Investing in Water and Renewable Energy

Allen J. Schuh, Ph.D.

Copyright 2016 by Allen J. Schuh

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Table of Contents

Preface

Chapter 1

The Use of Financial Counselors

The Counselor, Counselor Tasks, Major Ingredients of the Interaction, Counselors Specialize, First Contact, Two Sets of Problem Behaviors, Compacted Picture, Operant Conditioning, Experimental Neurosis, Conflict, Counselor and Client Change, Counseling Strategies, Group Counseling Alternative, Motivation to Change Behaviors, Action Plan, Summary

Chapter 2

Level 1 Theory: The Description Model, a Default Pragmatic Strategy

Scientific Approach, Where Knowledge Comes From, Need for Operational Definitions, One Measure Has Two Uses, Important Information, Zone of Indifference, Psychometric Example, Using Screens to Narrow Selection, Buy and Sell Procedures, Investment By Nibbles, The Portfolio, Value Investment, Always Some Bargains, Conservative Strategy, Action Plan, Summary

Chapter 3

Level 2 Theory: Actuarial, The Sign Approach

Characteristics of Data, Using a Statistical Model, Spotting the Change of Direction, Reliability Estimates, The Psychometric Example, Standard Error of Measurement, Parametric and Nonparametric Alternatives, Trends in Data, Need for Expert Judgment, The Trend Could Be Just Random, Remember the Denominator, Objective and Subjective Probability, Underprediction Through Overfitting, Observation and Inference, Action Plan, Summary

Chapter 4

Level 3 Theory: Constructs of the Criterion

Hypothetical Constructs, Clean up the Criterion, The Psychometric Example Revisited, Examination of Construct Social Responsibility, Examination of Construct Quality, Examination of Construct Financial Operations, Financial Reports. Ratio Comparisons, Your Own Framework of Vital Constructs, Validity Definition, Action Plan, Summary

Chapter 5

Level 4 Theory: Multiple Environments

Environments Change, Decision Style, Compose a Group of Discussants, Link the Portfolio to the Environment, Portfolio Programming Methods, Rates and Ranks of Opinion, Action Plan, Summary

Chapter 6

Level 5 Theory: Theorizing a General System

Systems analysis, Initial Public Offerings (IPO), Quasi- Stationary Equilibrium, Government Actions, The Operation of Others in the System, Creative Process for Model Building, Company Strategies, Corporate Portfolios, Action Plan, Summary

Preface

This material is intended as a guide to investing, with special emphasis on the new opportunity areas of water and renewable or alternative energy. I have been active as an invester for fifty years and in this specialized water and energy field for about ten years.

I am attempting to provide a structure and guide that will allow an advisor/counselor to assist a client in planning for her financial security through these investments. This is an increasing problem because many employers are moving to defined contribution pension plans, which put the responsibility for financial security on the shoulders of the employee. What can you do to preserve the purchasing power of your wealth?

This material is written from the point of view of starting with the client-counselor relationship in Chapter 1, then moving to the simplest forms of portfolio selection by the simplest level of theory in Chapter 2 where multiple cutoff screens are introduced. The Chapter 3 introduces attempts to predict future investment standing by adopting typical technical analysis strategies such as linear regression. In Chapter 4, I introduce the use of hypothetical constructs such as social responsibility, quality, earnings interpretations on balance sheets and income statements. Chapter 5 brings in the ecological changes that can threaten the portfolio. In this chapter, the shift is entirely to the environment and attempts to predict especially the inflation environment and evaluate how the investments are likely to be effected and how the ecological changes can be spotted early and appropriate adjustments made in the investment portfolio. Chapter 6 brings in the systems prospective. Here the linear world is left behind and the search is for remote associations that can threaten the investments. The chapter leaves the client with a legitimate diversified portfolio that he or she can understand, monitor, and change as needed. The role of the advisor/counselor is to assist the investor as emotions interfere with processing the information needed for planning. The result is having one plan tied together with good communication.

Every brokerage house subscribes to the ethics guideline known as the know your client rule which requires the broker's registered representatives to tailor all investment advice to be suitable to the client. The rule is to prevent people from taking on risks that are not appropriate to their financial situation or level of understanding. While the typical registered representatives are not going to have training in counseling, they would benefit from an understanding of client-counselor issues especially dealing with fear, conflict, remorse, and greed. I think every registered representative would want to give this book to the clients so they see where they may need additional professional help that the financial representative does not feel qualified to give. The broker stands to gain because the retail clients will see the counselor as the appropriate source for help with the emotional fear/greed issues and use the brokers for what they can do best which is to assist in the direct trade issues and providing information on the investment choices that are appropriate to the client's financial circumstances. In this case, it would be a three-way team. They all stand to gain by the retail customer having a workable long-term plan and making successful investment choices.

