Renewable Future

[ThisDinosaur]

Well I think you can count me as both an ERE success story and one of Nietzsche's "worst readers."
The first because you've convinced me that the demand side of finance is much more important than the supply. The second because there are parts of your method I agree with, parts where you've changed my mind, and parts I am yet to concede.

I've learned from you that financial independence is just one form of independence, and maybe not even the most important one. At least, that's the (distorted?) takeaway that keeps me coming back. Where I'm getting stuck is the contrast between the sustainable, permaculture, isolationist Craftsman ambiance of most of the ERE strategy, and the competitive hunter, Jungle Fighter approach to investing.

Look, if passive investing isn't likely to work in the real world, then I will gladly give it up. But you've asserted that only 10% of players can win your financial game. That's not going to be fruitful for most of your readers. And I'm one of them.

[7Wannabe5]

@jacob: Supernacular analogy! Garden is like Finance. Finance is not like Nature. Economy is more like Nature. ERE is to Economy like Perma-Culture is to Nature. ERE is not limited to Finance like Perma-Culture is not limited to Garden.

@ThisDinosaur: A municipality is like a corporation, and would likely be exceedingly difficult to form (except maybe in Nevada?) I think it would be easier to unbundle all the stuff that is bundled in a property tax bill, and then consider whether you are receiving value in consumption in relationship to price, and also the possibility of utilizing some of what is included in the bundle in order to make a profit. For instance, you do not work 9-5, so you get the lovely park in the center of town all to yourself for your daily promenade, and you only chip in .50/month towards maintenance. Great value! You have also observed that there are black raspberries growing wild along the edges of the park path, and you graze a quart ($9.82 @ grocery) from the commons as you are taking your walk. Now you are making a profit off your fellow citizens!

Alternatively, you could obviously do something like construct a campground out in some wilderness area where there are currently no local property taxes, and charge your visitors for services such as outhouse, bear proof waste receptacles, and dirt path which you provide.

[jennypenny]

Yes, I agree investing is like gardening. You have to learn all you can, mostly through self-edification, but then you also have to monitor conditions constantly and figure out how to apply what you've learned during different conditions. Both are too dynamic for most people especially when ready-made products are widely available. What many people haven't noticed or choose to ignore is the deteriorating quality of those products (food and funds) and the (very real) possibility that those products might disappear or fail entirely.

[jacob]

Look, if passive investing isn't likely to work in the real world, then I will gladly give it up. But you've asserted that only 10% of players can win your financial game. That's not going to be fruitful for most of your readers. And I'm one of them.

Right now passive indexing is best for most investors. This tends to hold in trending markets. Also, right now, equity (in the US) is considered the best investment because it's a) received increasingly favorable tax treatment --- the government wants us to invest in risk; b) a vast number of buyers have been added to the market.

However, this may not always be so. However, in order to perceive a) that it's true that it might not always so; b) whenever this happens, then one absolutely has to pay attention. If you have more than a couple of years worth of salary in savings, I think you owe it to yourself to at least browse the finance news on a daily basis.

The original YMOYL book is an example of a 100% LT bond strategy with ongoing rolling which back then was considered failsafe and the least risky---at the time (when thoughts were formulated) the stock market was considered to be a casino. That's likely because in the 1970s TSM went up and down in a trading range, so the overall consensus was that it was gambling. Now, we've had 30 years of yields trending to zero which in turn has boosted equity. Now the recency biased consensus is that stocks always go up and that bonds are stupid. Now, my concern for the common FIRE person is that it's now widely believed that ... well, I don't think I need to repeat standard pf investment advice and the reasoning behind it. What I notice is that it's usually supported by nothing but a survivor biased graph and some platitudes. There's no historic or theoretical or even international perspective.

What's important here is that those from the 1980s and 1990s who retired with money market and LT bonds as the surefire strategy based on similar flimsy reasoning ("I read a book and some author I respect told me") at some point between then and now have had to change their mind. Now, it's very likely that if they hadn't paid attention, they would have been doing at the worst possible time.

So yeah, I do think that the standard advice is the best for most people now. OTOH, I think that the general attitude that it's the best choice because investment is too hard to understand is the .... ARGH ... attitude, ever

[7Wannabe5]

jennypenny said: What many people haven't noticed or choose to ignore is the deteriorating quality of those products (food and funds) and the (very real) possibility that those products might disappear or fail entirely.

