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Joseph L. Shaefer
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Joseph L. Shaefer is the CEO and Chief Investment Officer of Stanford Wealth Management, LLC, a Registered Investment Advisor. Joe retired as a senior executive at Charles Schwab and Co. to found Stanford Wealth Management, LLC, in 1990. He also spent 36 years in a very different leadership... More
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Stanford Wealth Management LLC
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The Investor's Edge
My book:
Bringing Home the Gold
  • Michael Crichton on Global Warming: Investment Implications 0 comments
    Aug 18, 2009 4:34 PM | about stocks: XOM, RDS.B, ECA, IMO, CHK, CCJ, NRP, PVR, MMP, BWP

    Dr. Michael Crichton was best known as an author whose books sold over 150 million copies worldwide.  He was also the only artist to ever chart  #1 at the same time in television, as creator of ER; in film, with the adaptation of his novel Jurassic Park; and in book sales, with Disclosure. 

    He was a scientist by training, by which I mean he was both curious about the world around him and empirical in his observations about it.  In a world where uninformed opinion, shouted at ever-higher decibel levels on hot media like TV and YouTube, seem to carry the day, I submit that curiosity and empiricism are under-rated; loudness and loutishness are over-rated.

    The Wall Street Journal reprinted parts of a lecture Dr. Crichton gave in 2003.  I have excerpted a couple paragraphs of that Journal article below.  It’s important to note that Dr. Crichton never claimed that global warming is not an issue -- merely that more research is needed before we draw definitive and arrogant conclusions that we can control the variables contributing to climate change.

    I share Dr. Crichton’s skepticism.  Skepticism is a necessary precursor to empiricism.  After quoting his words, I’ll mention a few possible opportunities that investors may find worthwhile…

    Dr. Crichton:

    “I regard consensus science as an extremely pernicious development that ought to be stopped cold in its tracks. Historically, the claim of consensus has been the first refuge of scoundrels; it is a way to avoid debate by claiming that the matter is already settled. Whenever you hear the consensus of scientists agrees on something or other, reach for your wallet, because you're being had.

    “Let's be clear: The work of science has nothing whatever to do with consensus. Consensus is the business of politics. Science, on the contrary, requires only one investigator who happens to be right, which means that he or she has results that are verifiable by reference to the real world…

     “To an outsider, the most significant innovation in the global warming controversy is the overt reliance that is being placed on models… As if they were themselves a reality. And indeed they are, when we are projecting forward. There can be no observational data about the year 2100. There are only model runs.

    “Nobody believes a weather prediction twelve hours ahead. Now we're asked to believe a prediction that goes out 100 years into the future? And make financial investments based on that prediction? Has everybody lost their minds?”

    Clearly, a lot of people have.  I was on the ground in the midst of Saddam Hussein’s temper tantrum at the conclusion of the First Gulf War, when he set ablaze all of Kuwait’s oil fields he could get a torch to.  (“If I can’t have them, no one can.”)  At the time, Eco-fringies declared this the last nail in the world’s coffin; that the carbon released from such a massive catastrophe would throw us all into (choose one) a global icebox or a global inferno. 

    Media personality Carl Sagan predicted those oil fires would produce a nuclear winter, a "year without a summer," and would whither crops around the world. It didn’t happen.  Man’s puny efforts to match the earthquake every 20 seconds, the hurricane every few days, or the billowing sulfurous gases of a major volcanic eruption that Nature produces on this active and capricious planet of ours were as flimsy as gossamer.
      

    To people who say they “know” that climate change will be catastrophic and who “know” that reducing one variable, man’s output of carbon, is primarily responsible for this upcoming catastrophe, and say they “know” what the world will look like in 50 years if we don’t spend all our resources to change this horrid and fearsome outcome, I say: they’re full of hooey. 

    They can’t even predict what their teenager will look like in 12 months.  Will he have tattoos?  A Mohawk?  Wear pink lipstick and spike his hair?  Of course, a single teenager is a complex organism.  Sort of like an entire planet’s ecosystem we don’t have the faintest beginnings of understanding…

    If you share Dr. Crichton’s skepticism, and mine, what might you do to invest wisely?  There are no surprises here for frequent readers.  I believe a burgeoning world population will need every energy source we can find and use.

    That means building cost-effective wind and solar farms, finding more geothermal if possible, using hydroelectric where it makes sense, taking advantage of newer, safer, cheaper smaller nuclear plant construction designs, and drilling for oil and, especially, for natural gas  -- the cleanest of the fossil fuels and one which Americans and Canadians have in abundance.

    In my opinion, among the best of the natural gas firms are Chesapeake (CHK), Imperial (IMO), EOG (EOG) and Encana (ECA).  In coal, I stick with the coal leasing firms, which have no labor costs or accident liabilities but simply own mineral rights under land which is leased to coal producers. My two favorites are Natural Resource Partners (NRP) and Penn Virginia Resources (PVR).  All of the big oil companies are really big “energy” companies and I like a number of them, with Royal Dutch Shell (NYSE:RDS.B) and Exxon (NYSE:XOM) at the top of the heap.

    In the pipeline arena, I can recommend Magellan Midstream (MMP), Boardwalk (BWP), Enbridge Energy (EEP), Kinder Morgan (KMR), Buckeye (BPL), Enterprise (EPD), Atlas Pipeline (APL), and SemGroup Energy (SGLP).

    In nuclear, Cameco (CCJ) is the biggest producer of uranium and, unless we switch to thorium reactors, the biggest of the suppliers of essential fuel to the nuclear industry. Anglo-American (AAUK) is also a serious player in the business.  So many others are just “guys with a story.”  I’d stick with the biggies.

    Full Disclosure: We are currently long small positions in ECA, IMO, CHK, NRP, PVR, MMP, BWP, and APL.

    The Fine Print: As Registered Investment Advisors, we see it as our responsibility to advise the following: We do not know your personal financial situation, so the information contained in this communiqué represents the opinions of the staff of Stanford Wealth Management, and should not be construed as personalized investment advice.

    Also, past performance is no guarantee of future results, rather an obvious statement if you review the records of many alleged gurus, but important nonetheless – especially so you are not over-impressed by the fact that our Investors Edge ® Growth and Value Portfolio has beaten the S&P 500 for 10 years running. What if this is the year we under-perform it?

    It should not be assumed that investing in any securities we are investing in will always be profitable. We take our research seriously, we do our best to get it right, and we “eat our own cooking,” but we could be wrong, hence our full disclosure as to whether we own or are buying the investments we write about.

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