Good Reads - April 7 2019

The Economics of Local Vertical and Greenhouse Farming Are Getting Competitive

There is a growing interest in what I term "contained growing systems", everything from container units, to vertical growing systems to greenhouses.  This article looks at comparative economics of various systems.

While one might quibble with some of the assumptions and the methodology, I feel that the conclusions are in the right ball park.

• The economics of enclosed systems are improving with advances in technology.
• Given the high upfront costs and technological uncertainty, most investors are reluctant to commit large sums of money as the returns take longer than most are prepared to entertain.  

This said, considerations other than financial returns are driving the movement to expand contained growing systems:

As leaps occur in technology, I predict the days that consumers are going to have their produce shipped months in advance and from thousands of miles away, are numbered.  Technology is available today to grow locally and bring fresh produce to the mass-market within days or even hours.  Additionally, as climate change brings dramatic weather changes, controlled-environment agriculture allows for constant conditions regardless of weather patterns.  As time goes on vertical farms and greenhouses will increasingly grow greater sums of our produce both domestically and across the world. 

There are investment opportunities here, especially with technological innovation in a few areas:

• software
• lighting
• heating/cooling
• automated growing and harvesting systems
• methods to increase plant growth, health and quality including genetic engineering and nutrient management

I was lucky to have made significant gains with CO2 GRO (GROW), a company that has developed the technology to increase yields and plant health.  The company is described in earlier posts. 

Portfolio Management for the Coming Recession

It is impossible to know when the next recession will come and even more imponderable, to determine its form and the nature of its impact on one's investments. 

That "something" will happen is in no doubt.  As mentioned in earlier posts, I have the sense that the present bull run in equities is getting a bit stretched.  I also noted that my major losses were the result of a general downturn in the broader markets ... to the extent of more than 30 percent at times. 

As a result, I have reduced my positions in equities and retain only those with the prospect of offering some resiliency e.g. precious metals companies with low cost production or strong income streams from royalties.  Also, a few companies that should be profitable in hard times e.g. GROW. 

My approach going forward is based on a few assumptions:

• that the trade-off between holding more cash and selling off some equities is worth the "lost opportunity" cost of maintaining equities positions during the mature stages of a bull market - this as balanced against the potential of a significant decline within the next two years
• that holding cash and precious metals will minimize losses and position me to purchase "bargain" stocks once they have been beaten down

I am the first to admit that I could be wrong. 

I have "gamed" a few potential scenarios in order to arrive at my present position ... thinking along the lines of the type advanced in the following article:

A Playbook for a Recession-ready Portfolio, even if it never arrives
If there is anything to know about the current situation, it’s that usual rules don’t always apply.

In recent testing, we examined the impact to a portfolio on an equity downturn through three scenarios: do nothing, sell to buy bonds, or hedge via equity options. The last was the clear winner, effective under a range of debt/equity correlation assumptions.