This 2nd Week of November 2021 Thoughts
“While electric vehicles receive praise for cutting emissions and improved health benefits in polluted cities, TODAY they’re not the ESG panacea they will eventually be.” It will take time and commitment.
Sophisticated ESG investors know to look beyond today’s exhaust pipe and consider the many moving parts. A move to electric vehicles (EVs) shifts dependence away from the oil industry to the mining industry and there are geopolitical, environmental and social challenges. Recycling is a must: for used parts (especially batteries), as well as “nearshoring” suppliers to reduce long supply chains.
Once an EV is manufactured, the environmental impact of powering it has to be considered. Currently, one third of Europe’s electricity consumption is from renewable sources and all governments must invest in green energy suppliers. If they don’t, the extra demand will fall on oil-gas-coal powered plants, which would mean the environmental problem is shifted, rather than resolved.
Then, there is the huge potential for upheaval in the many related suppliers as many are ill-equipped to produce the parts required for EVs. Those who do not plan and adapt will fail: will governments step in to support legacy industries that are behind the curve?
A social dimension of the EV revolution that needs serious planning around is the potentially negative impact on lower-and middle-income households. If governments pass policies that make gas and diesel cars more expensive, and EV prices remain high (partly due to commodity price inflation), rural communities will suffer due to greater public transportation options in towns and cities. The price of electricity itself may rise due to increased demand or because of surcharges imposed to support green energy build-out policies.
Addressing these many challenging ESG factors will be a very difficult balancing act for all countries. We must plan to cushion the social impact of the EV transition: integral to the Infrastructure Bill and Build Back Better are the details on how this money will be spent. It is essential that elected officials focus on how to tackle these issues and work together on a bi-partisan basis. One thing for sure: we cannot turn back and continue to live in a world powered by burning fossil fuels. That ship has sailed, now let’s get busy!A picture is always worth a thousand words! Here are the “Cliff Notes” for the Bi-Partisan Infrastructure Bill recently passed: you can see why we have such an allocation to water, clean energy, infrastructure, and materials: lots of money will be spent over the next 10+ years here! So many clients have an interest in individual stocks, and sub-sectors…even to Space Mining…so it will be fun to work with you here in this sector.
😲 Why does this matter to you? In the article attached to this Week’s Thoughts: “Get To Know the Bi-Partisan-Infrastructure & Jobs Act & Build Back Better 11/12/ 21, be sure to look at the lower left part of the first page. You’ll see ETF Funds that will let us zero in on specific parts of the market.
The biggest mistake investors make in managing their portfolios is not understanding how to manage risk: it might be easier to understand if you look at the similarities between “gardening” and investing. In the “Spring,” it is time to till the soil and plant your seeds for your summer crops. Then, you need to water and fertilize and pull the weeds, or you’ll have more weeds than food or flowers. As “Spring turns into Summer,” it’s time to harvest and begin to rotate crops for the “Fall” cycle. Eventually, even those crops must get harvested before the “Winter” snows set in. To have a successful and bountiful garden, we must:
1. Prepare the soil (accumulate enough cash to build a properly diversified allocation)
2. Plant according to the season (build the allocation based on cycles)
3. Water and fertilize (add cash regularly to the portfolio for buying opportunities)
4. Weed (sell loser and laggards, weeds will eventually “choke” off the other plants)
5. Harvest (take profits so the “the bounty doesn’t rot on the vine”)
6. Plant again according to the season (add new investments at the right time)
😲 Why does this matter to you? Everything has a “season” and a “cycle.” When it comes to financial markets, the seasons are dictated by “technical constructs” and the long-term “cycles” are dictated by “valuations.” Today, there are many signs we are late into the “Fall,” and “Winter” is approaching. My Weekly Thoughts Pieces focus on options to lessen volatility and while we just have to get through “the winter” and get through rocky times, it is good to know there are actions we can take now to “tend to our garden” so we’ll be prepared for the first “cold snap” of winter.