Let’s focus on jobs – promote renewable energy

Nadja Popovich of The New York Times penned a story this week called “Today’s energy jobs are in solar, not coal.” Using 2016 numbers released by the US Department of Energy in January, the following data points are revealed per Popovich:

• 1.9 million Americans work in the field of power creation (including generation, mining and other fuel extraction activities).
• More than 373,000 Americans work full or part-time in solar energy, with 260,000 of them spending over 70% of their time on solar projects.
• Wind energy jobs topped 100,000 for the first time in 2016.
• The coal industry jobs have fallen to 160,000 Americans nationwide, with only 54,000 in coal mining, a significant reduction which has occurred over time with the advent of natural gas due to fracking and decreasing prices in renewables.
• It should be noted there are another 2.3 million jobs in energy transmission, storage and distribution, including more than 900,000 gas station workers and related retail jobs.
• If non-traditional energy workers are added, those installing energy-efficient products, the number swells in total to 6.4 million Americans.

Solar jobs have been growing at an annual double-digit rate for several years and will continue to do so with the falling prices. A report of a couple of years ago, noted that wind energy jobs could grow to 500,000 by 2030, if we invest appropriately. It should be noted that Warren Buffett and oil tycoon T. Boone Pickens are big proponents of wind energy, with the Buffett investing in GE who produces wind turbines and Pickens promoting wind energy in the plain states for several years. Iowa gets over a 1/3 of its electricity and oil-rich Texas gets 11% of its electricity from wind energy, e.g.

So, the next time you discuss the need for moving forward with renewable energy and someone counters your argument with a remark about jobs, please remember these real numbers released by the DOE. The best I can ascertain, is the DOE is not in the business of fake news. And, the final question to ask is where do you think investors are going to place their bets – on a retrenching industry or a growing one?

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A few financial odds and ends – companies need to invest their cash

I was reading this morning that Berkshire Hathaway stock is now worth $200,000 a share. Of course, investing with Warren Buffett’s guidance has been very fruitful for those who did so. It was noted that he very seldom will repurchase shares from the market preferring to use the funds to invest in his portfolio of companies’ growth. This premise is very telling as I have been a believer that a company repurchasing shares of its stock is sign of weakness and not strength. The fact the Oracle of Omaha has done it only infrequently seems to support this belief. *

Why is it a sign of weakness? To me, it usually means the senior management cannot think of anything better to do with their cash. It also means senior management may be propping up Earnings per Share (EPS) by reducing the denominator, since they cannot improve earnings in the numerator. A higher EPS ratio means they may make their bonus targets. This sounds less than altruistic, and it is, but is also not uncommon. So, if you see a company doing this, you may want to reconsider whether you want to invest in them long term. With that said, there are some more legitimate reasons to do this, but I wanted to offer these thoughts for consideration as you do your homework.

Right now, many companies have been sitting on cash. My thesis is if you cannot think of anything better to do with it, then give it to me through dividends. With interest rates so low, a steady dividend payor tends to be a brand name, highly capitalized company and provides a nice yield. Since the higher dividend payors are more solid companies, it is a way to replace those low paying fixed income investments and retain a modicum of safety. (Please note equity investments are not secure if a company goes belly-up, but my point is solid brand names who are highly capitalized let you rest a little easier. In bankruptcy, fixed income investments are prioritized as debt, so you may still get some money back). Yet, a good investment need not be a high dividend paying company.

I have seen several CEOs cite uncertainty over Obamacare or the tax code as a reason not to invest their cash. On the flip side, I have seen people like Buffett say, uncertainty like those reasons has never gotten in the way of a good idea. Saying it another way, those excuse makers are just that and, their Boards of Directors should be questioning that strategy. Invest more of your cash in your business. You cannot shrink your way to greatness and you cannot just sit on the sidelines. While you may be cutting expenses in some areas, you still need to invest in the higher growth areas in your company. And, even your more mature businesses who are the cash cows, need investment to be maintained. The key is to manage this yin/ yang balance. If you don’t, you may step over quarters payable next year to pick up nickels today. Then, you will wonder why you are not growing.

Finally, do not forget your most important resource, your human capital. Wages have been suppressed during the downturn and people do not have short memories on this. Now that the economy has picked up, people are voting with their feet as company loyalty was killed by the companies themselves. There is a story in New England where a family grocery company fired its extremely successful CEO for investing too much in his people. This company had great performance, paid its people well and had some of the lowest prices in the business. Yet, a disgruntled family member who controlled just over 50% of the shares wanted a huge dividend and fired the CEO when he said no. Right now, this very successful company has grounded to halt as all the employees and many customers have stood by the fired CEO. I have noted before the Nordstrom model which inverts the pyramid, placing customers at the top, followed by those who interact with the customers and shareholders at the bottom. If you treat customers (and those who support them) well, then the shareholders will make more money.

