Nontraditional Investments, like solar cells
December 5, 2010 2:51 AM Subscribe
Nontraditional Investments: I've heard claims that purchasing solar cells can provide a better return on your investment than stocks. Assuming that's actually the case, what are some other investments that might warrant your money more than investing in the stock market?
I have never heard of investing in solar cells. I am an electrician. I have worked on several solar arrays, have attended seminars by the IBEW on solar technology, and attend electrical convetions to see the latest electrical and solar technology.
The efficiency of solar cells are improving every year. The crystalline structures of the silicon are becoming more precise, almost to a molecular level now. Also, the auxiliary technology in solar cells is improving.
One big recent improvement is the latest generation of solar cells have micro-inverters. Solar panels produce DC electricity, our world operates in AC. You need an inverter to change DC to AC. You used to have a have an entirely separate machine, an inverter, at the end of the line on the array. Now each row of crystals has an inverter built into the cell. So much more efficient on several levels.
I mention all this because - suppose you purchased solar cells 5 years ago. I am not sure how or why their value would have increased today. They are less efficient than new ones. I don't understand how this investment works - invest in technology that is progressing rapidly by holding on to older generation versions of that technology?
posted by Flood at 8:39 AM on December 5, 2010 [1 favorite]
The efficiency of solar cells are improving every year. The crystalline structures of the silicon are becoming more precise, almost to a molecular level now. Also, the auxiliary technology in solar cells is improving.
One big recent improvement is the latest generation of solar cells have micro-inverters. Solar panels produce DC electricity, our world operates in AC. You need an inverter to change DC to AC. You used to have a have an entirely separate machine, an inverter, at the end of the line on the array. Now each row of crystals has an inverter built into the cell. So much more efficient on several levels.
I mention all this because - suppose you purchased solar cells 5 years ago. I am not sure how or why their value would have increased today. They are less efficient than new ones. I don't understand how this investment works - invest in technology that is progressing rapidly by holding on to older generation versions of that technology?
posted by Flood at 8:39 AM on December 5, 2010 [1 favorite]
Flood: "I have never heard of investing in solar cells. I am an electrician. I have worked on several solar arrays, have attended seminars by the IBEW on solar technology, and attend electrical convetions to see the latest electrical and solar technology...I am not sure how or why their value would have increased today. They are less efficient than new ones. I don't understand how this investment works - invest in technology that is progressing rapidly by holding on to older generation versions of that technology"
You're thinking of one particular kind of investing, the "buy low, sell high" kind. I think the point made here is more of a Warren Buffet "coupon clipping" one; imagine that between tax rebates and energy savings / income, you'll outearn 7 percent a year or whatever target you pretend stocks grow at. I doubt it's true, or you'd see highly valued firms investing in mega solar arrays.
Technically, the claim's truth is not the point of this askMe. But there's a general problem here; if there was an above market gain to be had, why not start a firm to seek it out?
posted by pwnguin at 9:24 AM on December 5, 2010
You're thinking of one particular kind of investing, the "buy low, sell high" kind. I think the point made here is more of a Warren Buffet "coupon clipping" one; imagine that between tax rebates and energy savings / income, you'll outearn 7 percent a year or whatever target you pretend stocks grow at. I doubt it's true, or you'd see highly valued firms investing in mega solar arrays.
Technically, the claim's truth is not the point of this askMe. But there's a general problem here; if there was an above market gain to be had, why not start a firm to seek it out?
posted by pwnguin at 9:24 AM on December 5, 2010
All of the "above average" returns you see are due to government subsidy. I've yet to see an exception.
posted by devnull at 11:47 AM on December 5, 2010 [1 favorite]
posted by devnull at 11:47 AM on December 5, 2010 [1 favorite]
Mutant, being the finance wizard that he is, answered your question in a way that is correct, but I don't think it's what you're really looking for. You aren't looking to trade in solar cells--I don't think--you're looking for something to spend money on which will cut your expenses elsewhere. The only reason you could consider solar cells an "investment" is that they wind up saving you money on your utility bills.
The idea that your utility savings will exceed 5% of your total bill on an annualized basis strikes me as unlikely. Play around with this calculator, and you'll see what I mean. There's a 30-year break even point, and they suggest a 75% return after twenty-five years. That's about 3% a year, and that includes a significant tax rebate. Allowing for inflation, you're looking at something like a 1% return a year, making this a really, really bad investment.
If you are actually talking about trading in solar cells like a commodity, I don't think the volume is high enough on those things for them to be traded on a commodities exchange. Those are generally for raw materials like oil, grain, meat, and steel, not high tech goods like solar cells.
posted by valkyryn at 12:41 PM on December 5, 2010 [1 favorite]
The idea that your utility savings will exceed 5% of your total bill on an annualized basis strikes me as unlikely. Play around with this calculator, and you'll see what I mean. There's a 30-year break even point, and they suggest a 75% return after twenty-five years. That's about 3% a year, and that includes a significant tax rebate. Allowing for inflation, you're looking at something like a 1% return a year, making this a really, really bad investment.
