Alternatives to Stock Investing

by Timothy Lutts on March 10, 2014
originally from Cabot Wealth Advisory

Alternatives to Stock Investing

Bitcoin, Marijuana and Fine Art

Best Disruptive Stocks

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First a caveat. Stocks are my business and stocks are what I typically focus on when it comes to investing. These three alternative investments I’m discussing today are just ideas I’m throwing out there. The first two are because the long-term prospects for the concepts are intriguing. The third is for my lovely wife of 33 years.

BITCOIN

The first non-stock possibility is bitcoin, the alternative to government-issued currency.

I’m not going to get into the technicalities of how Bitcoin is been created and how it works. You can find great explanations of that elsewhere.

To me, the important points are these:

Currency exchange costs are a point of friction that rewards bankers and costs buyers and sellers of goods. Ideally, fewer currencies would increase global trade efficiency, with the only losers being the bankers—and I don’t think anyone would cry for them.

Historically, currencies have been issued by countries, so for many people, it’s hard to trust a currency that’s grounded only in a digital scheme they don’t understand. But the attraction of a currency free from the influence of politicians is undeniable.

Of course, if no one uses a currency, it’s useless.

And if no one trusts a currency, it’s also useless.

Which is where the chart comes in.

For a long time, bitcoin was an intellectual curiosity, attracting only fringe players. But last year interest started heating up, the price skyrocketed, and at the end of November, we were looking at a price of $1,124 per bitcoin.

Notably, trading volume peaked at the same time, too, but after the first little correction, when the price bounced back up for a retest, volume faded, signaling that the run was likely over.

Eighteen days later, bitcoin had plunged to $539, a massive 52% off its high.

In January it bounced back up to $935, and in February it fell back down, to $540.

Since then the trading range has been narrowing as traders calm down.

So what’s next?

Well, I think bitcoin’s prospects are good from here for three main reasons.

One, the 50% pullback after a big blow-off top is textbook, quantitatively. It happens in stocks. It happens in commodities. And there’s no reason to think it shouldn’t happen in bitcoin.

Two, the double bottom at that level now provides support.

And three, that second bottom came when Mt Gox, the one-time leading enabler of bitcoin, shut down and declared bankruptcy. The confluence of high-profile bad news and a technical bottom is actually a positive—if the main growth rationale remains intact.

Incidentally, bitcoin’s technical growing pains remind me a bit of the Internet in the early days, when you weren’t sure who you could trust, and the Internet was sometimes down. But look where we are today!

Notably, there’s still great skepticism about bitcoin, and that’s natural. But I believe that as that skepticism slowly fades, new buying will push bitcoin’s price higher.

If you’re inclined to make a small investment, I recommend buying here, while it’s down—or even on a third dip to $540, if it comes—rather than waiting until it’s back above $1,000.

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MARIJUANA

My second alterative investment is in marijuana, which is on track to become increasingly legal across the U.S. in the months and years to come.

More than a dozen publicly traded companies are focused on profiting from the legalization of marijuana, and I have little doubt that some of them will be successful.

But risks are high, both because these are very young businesses and because most of the stocks are very low priced, which increases volatility.

After perusing them all, the one that looks best to me today is Advanced Cannabis Solutions (CANN) of Colorado, which aims to become a major property owner in the industry, leasing to both growers and retailers, which tend to have trouble getting bank financing to purchase their own properties.

The company is well financed, the management team looks capable and the stock’s action is positive. To reduce risk, the best time to buy might be when the stock cools off a bit and meets up with its 25-day moving average, now at 21.

Note: To repeat, these are off the cuff recommendations. They fit my basic investing criteria but there are certain obvious uncertainties involved, and thus I, personally, am not investing in them. But I thought you’d be interested.

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FINE ART

A third possibility is fine art, a category that I’ve been investing in heavily for more than 33 thanks to my wonderful wife, Julie.

But by investing, I don’t necessarily mean paying money to buy art to hang on the wall.

In fact, my investment in the field has been not so much about money as about time—time traveling to museums and galleries, time exploring beautiful churches in foreign countries, time rummaging around in yard sales and antique stores (the more decrepit, the better), time refurbishing a gallery with her and partners, time building shelves and associated supplies for her studio, and even time helping her engineer and construct the objects she envisions.