The ending to this story is still being written. But, at the end of the day, you must serve your customers well. You must pay attention to those serving your customers. You must invest in your business to serve your customers in a sustainable and efficacious way. If you sit on your cash, you may just end up with less of everything.

 

* These opinions are those of an investor. I also do not own any Berkshire Hathaway stock. I am not a financial advisor or investment consultant or broker. So, please do not rely on my opinions to make decisions. Do your homework and speak with an advisor to get legitimate counsel from someone who knows more than me and is registered to give advice.

 

 

Luck was also involved – Warren Buffett

Yesterday, Charles Osgood hosted a segment on his “CBS Sunday Morning” show which was an extended interview with Warren Buffett, the third richest person in the world. I have always been a fan of Buffett’s and was delighted to see the interview with the very down to earth “Oracle of Omaha.” I felt a key part of his message was worth highlighting today to celebrate the life of Martin Luther King and the inauguration of our president for the second time.

Many know the story of one of the most successful investors in history. He made his first investment at age 11 and would have done it sooner, but it took some time to save $120 for the investment. While being interviewed, he was joined by a very good friend and his biographer. When they were asked what was Buffett’s greatest attribute, his biographer said very quickly his “rationality.” He understands the volatility of the market and he says the key is to buy stock in companies with good value, but be patient enough to buy them at the right time.

Yet, a very telling answer to a later question is the reason for mentioning Buffett today. He was asked was luck involved in his success? And, his answer at first is surprising as many very successful people today believe their success is entirely due to effort and intellect. Of course those play a heavy hand, yet Buffett said the following which I will paraphrase:

I was lucky. I was born in the right country and with the right demographics. I was born a white male. My sisters did not get the same opportunity and they were just as smart. Women did not get the same opportunities I received. If I had not been born white, I would never have gotten the same opportunities due to lack of civil rights for African-American people. So, yes there was luck involved.

I put these comments in bold as I want them highlighted on today of all days. This is the third richest man in the world who said this. To achieve these same opportunities and fairness is for what  Martin Luther King and countless others marched, rallied, absorbed indignities, suffered injuries and even died. King was more than just a great orator; he was in the midst of this pushing the envelope and suffering just as much if not more than his followers. When Beyoncé sang Etta James’ famous song “At Last” at the first inauguration of Barack Obama, there was no more appropriate titled song to sing.

But, as Buffett pointed out we are nowhere near being done. He has been a broken record about the economic disparity in this country. In a nation of 315 million people with the resources we have, it is a crime that we have people in poverty. Our wealthy have never had it so good. Yet, we cannot continue to thrive as a country unless we do something about the economic disparity. We have to provide opportunity to people, so that they can live a life they can manage economically.

However, he concluded with a strong message of hope. He said we live in the greatest country in the world. There are so many good things happening every day which dwarf the negative things. He said don’t let the ineffectiveness of 535 people (in Congress) stand in the way of the successful things that are happening. We can find a way to fix this, but we have to be open and honest with what is wrong.

In my paying and volunteering jobs I have been around all kinds of people – from the presidents of companies to people making the minimum wage and some looking for work. I have seen presidents who felt they were entitled to whatever monetary gains they received, even when they had little to do with its creation and actually were value destroyers. I have also seen the most gracious of people as presidents who realize they are the stewards of their company – its people, customers and shareholders. They inspire others by being down to earth and showing the value of teamwork. Someone once said, a great leader deflects credit to others, while a bad one will assume more credit than due. Buffett falls in the gracious portion of this group. Like them, he took advantage of opportunities and worked hard, but he was given the chance by being born in the right place to the right parents and with the right gender. He is down to earth and shares the credit.

On the lower end of the economic scale, when I have helped homeless and impoverished people, I see people who did not get the same opportunities and don’t have the same kind of network looking out for them. For African Americans it goes even further; we have made strides in many respects, but we are not near where we should be. By any measure, the economic disparity is significant for this demographic group. This is a key theme of Cornel West and Tavis Smiley book, “The Rich and the Rest of Us.” Buffett realizes he had opportunity and made more than the most of it. He also sees that others need this kind of chance as well. Let’s work in a concerted manner to give people opportunity to climb the ladder out of poverty.