Steve Christ's  Instablog

"Ha!" my pal the real estate agent said to me the other day. "You've missed the boat on this one, Steve. The housing market bottom is in and you still can't see it." 

And at that moment I just couldn't help myself; I my rolled eyes and let out a long-winded sigh. I had been through this bit before with the guy.

You see, my friend Charles has been taunting me for years now, giving me the old "I told you so" routine at even the faintest rustle in the housing bushes.

After spending some serious time on the mat this summer, natural gas prices are showing some signs of life these days. Like a phoenix rising from the ashes, prices for the fuel have turned markedly higher.

And with some forecasters predicting the "coldest winter in a decade," traders are now beginning to make big bets that wintry weather could send the down-beaten commodity even higher still.

One them is our own energy expert, Chris Nelder, whose mid-simmer natural gas forecast is looking to be spot-on of late.

Given the recent decline in shares of solar power stocks, the solar doom and gloomers just can't help themselves these days.  

They've come out of the woodwork with their scary tales of impending woe.

In fact, the chorus from these folks turned downright cloudy in August after analysts from Jeffries & Co. downgraded the entire solar sector amid new pricing fears.

"We expect rapid growth in solar volumes," Jeffries said in a note on August 21, "but a downward pricing spiral and lack of discipline around capital deployment leave us cautious on cell and module manufacturers."

Those dark warnings sent shares of nearly every company in the sector into an immediate tailspin, including shares of First Solar stock, which Jefferies cut to from a hold from a buy.

However, as my old pal Nick Hodge said to me on the morning of the news, the Jefferies call was a bit over the top. "It was," the green guru said, "completely unwarranted."

That has given investors with a time frame longer than it takes to eat a sandwich yet another opportunity to invest in one of the few true growth sectors, including in well-run U.S. companies like First Solar Inc.

As for the industry itself, it appears the anti-solar crowd's fears aren't warranted either.

In that regard, consider the following recent developments within the industry that will undoubtedly help to boost future sales:

•   On August 13, the U.S. government announced a program to award $2.3 billion in tax credits to manufacturers of advanced energy equipment. Authorized by the February stimulus bill, this new provides tax credits to manufacturers who produce clean energy equipment.

• On July 30, the Energy Department announced it is making up to $30 billion in loan guarantees available for renewable energy and electric grid modernization projects. The government-backed authority should help boost lending capital for renewable and other clean-energy technology projects, which has dried up with the financial recession.

On top of that, when it comes to renewable energy, let's just say the industry also has more than a few friends in high places, including Energy Secretary Steven Chu. An actual Nobel Prize-winning scientist, Chu is one of solar power's biggest supporters.

In fact, according to Chu, the administration's new goal is to double renewable electricity generation over the next three years. "To achieve that goal," Chu said, "we need to accelerate renewable project development by ensuring access to capital for advanced technology projects."

That means the government will be there to help push these new technologies forward — now and in the future — by whatever means necessary.

Of course, that's not to say that the solar power industry hasn't had its share of problems lately.  It has. The industry has definitely been hurt by excess capacity, tight credit, and a bloated inventory of panels that iSuppli predicts will not end until 2012.

On top of that, there is a supply glut of polysilicon that has hurt the industry's earnings and margins this year.

Even still, given the combination of eventual improvements in the technology and favorable government policies both here and abroad, solar power as a long-term investment is one whose time has definitely arrived. . . all doom and gloom aside.

And in this free six-page report, The Wealth Advisory Research Team has broken down the one of the most promising solar power giants, answering the question on every investor's mind these days. . .

Is First Solar Stock (NASDAQ: FSLR) a Buy, Sell, or Hold?

In this free report, Wealth Daily subscribers will receive:

• The results from The Wealth Advisory's proprietary scoring model
• A buy, sell, or hold recommendation
• A 12-month Price Target, along with a current Stop/Loss
• A technical and fundamental analysis of the company's share price
• And much more. . .

To receive a free download of this report and our Buy, Sell or Hold recommendation for First Solar Inc. (NASDAQ: FSLR), click here.

I hope you enjoy your free First Solar report.  We will be publishing many more of these in the weeks to come. . .

Just in time for back to school, new swine flu fears have suddenly returned. And like the lingering infection itself, the H1N1 virus is one that just won't seem to go away.

You may not realize this, but "the next big thing" is where it always is: right under your own nose.

