Solar power is becoming so popular that it is helping send coal into a downward financial spiral. An industry that disruptive and successful sounds like a good investment. That’s what I thought. Today, I sold my shares, oops, share, of RGSE, aka Real Goods Solar, a firm and an advocacy that I’ve been following since they started in 1978. Just shy of 40 years later, the total value of the company has dropped to under $10,000,000. There are houses selling for more. Somehow in less than three years, in a phenomenal growth market and industry, they managed to fall rather than rise from a reasonable market cap of $134,000,000. Having the right idea at the right time doesn’t guarantee success. Another reason for diversification.
Through the early years it was privately held, then it went public and the stock has traded as RGTC, RSOL, and RGSE. For a while it was part of GAIA, but was spun off again, which encouraged me to buy again. At the start, the company sold the things that helped people move off-the-grid. The customers were willing to pay a premium to be able to disconnect from mainstream society and the fossil fuel economy. For a while, Real Goods branched into more suburban products: solar powered lawn lights, sustainable materials, niceties that helped people demonstrate their preference for more natural products without having to leave the world of asphalt and cul-de-sacs. I was one of them. As solar technology progressed, the map of where it was viable grew. The economics worked best for large installations, so they provided installation services for companies and municipalities. Within the last few years, the technology has become so common and affordable that the regions that can go off-the-grid are overlapping the main grid. The solar enthusiast in me has been celebrating the progress.
The investor in me watched RGSE attempt to grow, stumble, and falter; but I saw optimism in the growth of its competitors. Today, First Solar (FSLR) has a market cap of $3,630,000,000. Solar City (SCTY) has a market cap of $2,014,000,000. They prove the market potential exists. I saw RGSE as the economy priced investment that could grow to those levels. That didn’t happen.
I’ve made the same mistake before. When Amazon.com went public, they mostly sold books. I thought online sales had good potential (and way underestimated that one) and already had shares in a bookstore, Barnes & Noble. Rather than buy into the purely online company, I bought stock in barnesandnoble.com. B&N had the benefit of people being able to have it either way, delivered at home or at the store, online plus personal customer service, and a chance to hold the book in hand before buying it. That didn’t work.
First mover advantage is a term used to explain Amazon’s success. The same’s true for Starbucks and other trendsetters. But, Real Goods existed before the World Wide Web. Barnes & Noble had decades of history. Coffee shops existed before Starbucks decided to redefine the model. Simple strategies are rarely simple in reality.
Years of supposedly diligently following the company didn’t help me catch the two year slide from $3.10 to $1.20. Ah, but let’s adjust for a 20/1 reverse split and a 30/1 reverse split. The $1.20 is post-splits, so it stays the same. The $3.10 is effectively $1860. Because of the splits, my hundreds of shares were reduced to one share.
While the company was imploding (and I was possibly working too hard to devote the appropriate attention to it), the solar and wind industries are imploding the coal industry. As solar and wind technologies have become more efficient, more people and institutions have been using them. As more units are built and sold, the economies of scale reduce the cost to produce the units. The effective price per kilo-watt drops. At the same time, that’s power that isn’t being fueled by coal. The reverse economy of scale kicks in. Coal mines, transportation systems, and power plants have large fixed costs. Those costs have to be covered by fewer customers, so the effective price per kilo-watt rises. As coal’s price rises, solar and wind become more appealing amplifying the difference. Solar and wind technologies are continuing to mature. That cycle should raise their market share and lower coal’s. Throw in some large side effects like pollution, remediation, and infrastructure, and the days of coal mining dim. (See PretendingNotToPanic.com for a story about the UK getting by without coal for a day.)
With a story like that, Real Goods should do well; but that’s been the story for years, and they haven’t done well. I’m a bit embarrassed to relay this story because it’s yet another blow to my portfolio; but, one of my personal challenges is to progress past the money taboos so common in our culture. My embarrassment proves I have some progress to make.
As much as this is a cautionary tale about investing in individual stocks, this is also an example of why IRAs are not panaceas. If the stock was outside my IRA, I could’ve claimed the losses on my taxes. That would’ve come in handy these last few years. Some day I may run the numbers and quantify the costs and benefits of using an IRA rather than a traditional account. An IRA makes sense when it never gets touched. But, emergencies happen, rainy day funds dry up, and in those cases using an IRA triggers penalties while also being denied some benefits.
Silly as it may be, the reason I sold today was because it was convenient. I’ve finally found some space in my work schedule (a good and a bad thing for an entrepreneur.) In the midst of finally getting lots of tiny delayed tasks accomplished, I decided to clean up my portfolio by getting rid of the last lonely share of Real Goods. The total position was worth $1.20. The cost of the commission was higher. My net benefit is freeing up some storage space, simplifying my research tasks, and removing yet another reminder of this largely unprofitable investing era. Let’s hope this doesn’t happen to the other stocks in my portfolio: AMSC, AST, GERN, MVIS, NPTN.