Climate Action Partnership Stock Portfolio vs. Dow, S&P

We contended previously that membership in the U.S. Climate Action Partnership does not speak well of a company’s mission or strategy, although there are admittedly good performers on the list. This is because a well-managed corporation does not need government mandates to force businesses and individuals to buy its products (e.g. alternative energy sources, compact fluorescent lamps). As an example, if General Electric was up to the job of engineering cost-effective wind turbines and solar panels, it would probably not be able to make them quickly enough to keep up with demand even without tax credits to encourage their purchase. When Henry Ford engineered an affordable alternative to horses and their solid waste, he did not need government mandates to sell his product either.

As an experiment, we created a hypothetical stock portfolio that assumes the purchase of $1000 worth of each USCAP corporate member’s publicly traded stock on January 2, 2002. (It does not include Duke Energy, DUK, because there appears to have been a stock split of some kind, Shell Oil, which has multiple symbols, or NRG, which was not listed in 2002.) This gave us $18,000 in eighteen stocks. The Dow Jones Industrial Average was 10,073.40 and the Standard and Poor 500 closed at 1,154.67 on January 2, 2002. March 9’s closes were 6,547.05 (down 35%) and 676.53 (down 41.4%) respectively. Our hypothetical $18,000 worth of USCAP stock (18 companies) would be worth $10,555.58 (down 41.36%) on March 9. In other words, a portfolio of equally weighted USCAP publicly traded corporations underperformed the Dow, and just about equaled the S&P 500. Had we also purchased $1000 worth of former USCAP members Lehman Brothers and AIG, our $20,000 investment would now be worth about $10,556 or so, i.e. down 47 percent from January 2, 2002.

Disclaimers:
(1) We currently hold no stock positions in any of the companies in question. If we did, we would initiate a shareholder resolution to withdraw from USCAP.
(2) We are not experts in comparing stocks or portfolios; the following procedure describes our assessment to the best of our ability.

If you have access to Yahoo Finance, you can create a stock portfolio in the same manner to test assumptions about a given stock or group of stocks. Create a custom portfolio, look up the stock price on January 2, 2002 (or any other reference date), divide $1000 by that price, and enter the number of shares in the transaction record. This starts you off with $1000 worth of each stock as a basis. This allows you to assess the current value of the portfolio. Ours consists of: AA, BSX, CAT, COP, DD, DE, EXC, F, FPL, GE, GM, JNC, PCG, PEP, PNM, RTP, SI, XRX.

Our experiment confirms our opinion that USCAP’s publicly traded members, on average, underperform the rest of the stock market, which suggests that their management is, on average, below par. Good managers would make money the old fashioned way, per the old Smith Barney commercial; they would earn it through the delivery of cost-effective products and services instead of asking the government to force people to buy their products and services. Here are some of the companies that doubtlessly pull down the performance of the USCAP stock index, and in whose company the better performers might not wish to be seen:

AIG (former USCAP member) now on life support from the government.

General Electric: apparently not up to the job of engineering alternative energy products that are cost-effective for businesses and individuals to buy.

General Motors
(1) Unwilling and unable to control its health care costs by demanding that the hospitals that provide health care to workers and retirees implement quality systems to prevent medical errors and inefficiencies (an approach recommended by GM’s own industry association, the Automotive Industry Action group)
(2) Insists on pushing inventory onto dealer lots instead of making cars to order
(3) Tolerated the “job bank” in which extra workers are paid to do crossword puzzles or watch movies. The reason for the job bank is that, the instant you lay people off in response to productivity improvements, they stop improving productivity. You are, however, supposed to assign them to meaningful work (there is always plenty to do) instead of insulting them by paying them to stare at the wall.

Lehman Brothers (former USCAP member): wanted to trade in carbon emission credits as opposed to producing something of value to society. We do not see Lehman Brother’s collapse as any great loss to society or even, in the long run, the U.S. economy.

As stated by Kimberly Strassel’s “If the Cap Fits,”

    There was a time when the financial press understood that companies exist to make money. And it happens that the cap-and-trade climate program these 10 jolly green giants are now calling for is a regulatory device designed to financially reward companies that reduce CO2 emissions, and punish those that don’t.

    Four of the affiliates–Duke, PG&E, FPL and PNM Resources–are utilities that have made big bets on wind, hydroelectric and nuclear power. So a Kyoto program would reward them for simply enacting their business plan, and simultaneously sock it to their competitors. Duke also owns Cinergy, which relies heavily on dirty, CO2-emitting coal plants. But Cinergy will soon have to replace those plants with cleaner equipment. Under a Kyoto, it’ll get paid for its trouble.

    DuPont has been plunging into biofuels, the use of which would soar under a cap. Somebody has to cobble together all these complex trading deals, so say hello to Lehman Brothers. Caterpillar has invested heavily in new engines that generate “clean energy.” British Petroleum is mostly doing public penance for its dirty oil habit, but also gets a plug for its own biofuels venture.

    Finally, there’s General Electric, whose CEO Jeffrey Immelt these days spends as much time in Washington as Connecticut. GE makes all the solar equipment and wind turbines (at $2 million a pop) that utilities would have to buy under a climate regime. GE’s revenue from environmental products long ago passed the $10 billion mark, and it doesn’t take much “ecomagination” to see why Mr. Immelt is leading the pack of climate profiteers.

As a final note, let us not forget that Barack Cade (after Jack Cade from King Henry VI) Obama supports the agenda of using carbon taxes and cap-and-trade schemes to transfer money from manufacturing industries, utilities, and the public at large (which would be hit with higher costs for all forms of carbon-based energy) to USCAP’s fat-cat climate profiteers and other special interests, and from largely Red States with manufacturing industries to mostly Blue States with low per-capita energy use: low because most of the residents do not work in factories, and would not even set foot in a factory if they could possibly avoid it.

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