. They can attend meetings virtually, and communicate task status through efficient software solutions like Salesforce or Smartsheets that bring kanban-like efficiency to processes that used to involve people wandering around water coolers. Are WFH offices more efficient or scalable than physical offices? Early research suggests the answer is a strong yes, although some changes to management culture will be necessary. WFH companies avoid huge overhead expenses, can recruit labor from a wider geographical area, can pay lower wages, can be more resilient to outages or disasters, can reduce attendance problems, and avoid many of the pitfalls of in-person offices, such as worker's comp claims, disease outbreaks, sexual harassment lawsuits, and overflowing toilets. As management culture catches up to WFH culture, and as software adapts, we can expect more productivity improvements ahead. My post-recession playbook involves investments in CRM, MSFT, CSCO, SMAR, and a hard look at HUBS, TEAM, NOW, TWLO, DOCU, and similar, with consideration to the WFH exchange traded fund for diversification.
