Alternative energy stocks have performed so poorly this year that thePowerShares WilderHill Clean Energy (ETF) (NYSEARCA:PBW) and the Guggenheim Solar ETF (NYSEARCA:TAN) are down 20% and 34% this year, respectively. To make matters even more frustrating for alternative energy investors, the Market Vectors-Coal ETF(NYSEARCA:KOL) has more than doubled this year.
If you are invested in alternative energy stocks and have watched your investment plummet this year while coal stocks have dominated the market, don’t feel bad. This may have been a costly mistake. Luckily, there are very important lessons to learn.
The good news is, there is nothing wrong with your idea that alternative energy stocks represent the future. But being right doesn’t necessarily mean making money. Believe it or not, the problem may be that too many other investors agree with your idea.
Billionaire investor Howard Marks calls this type of thinking “first-level thinking.”
First-level thinking is the idea that a company is a good company or an industry is a good industry; therefore, buying a related stock or ETF is a good investment. Marks reminds investors that smart investing isn’t easy. “Anyone who finds it easy is stupid,” he once said.
If an idea, such as alternative energy stocks, electric cars, marijuana legalization or commercial space flight seems like a no-brainer, the first-level idea may not work as well as you think it will.
Jumping the Gun on Alternative Energy Stocks
One major reason that alternative energy stocks have lagged significantly in the past year is…
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