Wouldn't a fund be more like a food processor or restaurant chain? Like how you can get a little bit of anything that is kind of like Mexican food at a chain Mexican restaurant? And what Jacob is recommending is something like at least learn how to grow your own peppers, read a few well-reviewed cookbooks, and take a trip to the region? And, almost anybody who has done even just 2 of those 3 things would never choose to eat at a Mexican chain restaurant again?

[jacob]

@7wb5 - Getting too deep into metaphor land. The main worry about indexing these days is the total lack of strategy diversification. (Before anyone gets their undies in a knot, this has been discussed several times before. No need to debate it again.) People have significantly reduced company risk but by everybody doing it more or less the same way, they have tremendously increased market risk. The deteriorating quality has to do with everybody eating the same thing (perhaps based on the same 10 different kinds of corn syrupy crops) and not yet realizing what it could do to their health or what it has done to biodiversity in general. But just like with diet, it's possible to stay in denial about e.g. diabetes or copd for a long time ... even if a few informed and loud people point it out as a trainwreck in progress, those on the proverbial rails still think they're doing a good thing.

And in some ways they are... I mean, what else are they gonna eat ... when there's no interest in cooking?

In some ways, it's like this http://earlyretirementextreme.com/food- ... costs.html ...

Here was my point summarized:

I also know that there are many different diets out there each which have their proponents. The point of this post is not to convince you that paleo or vegan or some other diet is superior. Rather, the point is to convince you that the Standard American Diet with its appropriate acronym is bad for you. Not only is it more significantly more expensive for you on a month to month basis, but the long terms health effects will drive up your insurance costs (requiring the full cadillac plan) and personal costs of bad health. It is NOT the ERE way.

In short, if you eat the standard diet, my hope is that after reading this you will strongly consider shifting your diet by one “Wheaton”-level.

And then go to the comments and see some immediately complaining how ignorant this [suggestion of slightly improved cooking] is because it doesn't confirm to whatever their personal diet conviction is.

[jacob]

Anyhoo ... part of the Renaissance ideal is to become at least competent (300 hours) in practically all aspects of one's personal life/environment/dependencies/couplings. IF you don't travel, you don't need to be a travel ninja, etc.

I've dedicated far more space (1-3 chapters depending on how you count) to hammer on this point than I did to SWR stuff (1-3 sections depending on counting).

Hence, I don't understand the widespread "3 hours must be enough"-punt or the increasing popularity of "unlearning" investing when it seems to be one of if not the most important aspect of most people's FIRE plans.

If one's portfolio is going to be a foundation of ERE, then I'd suggest 3000 hours of effort followed by regular maintenance ... not 3 hours followed by an annual check-in.

I'm not disagreeing with anyone regarding their particular investment style. I'm disagreeing with the increasingly commonly held anti-intellectual attitude when it comes to investing ... or other complicated matters as well... e.g. renewables/energy, climate, politics, ... It's like the idea is that "this is too hard and incidentally why bother when I can just buy a product or search an opinion"; but I firmly believe one needs to be responsible for understanding one's environment or zones in permaculture terms.

[Riggerjack]

Index investor here. Because I invest thru my 401k, and if I only have 35 fund choices, I'll choose the ones with the lowest fees.

That being said, when I overreacted in February, (I sold 8.5% down YTD, really hoping for a bigger correction. I was looking to buy back into the same funds at lower prices) I found I really needed to reconsider my strategy. My default strategy will always be stocks, as I am extremely risk tolerant. But the upside/downside risk right now just isn't working for me. This has caused me to look for other options out there. I'll go back to indexes, but not when the s&p is at or near record highs.

With all that said, I still wouldn't invest in any alternative energy stock. I have no competitive edge, and the field is dominated by subsidies, which just means the business with the best connections wins, and I have no way to predict that.

BTW, anyone looking into alt energy needs to factor in that the Federal tax credits for solar, geo, etc go away this December. That is a 30% credit, not deduction, so whatever numbers you are looking at will be skewed differently in January.

[Riggerjack]

Jacob

As a percentage, just how big are index funds? I mean, at 3% of the market share, I don't think they form much of a systemic threat. At 60%, I'm sure they do. Just how much is invested blindly?

[theanimal]

Wow. That S&P heatmap is really cool.

