After 20 Years of Ignoring This Investment, It's Finally Time to Buy

I've just spent the past few days in Vancouver at the annual Agora Financial Investment Symposium. It's always an interesting conference.

This year, Jim Rogers, of Investment Biker fame, spoke at the conference. Rogers, as usual, predicted the bull market in commodities has much further to run. He likes cotton, sugar, and coffee – all are 60% to 80% off their all-time highs. He advised attendees to pocket those little sugar packets that hotels have lying around for coffee and tea.

I spoke as well. The big theme to cover was "Seeking Profits in a Time of Risk and Scarcity," which is something I focus on all the time in my advisories. We own a number of scarce assets – everything from water rights out West, to oddball industrial metals, to office space in Tokyo.

Energy, though, is always the big subject at conferences right now. I think we've reached a point in this investment cycle where the focus will now shift to ideas that ease the high cost of energy through new energy-efficient products and materials.

Alternatives to hydrocarbon fuels also get a lot of attention. Wind, for example, is getting a lot of ink lately thanks to T. Boone Pickens' forceful editorials supporting it. Pickens, who made billions in the oil and gas patch, has focused his latest efforts on water and wind.

To tell you the truth, I haven't closely investigated clean energy since I started investing two decades ago. Alternatives like solar, wind, and geothermal simply couldn't compete with coal, oil, and natural gas on cost. But that's all starting to change...

Over the weekend, James Tisch, the CEO of one of my favorite companies (and favorite investments), Loews Corp, wrote an editorial in TheWashington Post also supporting wind power. Tisch is one of the best investors in the world. 

He's heavy into oil and natural gas. His company owns pieces of oil-service company Diamond Offshore and natural gas pipeline operator Boardwalk Pipeline. And he has a wholly owned subsidiary, HighMount Exploration & Production, which drills for natural gas.

Nonetheless, Tisch thinks that the old hydrocarbon fuels – oil, natural gas, and coal – are getting priced out of the market. They are getting so expensive the alternatives look cheaper. This is rendering the debate on greenhouse gas emissions moot.

He writes: "The reduction in the output of those gases will move forward at warp speed, not because of rules, regulations and cap-and-trade decrees, but because of free markets and economics."

He used the example of wind power. Today, the economics of wind energy work at 7 cents per kilowatt-hour. That is a lot better than the 12 cents per kilowatt-hour required to build a gas-fired plant.

That explains the rapid build-out of wind power in places such as Texas. "In the past five years," Tisch writes, "more than 5 gigawatts of wind turbine capacity has been built in Texas alone; on days when the winds whistle along the plain, wind energy represents just under 10% of the electrical supply in the Lone Star State."

On this point, I'd mention that owning wind-swept land in Texas is a pretty good idea.

Tisch makes other good points I'd like to pass along... He talks about electricity prices rising as much as 30% this year in some parts of the country. That makes rooftop solar panels suddenly look like a good economic proposition. Tisch maintains that such an investment would "pay for itself in fewer than 10 years, resulting in a greater-than-10% return on one's capital cost." Compared with the sub-5% you get on Treasuries, it looks like a good deal.

It's a fascinating time. There will still be ways to make money selling the old fuels. These changes don't take place overnight. But I agree with Tisch. The high price of energy sets in motion the wheels that will ultimately bring it lower. For investors today, our focus should start to shift more toward finding the winners in the new era of clean energy.Finally, he notes the improvements in battery technology. He predicts that within the next two or three decades, no one will sell a gasoline-powered car. Hybrids are already "dramatically cheaper" than today's cars. To travel one mile, they consume 2 cents worth of electricity, compared with 20-25 cents using gasoline. Again, pure economics will drive the change.

Good investing,

Chris Mayer