The best way to come up with investment ideas is to read.
Read about companies. Read about industries. Heck, even reading biographies can sometimes lead to a lightbulb moment.
The problem most investors have is that they anchor around the first idea that pops into their head.
For example, say you had an idea to invest in a bank. Not only do they hold minimum amounts of capital, preventing them from going bust. They are a source of credit almost everyone turns to.
Financing a mortgage, getting a business loan, or leasing an asset — a bank is likely involved in all three. You could say banks are the ultimate gatekeepers of additional funding. And their services don’t come cheap.
Sounds great right? All you have to do is buy a high returning bank that doesn’t take risks, and hold for the long-term.
But had you dug around the industry some more, you would have found a far more attractive business. These are businesses that operate in the secondary market for financing.
Like buying and selling stocks, you can also buy and sell debt. And this is exactly what these companies do.
They buy debt, like mortgages, car loans and such. Then they pool them together, creating a security, and sell them to investors who want higher yields.
Hedge funds, pension funds and banks all buy these debt-backed securities. It’s not only a more profitable business compared to banking. These businesses take on little to no interest rate risk, whereas banks see profits rise and fall as interest rates change.
But because your initial idea was to invest in a bank, you stop looking for other opportunities. As Charlie Munger says, the human mind is like the human egg. Once something gets in, it shuts off.
Today I wanted to share an investment idea with you that might lead to another near term lucrative investment.
What comes first, the charging station or the EV?
If you remember in yesterday’s Money Morning, we looked at the massive potential of electric vehicles (EVs).
Mass EV adoption won’t be immediate. But it does seem like the industry will continue to grow over the next decade or two. For investors like you, it’s worth digging around.
But as I mentioned yesterday, it might be more helpful at this point trying to identify the losers than the winners.
If we take a step back, staying with our EV theme, there’s another idea that comes to mind. For EVs to be widely adopted there needs to be sufficient infrastructure in place.
Energy Outlook explains:
‘Charging at home remains the most dominant way of charging an electric vehicle. It does not require additional planning or waiting to recharge the vehicle.
‘Furthermore, it is also less expensive to invest in a small but slow domestic charging station than to invest in faster alternatives.
‘Although most of the trips done by car are covered by the average range of a Battery Electric Vehicle (BEV): 80% of the Europeans are driving less than 100km per day), public charging stations remain critical for longer journeys such as intercity travels and for households without facilities for home charging.’
Energy Outlook also showed that there was a relation between the success of EVs and the density of public charging stations.
As you can see below, countries like Norway, the Netherlands and Denmark have seen EV numbers go up, thanks in part to more public charging stations. Of course, those hefty EV subsidies help as well.
Source: Energy Outlook
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How to invest in EV infrastructure
So who’s going to build this infrastructure?
As you would imagine, EV makers have an interest in building public charging stations. It’s why Tesla has been so avid to get their charging stations out to the masses.
Electricity and utility providers also have an interest in the rollout. As EVs become mainstream, electricity prices could likely soar.
And of course there are those businesses that focus specifically on building EV infrastructure for a profit.
Fastned is one such business.
The company has installed charge points all over the Netherlands. Their plain is to continue building, eventually getting to London and Germany.
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Another public charge provider is ChargePoint. They’ve partnered with auto makers like BMW, Holden, Mitsubishi and Nissan. And already the group has installed more than 100 charge stations throughout Australia.
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Then there’s AeroVironment, Inc. [NASDAQ:AVAV], the official EV charging partner of Nissan, Ford, BMW, Chevrolet, and many others. They can install EV charge stations at your home or work.
It’s still slim pickings for listed EV infrastructure investments. But as time rolls on, you’d expect some of these businesses to list for funding or growth reasons.
At such a time, it might be worth considering an investment in EV infrastructure rather than the manufacturers.
The Australian Financial Review highlighted yesterday that, if electric vehicle uptake matches that seen in Norway, there could be an investment benefit around $3.2 billion could from EV infrastructure. That means there is plenty of money thrown at businesses to build and install these charge station in Australia alone.
But who knows, you might find an even better opportunity by digging deeper through the industry.
Editor, Money Morning