1) You can structure buying PV and batteries to live off the grid and take your energy bill from $200 a month to $0. Or even a positive cash flow. Initial setup cost is $15000. ROI is 16%. Breakeven occurs in year 6. Risks include: PV continues to become exponentially cheaper reducing energy prices overall and utilities charging redistribution charges instead of power delivery charges.

$15,000? Are you buying gold coated panels? I'm in the process for setting up a solar system for my cabin here. Total cost with batteries will be under $1,500. With energy costs so expensive here, my ROI is much higher and my breakeven will be under 1 year. YMMV. Even those with larger systems than myself didn't pay more than $5,000. Time to shop around or lower those electric loads, eh?


You mentioned how batteries aren't a sustainable solution. I wholeheartedly agree. At the moment, are there any alternatives? In my mind, the answer I come up with is no.

[BRUTE]

In short, if you eat the standard diet, my hope is that after reading this you will strongly consider shifting your diet by one “Wheaton”-level.

in all fairness, while it's likely always better to think about what to do than blindly follow everyone else, jacob's advice in that diet thread was pretty much along the lines of "don't have a latte every day and become a millionaire".

[oldbeyond]

I wholeheartedly agree on the importance of a deep understanding of financial markets if you are to depend on them for your livelihood. I think you are a bit unfair towards "passive" investment styles, though. A big appeal in any mechanical system(which can be "active" or "passive") is the removal of emotions/human error. Of course, creating a simple mechanical investment strategy that is resilient and viable over the long term isn't trivial, and perhaps impossible, so being able to identify the crucial assumptions of the strategy and if they break down is key.

[ThisDinosaur]

Well, if the core of that message is that "even the best strategy only works SOME of the time, so you have to pay attention," then you've eased my cognitive dissonance on this issue. But I will say that there is still a huge difference between, say, learning guitar and investing your life savings. Unless you are betting your life savings on whether or not you get a record deal. Then its the same 'ting.

cmonkey and oldbeyond are talking about using mental models and carefully chosen assumptions. I think that's how everyone operates, investors or not. A human's assumptions and model may be wrong, and overconfident types can lose their shirt. People who broadly diversify into, say, the Market Portfolio, are operating under the assumption that the future is unknowable, and even the ones who know damn near everything have some Unknown Unknowns. Kahneman says that when we ask a question that's too hard (what will the world economy do next?) we subconsciously answer an easier one. I think this kind of thinking leads to rigid, blind faith in simple investing strategies. I don't think I'm unusually susceptible to that bias, but I do think I am uncommonly susceptible to another one: believing a hypothesis that *makes sense to me* over one that's too complicated given my current knowledge. Since I know that about myself, I'm trying to increase my knowledge and search for counterviews.

[7Wannabe5]

theanimal said: You mentioned how batteries aren't a sustainable solution. I wholeheartedly agree. At the moment, are there any alternatives? In my mind, the answer I come up with is no.

You could figure out how to store the energy in a system of springs or other mechanical devices or you could use the energy to run a pump to move water up into a storage tower to be released later down-gravity to produce electricity as needed.

Or you could use solar energy to grow a crop to feed to a mule and then you could hook the mule up to a mechanical hub that is also attached to a magnet. I am currently exploring the possibilities of a similar system to make some sort of use of my sister's 3 useless dogs. They eat 1lb of dry brown rice and 8 eggs/day and produce nothing but poop that is very difficult to compost. Obviously, you could also use solar energy to grow a crop like potatoes to feed yourself, and then put yourself on an exercise bike hooked up to your laptop in the evening. Here's some of the information you will need to see if this will prove worthwhile.

1) Yield potatoes= .445 lbs/square ft over 100 days growing season 14 hours of sun/day
2) Energy from sun =100 watts/sq. ft
3) Energy available to human from potato=347 kcal/lb.
4) 1 Watt = .86 kcal/hours
5) energy necessary to produce materials to construct simple solar oven in which you can bake the potatoes so you can eat them ?/lifespan of solar oven?
6) energy used by laptop= 20 watts
7) energy burned by average human pedaling bicycle/hr at high speed= 600kcal
8) energy necessary to produce exercise bike and convertor=?/lifespan of these devices =?
9) efficiency of conversion of mechanical pedaling to electricity < 50%

[jacob]

As a percentage, just how big are index funds? I mean, at 3% of the market share, I don't think they form much of a systemic threat. At 60%, I'm sure they do. Just how much is invested blindly?

