My father-in-law just sent me an excellent op-ed piece written by Peter L. Bernstein in the New York Times (Sunday, June 22nd paper) that got me thinking about risk. I've talked a bit about risk in creating your portfolio, and I've beaten to death already the fact that I am risk averse, but I think given current market conditions, it's not a bad idea to rehash the concept.

First and foremost, it's important to define what risk is exactly. Despite there being hundreds, if not thousands, of measures of volatility, the article points out that the market tends to muddle the definitions of risk and volatility. In short, volatility is NOT risk. Risk is the likelihood that something will happen (anything, really). Volatility in financial markets is usually a reaction to the perception that something will happen (just about anything). When working to manage risk, it's a twofold process: 1) you need to treat the symptom (volatility), and 2) understand "the consequences of being wrong" [Bernstein].

click to enlarge image (graph courtesy of wtrg.com)

Yesterday, I saw many interesting articles about wind power. The main bit I'm seeing is Boone Pickens' alternative energy plan found on the new website. Longer-term readers will know I monitor Pickens simply because he's an energy maverick, has made a lot of money in the industry, and now runs BP Capital, an energy centric hedge fund. I've posted his thoughts numerous times. (I tracked his hedge fund portfolio holdings here, and I linked his thoughts on energy here). Although he's made the bulk of his money from oil, he's now turning his focus to wind and natural gas; and rightly so.

I've been bullish on alternative energy for some time now, saying that you need to play energy for the future. I've been assembling baskets of names in the wind, natural gas, solar, and nuclear spaces. However, that's not to say that Boone isn't still going to be invested in oil and other current energy plays. Besides playing energy for the future, you've got to play it for the intermediate term as I posted about here. Oil, coal, and natural gas aren't going anywhere, anytime soon, so you've got to invest in those as well. In addition, if you think about it, natural gas is the only type of energy overlapping in both the current energy picture and numerous people's plans for the future. Therefore, I like to take a basket approach, pick a few names in each class, and then have a dedicated percentage weighting to each type of energy.

VeraSun Energy (VSE) President and CFO Danny Herron presented at the William Blair 28th Annual Growth Stock Conference 2 weeks ago. I listened to the replay, checked out the slide show and took some notes. The presentation was very upbeat, as they usually are. This is a company that has gone from a couple of plants to the nation's leading ethanol producer in the space of about 3 years. I was most interested in the comments concerning the ethanol market in general and the specific growth and profitability prospects for VSE.

First, some notes on ethanol production overall:

Canadian Oil Sands Trust (COSWF.PK) investors could be in for a small windfall, thanks to high oil and gas prices. 

Jeff Martin, an analyst at Peters & Co. Ltd, reckons the company needs to increase its distributions by C$7 — or 70% — between now and 2010 in order to hit its debt target of C$1.6-billion. 

Houston-based Endeavour International Corp. (END) CEO William Transier confirmed on Tuesday that it had abandoned its bid to buy out Ithaca Energy Inc. (IACAF.PK).

Mr. Transier said:

Over the last week or so, ever since oil topped the $140 mark consistently, I have been tempted to recommend a short position on oil. Today, after two days of oil selling off, I am still in a conundrum.

Let's review why oil is where it is:

I've been saying for a while, that with enough money, someone is bound to crack the CIGS nut in thin film, and deliver the cleantech sector another First Solar (FSLR) like renaissance for the always around the corner technology.

That's not because it's easy, or even because it's a good idea to try, but when well over a billion dollars in investment pours into a given technology, something is bound to come out the other side - eventually. A seductively high efficiency potential technology with very low potential materials costs, CIGS has been just over the horizon for a decade or more, but has enjoyed a huge influx of capital and increase in the number of programs chasing in over the last 5 years. Similar to other solar thin film technologies, device complexity, effective yield, throughput, and process control issues are always the bugaboo.

Just wanted to put this name, Noble Environmental Power (NEPI) on the readers' radar if they are so inclined to invest in the wind farm sector. The problem with many of the "wind plays" available in the US are they either are part of much larger companies (nor pure play) or smallish and unprofitable. NEPI takes it 1 step further and has not even made 1 dollar of revenue in 2007.

But that won't stop the hype machine from taking over and who knows - Noble Environmental Power might join Broadwind Energy (BWEN) as a Cramer "House of Pleasure" pick! After all, one must look forward not backward! And one day they will have revenue! Gosh this reminds of me 1999 when stocks were going public based on numbers of eyeballs they would attract to their website.

Exxon Mobil Corp (XOM) (alt.1, alt.2)

Below are some highlights from the above linked analysis:

By Jason Simpkins

Earlier this week I had written an article reviewing the proposal to increase the tax Big Oil companies pay on their profits, if they do not invest in alternative and cleaner energy resources. This article dwells further into that issue, especially with regards to the role of Big Oil companies and their ability to balance their shareholder’s interest against our national interest.

Government's Role in the Free Market

Free market advocates (I am one), believe the government should have a minimal role in managing how any market operates. The winners and losers in any market should be determined purely by market forces, with the government not taking any sides. However, in the real-world, there are very few markets which are truly free of the influence of the government.

I made a call on Bolt Technology (BOLT) on theupdown.com 126 days ago. Since then it is up 23.46%. BOLT was one of last year's most exciting stocks. Their expertise in geophysical products is what drives their business. I believe this stock will be bought with oil exploration and production needing to be picked up dramatically over the next couple of years. Bolt also provides industrial products. Every part of their business is marine based, including but not limited too, air guns, energy source monitoring systems, underwater electrical connectors, air gun synchronizers and controllers, miniature industrial clutches, brakes and sub-fractional horsepower electrical motors.

Fiscal 2007 was another great year. Revenues, operating income, net income and operating income margins were all records. The president of the company stated this was driven by growth in their air gun and other seismic techologies. This has been driven by a global move to find energy due to high commodity prices. Countries like India are now trying to find oil off of their coasts, as it has now become cost efficient to do so. I do believe that this will continue as countries scramble to get their oil infrastructure on-line and producing before the price moves back down to more reasonable levels.

On Sunday, Ithaca Energy (IACAF.PK)  rejected Endeavour's (END) unsolicited offer of C$3.25 per share, judging that the 13.2% upside was insufficient in light of the incoming catalysts for the oil and gas company.

"Ithaca has a number of ongoing initiatives that will be concluded in the near term which we believe will provide greater value for Ithaca's shareholders," said John Summers, Chairman of Ithaca's Board of Directors as he announced the unanimous rejection by the special committee set up to appraise the offer.

by Mike Burnick

Recently, many investors have begun to speculate that the bull run in crude oil prices has reached bubble-like proportions. Some folks are saying that "speculators" have driven the price of crude to unsustainable levels and a painful correction is just around the corner.