The material can be used as a supplement to traditional finance textbooks, which have little on behavioral issues, or the new exciting opportunities in water and renewable or alternative energy.

In this material, the feminine pronoun includes the masculine, and the singular includes the plural, wherever appropriate.

The lawyers make us include this disclaimer. The material covered in this manuscript is presented for educational and/or entertainment purposes only. Under no circumstances should it be mistaken for professional investment advice, nor is it intended to be taken as such. The commentary and other contents reflect the opinion of the author alone, on the current and future status of the markets and various economies. It is subject to error and change without notice. The suggestion of a website does not indicate approval or endorsement of that website or any services, products, or opinions that may be offered by it.

The information and any opinion expressed does not constitute a solicitation to buy or sell any security or investment. Do not ever purchase any security or investment without doing your own and sufficient research. None of the parties adding to or affecting the content of the manuscript in any way shall have any liability for any loss sustained by anyone who has relied on the information contained herein. Neither the author nor any principal or contributor is under any obligation to update or keep current the information contained herein. The principals and related parties of the author may at times have positions in the securities or investments referred to and may make purchases or sales of these securities and investments while this manuscript is live. The analysis contained is based on both technical and fundamental research. Although the information contained is derived from sources that are believed to be reliable, they cannot be guaranteed.

The predictions and forecasts shown in this manuscript are all based on publicly available data from official government sources, the Federal Reserve System, other central banks and international organizations.

Author

Allen J. Schuh, Ph. D., is President of Phosphorus Recycling, LLC a company that speciallzes in the recovery of water borne nutrients for recycling back into the agricultural system. He previously held positions as a Vice President of a socially responsible mutual fund, a Vice President and Director of a biodiesel and ethanol corporation, and he also worked for a public accounting firm. He taught courses in Psychology in a School of Science, and in Management and Finance in a School of Business and Economics. He published several dozen scholarly papers over his fifty year career, ten U.S. utility patents mainly in the fields of water and renewable/alternative energy, and a textbook. His academic degrees are A. B. 1963 San Diego State University, M. A. 1965 University of California, Ph.D. 1971 Ohio State University. He served in the U.S. Navy. He maintains membership in scholarly and professional associations such as the American Psychological Association, The Institute of Operations Research and Management Sciences (INFORMS), Association for Psychological Science, and American College of Forensic Examiners.

Please remember to leave a review for my book at your favorite retailer.

Visit my web site at http://www.phosphorusrecycle.com.

Chapter 1

The Use of Financial Counselors

The opinion of this writer is that we can make our own financial investment decisions if we are shown how successful people do so. Successful people learn the basics of wise financial decision making which includes an understanding of the general principles of selecting among alternatives, and then they go about making their final selections in a calm, deliberate, and business like approach.

If we have the capacity within ourselves to make good decisions, why do not we always do so? There would appear to be two general obstacles after the basics of finance and the decision making process are known. The first stumbling bloc is a person's general life situation and how she handles the everyday annoyances, we all face. General life stress can be a problem for some people. The second obstacle is the baggage she brings to financial decision making from trying to invest before she was ready, but then she made some painful and costly mistakes with insufficient knowledge. Such people then build up a specific avoidance to the whole process. That commonly happens with young people who go to work, are set up in a retirement account, but they were never taught how to go about making long term selections among financial alternatives. They stumble with some bad picks, lose some money, and then are puzzled what to do, and they are under pressure to do something. The people who have made some bad investment decisions now carry that specific additional baggage into settings where the arousal level is now higher than it should be for wise decision making. If the person has a financial counselor available who can be a coach to get them back into investing then the story can still end happily. They can still secure their long-term financial future.

The Counselor

Available to every investor, not just the novices in the employment world, there should be a counselor who is knowledgeable on how to handle financial investments. The practice of financial counseling draws from many theoretical psychological positions including the idea of a compacted experience, which is called a complex, the idea of basic anxiety in interpersonal relations, several ideas of neurotic and moral anxiety conflict, transference, free association, psychological determinants, and especially the idea of a psychological space where behavior is a function of the person in the psychological environment.

Counselor Tasks

The position of the counselor may be as a firefighter who makes direct fast reactive interventions or as a friend who can facilitate the understanding of many wise choices from which the investor may choose if she wishes to do so. Changed awareness is a process of discovery in how to make informed choices. The responsibility for the change in awareness rests with the investor. The one thing the financial counselor cannot provide is the motivation to be aware of the differences between emotional and rational investment strategies.

