Investments

I’m not much of an investor when it comes to the stock market. For one, I’m not crazy about tracking my investments every day and making asset allocation decisions. For another, there is so much evidence of front-running and market manipulation (see, for example, Flash Boys) that it is simply not a level playing field. And, as they say, the house always wins.

Conventional wisdom then is to invest in low-cost index funds – the Vanguard S&P 500 ETF is a great example1.

Yes, I agree, but I’d like to make better returns, and am prepared to take some effort. So I’ve been looking for investments where I can make reasonable management decisions around what is happening. I’d rather be responsible for my own gains and losses – than a black box where I have little insights, pay fees, and bear all the risks while my fund manager continues to make money in every scenario.

So here’s the investments I’ve looked at over the years.

My profile: I’m in it for the long haul. I have patience, and am largely ok with volatility (because I would theoretically ignore those blips in view of long-term trends). Finally, I want to be able to make some management decisions. For the most part, I don’t want to be a tiny, retail shareholder (that’s what my 401(k) retirement fund is for – I know, the irony doesn’t escape me). I want to take meaningful risks, have skin in the game, and have influence on where things are headed.

With these thoughts, I looked at where I think long-term growth will come from:

  • Basic challenges with an exploding world population: Food, water, energy, health care, real estate, transportation
  • Technology: Think enduring, meaningful technology advances. Internet of things, self-driving vehicles, robotics, etc.

Food

I believe a significant amount of produce is lost to spoilage [citation needed] on its journey from the farm to the table. If we could somehow enable the farmer to cheaply and easily protect harvested food so less of it is spoiled, it would be very valuable. Ideas range from individual quick freezing, freeze drying, hot-air drying, to pulverization to protect food. Some are easier to apply locally than others. Costs vary significantly as well. The final product may not always be easily used (or appealing) to the end-consumer. All in all, this is a tough problem to solve at scale. If you come across any meaningful ideas, please let me know!

As an aside, Soylent has designed an interesting solution – artificial food. Would be interesting to see its long-term effects, adoption past the initial hype, and their ability to scale.

Water

The ability to deliver fresh potable water at scale will clearly be very valuable – especially in developing countries. This needs solutions at the infrastructure level and the community level.

At the infrastructure level, I believe evaporation losses are the single biggest source of loss (followed probably by leakage) [citation needed]. So solutions to minimize evaporation (e.g. large-scale underground storage) and leakage losses (e.g. smart pipelines) would bring immediate value.

At a more micro level, enabling individuals, families, and communities to harvest, purify, store, and consume water would be incredibly valuable. I’m in search of projects where my level of investment (pretty low in the scheme of things) can make a difference and meets my criteria.

Energy

World-wide energy needs over the next 20+ years will be so high [citation needed], we simply can’t (and shouldn’t probably try to) meet them with a single type of energy source. However, any innovation in this field at scale should generate great value. With billions of people globally underserved in their energy needs, I believe solutions that enable individuals and firms to generate their own energy (at reasonable price and quality) will be highly valuable.

This leads to my belief in decentralized energy generation as a source of great wealth. Currently, the most meaningful technology for such decentralized generation is roof-top photovoltaic arrays. The other most common option – a generator – is less interesting given there doesn’t seem to be much innovation in that field. As an aside, though, Bloom Energy’s innovative energy server is really a different type of generator – a solid oxide fuel cell.

Wind is an interesting energy play, but at scale, it needs to be centralized – windmill farms are more likely to have a higher return on investment and lower project risk than 1000’s of smaller windmills in backyards or rooftops [citation needed].

I spent some time researching the economics of wind and solar deployment – at a scale that I can manage. In a later blog entry, I’ll share my findings – but I ultimately decided not to invest in either.

Real estate

This is clearly a global concern, yet intensely local. In this section, I focus on the US residential real estate market.

Given the recent mind-boggling mortgage crisis in the US, there is a huge pipeline of distressed inventory in the financial system (public and private sector). These foreclosed properties have driven down prices. In cases where the properties are both physically and financially distressed, there is an opportunity to “flip” them: purchase them at a heavy discount, rehab them, and then turn around and sell them. You may not find a buyer at a lower price (because of how distressed the property was), but you may find one at a higher price (because you’ve now fixed everything and made it look really nice).

I initially had qualms about purchasing foreclosed properties. These are somebody’s broken dreams. Over time, though, I saw the significant downward pressure to home prices these foreclosures were driving. More people were “underwater” in their mortgage – they owed more on the mortgage than the house was worth, due in part to houses around them that were foreclosing. More and more people – especially in the construction industry – were out of a job as the industry hit a massive downturn around 2008. Entire neighborhoods were impacted. In a situation like this, every house that you pull out of foreclosure, fix, make pretty, and put back on the market, improves the neighborhood. You generate jobs for 5+ people for 4-8 weeks. You purchase durable goods such as appliances and drive even more demand in the economy.

One small step at a time, each “flip” helps the economy. Private investors have dramatically helped stabilize home prices and by investing in our real assets and taking risks, have created value (and helped improve prices) [citation needed].

My friend Amit Kabnurkar guided and mentored me through my first “flip” investment property in early 2012. Since then, I’ve participated in about 10 deals – some flips and some rentals. I’ll write more about my experience in real estate investing in another blog entry.

Internet of Things (IoT)

This concept where day-to-day appliances like your thermostat, or light bulb, or door locks, or fridge can interact with and respond to remote instruction. This allows being able to take care of your home remotely – offering peace of mind, convenience, smarter energy usage, and more importantly, bragging rights. There are also more mundane (but highly attractive economically) applications in infrastructure – traffic management, bridges that monitor themselves and report their condition, and industrial plants where many more things are now controllable remotely.

This field is set to explode in growth and adoption. It’s not a question of if, but rather when. It will have a ton of secondary implications – somebody has to manufacture and ship that hardware (think the equivalent of “Intel Inside”), insane amounts of data communicated (there’s got to be more demand for bandwidth), and the need to make sense of all that insane amounts of data (the so-called big data analytics).

As an aside, I’m excited to be at IBM during this crazy phase of IoT. Can get involved in some neat big data analytics stuff – I love this.

Coming back to investments, I’m looking for an idea where I can invest meaningfully. As always, please clue me in if you find something.

Wrap up

Growing up, I never really thought I’d be much into investments. I love this stuff now. Yes, it’s a way to create wealth for the longer haul, but the wealth is really an outcome, not the goal. The goal is to solve a problem that people care about. The wealth is the outcome.

Investments are simply an opportunity to solve a problem.

Cheers.


  1. Note: this is not investment advice. I’m not a financial adviser. 

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