Quick google: http://www.marketwatch.com/story/troubl ... 2014-12-30

Data from investment researcher Morningstar that Stack highlights indicates that many indexed investors can expect trouble ahead. Interest in index funds isn’t new, but the extent of it is unlike anything witnessed before. Actively managed funds still hold a majority of total stock fund assets, 63% at the end of September. But in the first nine months of 2014, actively managed stock funds attracted $2.5 billion, while $173 billion found its way into index funds, or 98.6% of the total.

I've seen more recent numbers of over 50%.

[jennypenny]

Assuming I understand the question correctly, I think the impact on individuals would probably be higher than the overall percentage suggests because (1) index funds constitute the majority of 401K offerings, and (2) many funds that would be counted as managed funds, like target date funds, are mostly just a basket of index funds.

[Toska2]

Capacitor battery and a very low night time usage. (Led lighting only?)

Anything mechanical (flywheel, water & springs) or chemical (battery) will wear out before the solar panels.

Keep in mind what ever is using the power has to last too. Laptops? Ha.

[ThisDinosaur]

@theanimal, 7Wannabe5, Toska2

http://festkoerper-kernphysik.de/Weissb ... eprint.pdf

http://energytransition.de/files/2014/0 ... anking.png

The chart is from a study comparing the EROI with and without energy storage for various sources of energy. (Yellow bar is WITH storage, blue is without) They used pumped water storage as the common thread because it requires the least energy investment to manufacture. Solar thermal advocates (myself included, until this week ) like molten salt for energy storage over night, but you have to input energy to mine and transport the salt...bummer.

All of this is for commercial scale operations, not small scale residential. There is definitely a place for batteries, but, like hydrogen cells, they're not going to help our energy production needs or fix the systemic problem.

[FBeyer]

theanimal said: You mentioned how batteries aren't a sustainable solution. I wholeheartedly agree. At the moment, are there any alternatives? In my mind, the answer I come up with is no.

You could figure out how to store the energy in a system of springs or other mechanical devices or you could use the energy to run a pump to move water up into a storage tower to be released later down-gravity to produce electricity as needed.

Or you could use solar energy to grow a crop to...

[jacob]

http://www.lowtechmagazine.com/ contains in-depth articles about low-tech solutions to high-tech problems so to speak.

Certainly things can be done but they're going to be done differently in the "kind" sense, not the "degree" sense. For example, instead of email and UPS, the pneumatic tube system might be reimplimented. Invented in the later 19th century, it delivered mail four times a day(!). That's a more likely candidate to future delivery systems than drones, for example. Drones are only possible because of high-density energy system. It's not more than two decades ago that RC flying was run by small gas engines. Batteries were simply too heavy relative to how much power they supplied.

So the key here is energy-density. What's been almost exclusively suggested above are low-density solutions (except the flywheel, which is used in high energy lasers to dumb energy for the shot, and high voltage capacitors ... both are short time solutions because of leakage) or highly inconvenient or intermittent ones.

Consider spring power and compare:

Time between recharges for a watch driven by a mainspring. About 1 day.
Time between recharges for a watch driven by a lithium battery. About 1000 days.

The spring and the battery takes up the same space, so we can conclude that the energy density of a battery is some three orders of magnitude higher than a spring.

Scaling up ...
Range of car on batteries: 400 miles.
Range of car on springs: 0.4 miles.

Of course that's not to say that springs aren't going to be used for extreme low energy applications, like, e.g. clocks. What you want to compare is the energy density of a fuel source because that's the number that determines what's technologically realistic. You can run a clock on a spring. You can't use a spring for mass power storage.

You can see the importance of energy-density in terms of technological development by looking at human history. The Roman Empire was just about maxed out in terms of what could be done with human potato power (i.e. slavery). However, they had indoor plumbing, five story apartment buildings, a working financial system (of mortgage investing), central heating, and dinner ware that's indistinguishable from what you can buy at walmart today. Their soldiers had multitools (leatherman style)---A level of technology that wasn't reached again until the early-mid 19th century.

With oxen you can get more power. With horses even more. Then comes steam. And so on.

Now, the loss of Roman culture is a good example of the importance of technology in terms of making a difference. If the Romans had central heating with slaves but the British didn't with steam power; the difference is one of technology and political/organizational structure.

If supreme effort is taken, it's possible, for example, that one could build a steam engine out of a clay blower and iron from river bacteria ... however, the result would take many years to build and would be more on part with an object of worship or the toy of a king. The Ancient Egyptians describes the existence of batteries.