Experienced financial counselors seem to conduct the same practices regardless of their academic training. It seems that long experience with helping others to solve their problems changes the financial counselor to be more flexible in her approach and more eclectic in her theoretical framework. It would be quite rare to see a financial counselor do dream analysis or use notions of a death wish to approach evaluation but it has probably been done. That is not to say they might not be helpful in some cases. Most practicing financial counselors avoid the fancy explanations and deal at a more practical level.

Major Ingredients of the Interaction

The three major ingredients of the financial counselor and investor interaction are the financial counselor's expertise, the investor's interpretation of the experience that is causing the pain, and the communication shared between the financial counselor and investor. Both the investor and the financial counselor are changed by the experience. Since the financial counselor is higher on the experience curve, her increment of change is less than for the investor who is experiencing the problem for the first time. In a sense, the financial counselor is a midwife. She can understand what the new mother is going through on a high level intellectual plain, but it is still the new mother who has to give the birth. It is her pain that is very real to her and she must work through the problem. The counselor has the experience on how to handle investments and the investor needs the assistance of that more experienced person to help her to plan her investment future. The assistance should be designed to help the investor understand and clarify her view of her situation or life space so that she may make informed choices in those areas where choices are available to her.

There are many assumptions in the use of financial counselors. The primary working hypothesis is that a wise and empathetic listener can help the investor past a crisis. Further, that it is human nature for people to be drawn deeper into their personal problems. A financial counselor with skill in problem solving can see the problem with an objective perspective and can help the investor over the immediate difficulty. Some financial counselors are better at some problems than others. Some procedures work better under different kinds of circumstances.

The financial counselor has to be the type of person who knows herself and is comfortable with herself. The financial counselor must be someone who cares about the dignity of a person. The attributes of such a financial counselor are the capacity to communicate in an honest, warm, and friendly style. The financial counselor must have a deep level of self knowledge, a high level of general life experience, good interviewing skills, good educational training, and perhaps a good understanding of research methods especially the threats to internal and external validity. The mark of an experienced financial counselor is her ability to fit an approach to the unique characteristics of the investor.

Counselors Specialize

Financial counselors typically specialize in an area of problems or problem behaviors and may further specialize in a type of investor. The financial counselor may have watched others experience a problem dozens or even hundreds of occasions. For the person living through it the first time, it is a first. A financial counselor who specializes in a scenario can truly greet the investor with the perspective of having handled many other cases and can offer alternative paths for the investor to follow. The financial counselor is a temporary crutch and not intended to be anything more. All responsibility for change in investment behavior rests on the investor. The greatest hurdle is for the investor to change herself so that she is able to restructure her environment. However, she comes to the discovery process wanting her environment to change to be the way she wants it to be. She may be mad and hate everything and everybody for not fixing things, as she wants them. The end of the financial counseling will be when the investor has a view of herself as potentially able to handle future financial needs, conflicts, life experiences, and to approach life with an individualized, spontaneous, resourceful behavior pattern, rather than reactive to events and people around her.

The financial counselor's purpose is usually first to help the investor past an immediate crisis, second to get the investor to come back for more information, and third to promote constructive life coping skills for handling future financial problems. The financial counselor is an information resource and a trainer. If the investor experiences failure to change, then there will be confirmation of the previous ineffective behaviors. Change is not an easy process. The investor must internalize the need for change. Then the financial counselor can be a change agent.

The financial counselor probably takes good notes. The pencil and pad of paper being pulled out may be a problem for the investor because she may want to say some personal things. The assurance of confidentiality may not even be enough. Therefore, the financial counselor has to be sensitive to these things and not do what will stop communication. Maybe a few details will be lost by not taking notes, but the trust in the financial counselor as a helper and the financial counselor's experience with similar problems will get her through the temporary inconvenience of not taking notes. Terminology in the records may be a problem in that a label like excessively asking questions may mean the investor is anxious or it may mean she feels lonely. The term may change in meaning for a person at different times. A more detailed inquiry may show a specific problem behavior with antecedent detail for frequency, duration, intensity, pervasiveness, antecedents and consequences, what stops the problem usually for this person, and what she has tried to do about it so far. Notes can document a first meeting record. The financial counselor can go over them with the investor at the future meeting as an indication of success or failure to solve the problems as first seen by the investor.

First Contact

The financial counselor on first contact will try to touch many bases, to get