Because let's face it: "the next big thing" never springs from a vacuum. Instead, it comes from what is already surrounding us. The problem is most investors just don't realize it at the time.

Weighed down with list of "can'ts" and "won'ts," they invariably miss seeing the forest for the trees.

How else can you explain the chorus of doubters that couldn't see what the personal computer would become in the 80s or the internet in the 90s? Yet there they both were, hidden in plain sight.

Fortunately for us, most entrepreneurs aren't exactly wired like most retail investors. They take risks, never knowing for sure whether the dream will end in the Promised Land or at the bottom of a cliff. Even still, they continue to pursue the dream.

But the funny thing about all of it is this: no one's dream ever happens alone.

That's why the next big thing is never as obvious as it seems.  In reality, it takes another development in a related industry to ultimately create the boom.

After all, it took huge advances in chip technology to build a phone that can fit in your pocket; to put a laptop computer on your desk. In other words, it always takes a certain amount of synergy to produce the next game-changer. . . and when that happens, barriers fall by the wayside.

For investors, this means looking at how all of the parts might fit together, delivering the next block-buster product or winning trade.

So where are the scattered pieces today that are going to deliver the next big investment of tomorrow? 

They are found all over the place in solar power stocks. All you have to do is look.

Bullish on Solar Power Stocks

Now for those of you whose eyes glaze over at the mere mention of solar power, let me tell you this about the new solar: it's not your grandfather's solar, and we're certainly not in the 70s anymore, either.

As for the falling price of oil or natural gas, forget about it — even though it's a solar power doom and gloomer's best friend.

You see, what these flat-earthers don't seem to understand is that there is a bona fide revolution going on in solar power. And it's the kind of movement that is quickly beginning to disconnect the industry from the chains have that have shackled it to fossil fuels.

What's missing is enough synergy to put it over the top. . . until now.

That's where, in a twisted path, beer comes in. You may or may not know it, but the Coors family makes batteries along with their ice-cold brew.

And for the last 10 years, the descendents of Adolph Coors have been working with scientists to develop a new generation of batteries that is small enough and safe enough to power your home-something of a holy grail for anyone looking to go "off-grid."

Paired with solar power, it's the definition of a game-changer. After all, who needs a "smart grid" when there is actually less power to transmit?

Battery Technology and Solar Synergy

Developed by Ceramatec, a subsidiary of CoorsTek, the new generation of battery can store 40kw of power in a package the size of a refrigerator for roughly $2,000.  The average American household, meanwhile, uses 33kw. In short, it's a battery big enough to power your home operating at a peak temperature of 90 degrees.

Conversely, the lead acid batteries available today are a toxic stew of chemicals that operate at temperatures over 350 degrees. On top of that, they deliver half the performance at nearly double the cost.

Additionally, the Ceramtec battery can be recharged through 3,650 cycles — or once a day — for 10 years. Deep-cycling lead acid batteries last less than two years.

And while the implications of such a battery may not be readily apparent to you, the larger reality is these batteries make "the great disconnect" a real possibility as more and more homes go off grid using wind or solar power.

"Batteries and PV (photovoltaic) are about to merge," said MIT's Daniel Nocera, a member of Ceramatec's science advisory board. "First Solar is now saying that it takes $1 a peak watt to manufacture, and another 80 cents for installation. So they're saying that you can get PV for under $2 a watt. That's a reduction of cost by a factor of four. Only a few years ago, it was $8. If CoorsTek and Ceramatec come up with a good battery, the market will develop quickly."

When that happens, it will absolutely snowball.  

Think about it for a moment. . . would you rather have a massive kitchen upgrade with cherry cabinets and granite counter tops, or take your home off the power grid?

To me, it's a no-brainer: Safe power storage is what makes it all possible. 

As for the batteries themselves, CoorsTek is only about six months away from producing a commercial product with a realistic schedule of delivering 1 million batteries a year.

"Once we have a working prototype battery with all the standards and cost requirements met, it will come up quickly," said Grover Coors. "It would scare people to know how quickly we can bring this up."

So while some may still have a hard time taking solar seriously in light of falling crude prices, their math may cause them miss the boat.

Solar power, it now seems, is ready to leave the harbor. And when it does. . . it will have little or nothing to do with crude.

Instead, it will be all about the synergy. After all, that's what ultimately delivers "the next big thing."