If you are actually talking about trading in solar cells like a commodity, I don't think the volume is high enough on those things for them to be traded on a commodities exchange. Those are generally for raw materials like oil, grain, meat, and steel, not high tech goods like solar cells.
posted by valkyryn at 12:41 PM on December 5, 2010 [1 favorite]
Just to show you what I'm looking at these days - but my personal situation is probably very different than yours - I'm considering UK woodlands. Ill-liquid to be sure, but the long term potential for capital gains, as well as the fact that in the UK revenue from selling timber is tax free under specific situations makes this an attractive investment - FOR ME.
Tack-on question: @Mutant, Once you identify such an investment (and I do understand that those things are indeed very locale-specific), how do you go about actually investing your money? Using your example, do you need to buy an entire swath of British woodland, or are there methods of pooling a smaller investment with a number of other investors? I imagine that most of us aren't in the financial position to buy a forest.
posted by schmod at 4:48 PM on December 5, 2010
Tack-on question: @Mutant, Once you identify such an investment (and I do understand that those things are indeed very locale-specific), how do you go about actually investing your money? Using your example, do you need to buy an entire swath of British woodland, or are there methods of pooling a smaller investment with a number of other investors? I imagine that most of us aren't in the financial position to buy a forest.
posted by schmod at 4:48 PM on December 5, 2010
schmod UK specific, but there indeed are collective investment vehicles out there. I'm aware of a fund that Stellar Asset Management launched perhaps a year ago, The Forestry Fund.
Their minimum investment isn't indicative of other funds - there were two launched over the past year or so - but generally we'd expect to see lower expenses in funds with larger minimum investments if for no other reason than there are fewer participants.
If you're not interested in participating in a fund, you can purchase land directly (which is the route I'm taking). There are lots of vendors out there and if one is seriously interested it always pays to gain local market awareness and engage those who might be disposing of land parcels (i.e., farmers) directly. If you go this route there are also companies that will maintain your land, cutting back timber as it matures and selling it into the market for you.
Timber is attractive as an investment overall not just because revenue is free of UK taxes, but also because of the low correlation to more liquid assets (e.g., share or bonds) and overall discount to market these properties are currently trading at. Again, highly domicile specific, I notice you're in the US and this might not apply in the US markets.
posted by Mutant at 11:03 PM on December 5, 2010
Their minimum investment isn't indicative of other funds - there were two launched over the past year or so - but generally we'd expect to see lower expenses in funds with larger minimum investments if for no other reason than there are fewer participants.
If you're not interested in participating in a fund, you can purchase land directly (which is the route I'm taking). There are lots of vendors out there and if one is seriously interested it always pays to gain local market awareness and engage those who might be disposing of land parcels (i.e., farmers) directly. If you go this route there are also companies that will maintain your land, cutting back timber as it matures and selling it into the market for you.
Timber is attractive as an investment overall not just because revenue is free of UK taxes, but also because of the low correlation to more liquid assets (e.g., share or bonds) and overall discount to market these properties are currently trading at. Again, highly domicile specific, I notice you're in the US and this might not apply in the US markets.
posted by Mutant at 11:03 PM on December 5, 2010
This thread is closed to new comments.
Just look at the 2008 market crash - stocks that represented good value for money, solid, cash flow generating enterprises with strong balance sheets were selling at fractions of fair value, sometimes as little as fifty cents on the dollar. Why? Liquidity had evaporated, nobody wanted shares and instead the herd moved to safety - T-Bills, for example, where we saw negative yields.
Liquidity drives assets to what we in finance call fair value. A somewhat esoteric term, think of it this way - an asset is fairly valued when a specific number of market participants are willing to buy or sell. If the asset is fairly valued then I'm not interested as upside (i.e., profit) is limited. I prefer investment returns far exceeding the market return, if at all possible.
An ill-liquid asset, by comparison, is either A) generally overlooked (situations I seek out) or B) purposely avoided (2008 crash). Bid / ask spreads are wider but that shouldn't bother you as one should never invest with an eye towards short term selling. I take a long time to purchase assets and when I do my holding period is forever. I seriously don't like to sell as generally I've made money and who the hell wants to trigger a tax event? (and since I'm working on my taxes today I'm gonna grumble: just living, breathing and dying these days generates more than enough revenue for those greedy bastards)
Now I realise that you asked about specific investments and I'm not trying to be evasive with my answer, rather I'm trying to help you understand the thought process. Investing is a highly personal activity for many reasons, and you're simply not going to get relevant advise from random strangers such as I off the internet. Your example (solar cells), for example, only makes sense in certain domiciles / physical locations and for individuals in specific situations.
That being said, I'd only suggest ill-liquid assets as an investment strategy if you've got an adequate portfolio built up, you're running zero or close to zero personal debt, have ample liquidity and an emergency fund established.
Just to show you what I'm looking at these days - but my personal situation is probably very different than yours - I'm considering UK woodlands. Ill-liquid to be sure, but the long term potential for capital gains, as well as the fact that in the UK revenue from selling timber is tax free under specific situations makes this an attractive investment - FOR ME.
Your specific situation, of course, will more than likely be different.
Hope this helps! Happy investing.
posted by Mutant at 4:23 AM on December 5, 2010 [10 favorites]