You see, not much of the art my wife makes is designed to hang on the wall. Her focus in recent years has been assemblage, which combines interesting objects in unusual ways—you might call it 3-D collage. More recently, she’s concentrated on the small but fertile artist book genre, which is not books about artists but art that is book-like in some way. For example, it may have a narrative, or have elements that function as pages. You can see examples of these on her website (www.julieshawlutts.com).

THE WORLD’S FIRST DIGITAL ARTIST BOOK

But the reason I’m writing about her now is that she’s just created the world’s first digital artist book, and you get it for free, as an app at the Apple store.

Titled The Curious Alphabet, it consists of 26 short, stop-motion animation videos—one for each letter of the alphabet.

It’s guaranteed to make you smile, whether you’re 5 or 95—but kids in particular love it.

It works on an iPhone but is best on an iPad, because of all the detail.

Here’s a still from the letter A.

And here’s a link to the free download, at the Apple Store.

Just note, it’s a relatively large app, so takes time to download—you’ll want to be on Wifi. But I think it’s worth it.

FYI, my favorite letters are K (for the mild violence) and Y (for the animal).

Enjoy! And please rate the app. It would make my wife very happy!

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Okay, back to stocks, and my tenth installment of “Best Disruptive Stocks."

Ideally, these are companies that address a mass market, and thus have the potential to impact our lives for the better.

Ideally, these are companies that are not yet well known or well respected. Thus they have the potential for increased perception by investors as time goes by.

Ideally, these stocks are young and not widely owned. Thus they have the potential to be bought by more investors—especially institutions—and thus see their stocks soar over time.

All the Cabot analysts have made contributions to this list of 10, and the stocks are being presented in no particular order, though I am trying to feature them when they’re at good entry points. I hope you enjoy them.

Disruptive Stock Number Ten: SolarCity Corp (SCTY)

This solar power company is slowly and steadily disrupting the utility power establishment by offering affordable solutions for residential solar power. The stock was recently recommended in Cabot Top Ten Trader, where analyst Mike Cintolo wrote this:

“California-based SolarCity is a fairly young company (founded in 2006) that provides a fairly standard product—solar installations on residential and industrial buildings—with an innovative financing plan that eliminates installation costs for users. Instead of paying for their new solar installation, consumers sign a 20-year deal to make payments similar to their regular electric utility payments. The customer gets a bill with cheaper prices per kilowatt and SolarCity gets a consistent 20-year income stream, with the chance to upsell additional services and equipment along the way. The company’s nominal contracted payments outstanding have grown by 117% annually since 2009. The company has installed nearly 300 MW of generating capacity and has an installation backlog of orders of nearly 200 MW. SolarCity arrays and installation are available at over 450 Home Depot stores and through SheaProperties. Pulte Homes and Toll Brothers are also channel partners, and Tesla has named SolarCity a preferred partner for EV chargers, which is hardly surprising, since Tesla Founder Elon Musk is also the chairman of SolarCity. With operations in just 14 states, SolarCity has plenty of room for expansion. … . With its unique financing plan and its 32% market share in the residential solar business (no competitor is even close), SolarCity should continue to grow rapidly for years.”

Since then, the company has delayed filing its fourth-quarter and year-end financial reports, explaining that an accounting error related the calculation of overhead expenses had been discovered and was being corrected. The reports are now expected March 18.

But the stock seems not to mind. As I write, all moving averages are trending up, and the stock has pulled back, on low volume, to its 25-day moving average, now at 78.

So, you could simply jump in right here; after all, the main trend is up. But if you did, you’d be on your own, and I’d rather you get some consistent guidance—so what I really recommend is that you become a regular reader of Cabot Top Ten Trader, so you can get Chief Analyst Mike Cintolo’s latest thoughts on all of today’s greatest stocks—including when to sell and take profits in SCTY.

Every week, Mike presents 10 stocks that have great profit potential, and every week, he gives you follow-ups on all stocks that are still being watched. For active growth investors, there’s no better resource.

For details, click here. 

Yours in pursuit of wisdom and wealth,

Timothy Lutts
Chief Analyst, Cabot Stock of the Month
Publisher, Cabot Wealth Advisory

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