Back in the 1990s, I saw, up close and personal, the recycling project bubble. Some facilities were built that worked, some that did not. I was working with money-center banks at the time (something I still do as a consultant) and saw good and bad economic justifications, application of scientific principles (maybe I should say, in some cases, misapplication) and so forth. Because I became intimate with the banking community, I also saw, relatively closely but as a spectator, the dot-com bubble and even some of the Enron activities. Through other channels, I have watched the collapse of the music recording industry as we know it. I say all of that to say this — the current alternative energy financing frenzy has many of the same characteristics as these other emerging concepts back in the day. A word to the wise: if it walks like a duck and quacks like a duck, it just may be a duck.
This is not to say I do not endorse or actively promote creativity and pushing the envelope — I do — emphatically. I am merely saying the alternative energy frenzy has promoters of good concepts and bad concepts. Hanging your career, life savings, reputation, or anything else on any one project just means you must personally do a thorough job of due diligence on the promoters, markets, economics, government policies, and science upon which a given project stands. Otherwise, you may be figuratively skinned alive.
The worst case I ever saw of this was a senior retired executive whose son had “a great idea.” The retired executive possessed exceptional wealth — in his former company’s stock. As the son’s great idea consumed more and more of the executive’s capital, the stock was sold — nearly all of it. The son’s business failed. But that was not the end of the story, for the next year dad owed capital gains taxes on the divested stock and almost all of the money was gone — there was not enough left to even pay the tax bill. The long-standing family homestead had to be sold to pay the taxes. This perhaps is not only a good example of a bad idea; it may be the best illustration I have ever seen as a cautionary tale of investing within your own family. Obviously the CEO had been a great, objective leader at one point, but he was blind when it came to junior’s faults and faulty business plan. And I suspect future holiday family gatherings did not possess the warmth they might have once had.