Adding up the pieces can help make you a small fortune.

Damn the fundamentals. . . full speed ahead!

That's the mojo of the bulls these days, as the greatest rally in history keeps pushing the markets higher.

But just because the markets have turned green again doesn't necessarily mean that the storm has passed, as I discussed last week.

That's because whether the bulls want to admit it or not, "irrational exuberance" is alive and well these days, since the S&P 500 is now trading at nosebleed heights — with a price to earnings ratio of 65.32.

Of course, "irrational exuberance" is a phrase made famous by our old pal, Alan Greenspan. The down-beaten maestro uttered it a full four years before the dot-com bubble burst, costing investors $5 trillion in the process.

Even still, those two famous words turned out to be much more than a mere warning that stocks were overpriced. They also helped to turn the idea of the efficient market hypothesis right on its head.

A rational market?

Not hardly, according to Greenspan. And while I'm not exactly a member of the Alan Greenspan Fan Club, on this score he couldn't have been more right.

Behavioral Finance and Investing

After all, the tenets of behavioral finance and investing go hand in hand, since every market trades in some measure on the human condition otherwise known as emotion.

Because as we have now learned in dealing with two massive bubbles in only ten years — first in tech and then in housing — the markets are not rational at all. . . at least not in the short run.

As the concept of behavioral finance implies, there is always a ghost in the machine. And because of this ghost, things aren't always as they appear to be — especially when it comes to the stock market. . .

The reason for this, of course, is simple: the markets are made up of people. That makes them messy at times and unpredictable, since market players sometimes behave irrationally.

But by understanding how and where your reasoning can go astray, you can help build up your portfolio by simply choosing to limit your losses on far more of those "irrational" losers. After all, when you ignore the fundamentals, you do so at your own peril.

The key here, though, is in learning to recognize how the cognitive biases related to behavioral finance have handicapped your investing in the first place.

I call these biases, "Eleven Reasons Why What You Think is Probably Wrong." Learning to recognize these reasons can save you a ton of heartache. . . but only if you're honest with yourself.

The eleven emotional hurdles that could be killing your portfolio:

1. The Bandwagon Effect: This is the one that causes the most pain in a bubble. It's the idea that it's okay to follow the herd because so many other people believe in it. It's irrational because it places faith in the safety of numbers, while completely disregarding the fundamentals. Without it, a bubble is impossible.
2. Loss Aversion: People tend to have a strong preference for avoiding losses over acquiring gains. It's the fear that puts them on the sidelines to stay.
3. Disposition Effect: This is the tendency for investors to lock in gains and ride out losses. It prompts the sale of shares that are rising, while it also keeps investors tied to losers for far too long. It's closely tied to loss aversion, since it's the fear of loss that dominates the thinking.
4. Outcome Bias: Judging a decision by its outcome, rather than the quality of the decision at the time that it was made. This is what makes investors completely disregard a proper decision if it turns out to be a loss.
5. Sunken Costs Effect: Treating money that has already been spent as more valuable than money that may be spent in the future. It's what helps to build up losses because the investor believes that by selling at a loss, he is wasting money. That same money could be put to use elsewhere.
6. Recency Bias: Weighting recent data more heavily than earlier experiences. It's what freezes investors, especially after a series of losses, even though there may be a much longer string of successes in the past.
7. Anchoring: This is the tendency for people to rely too heavily on readily available information when making a decision. Investors often base their decisions on information that may be faulty.
8. Belief in the Law of Small Numbers: This is when investors base their conclusions on a slice of data that is too small. It's the equivalent of making mountains out of molehills, and it blurs reality.
9. Endowment Effect: People tend to value something more once they own it. As in housing, people tend to overvalue what belongs to them. Of course, this only blinds to them to the real value.
10. Disconfirmation Bias: This makes people critical of information which contradicts their beliefs, while uncritically accepting information that is in line with them. In short: it's a trap whereby people believe what they want to believe.
11. Post-Purchase Rationalization: This is when investors persuade themselves through rational argument that a purchase was a good value. Of course, if a decision needs to be rationalized after the fact. . . it was probably wrong.

Individually, all of these biases are dangerous. And taken together, they are the stuff that bubbles are made of. Guarding yourself  against them in the future may be the one of the best investment decisions you'll ever make.

Because Mr. Greenspan nailed it when he said that markets were irrational. Fundamentals really do matter.