The Marchant theory of investing

Some of us, especially those in the 'second curve' of their careers, are fortunate to have two things they can invest: time and money. I have included both as they are both scarce resources and need to be thought about carefully. I have developed my own theory about investment which applies to both time and money. It draws on the triple bottom line theory which is usual applied to companies and governments but can, I believe, be adapted for personal use too. So what are my three criteria?

1. ECONOMIC 

This is the obvious one but it still worth thinking about. In deciding on the required rate of return on an investment, or indeed on the level of remuneration for a job it is important to think about the real risk attached to the income both in terms of fluctuations in levels, it's durability and any reputational risk that could come from being associated with an organisation. These factors generally explain why people look at investments from a portfolio point of view. So far, all predictable. The interesting part comes from looking at the trade off between an economic return and my next two criteria.

2. IMPACT

We all want to feel that what we do makes a difference and this applies to our use of time and how we invest and spend our money. This impact could be at the organisational level or societal. Let me explain. If you invest in small start up companies, as I have done, you can see clear direct impact through increased employment, product development and positive change in markets. If you give to a charity then you can see societal impacts such as the roll out of solar lights in Africa or increased activity at cancer centres. In many cases you can see both organisational and societal impact and of course there are potential negative impacts which gives rise to things like ethical investment funds or disinvestment movements. I find it helpful to be clear what impacts I would like to help develop and increase and those which I would want avoid and use this as a screen for my use of time and money.

3. INTEREST

I have come to realise the importance of being clear what activities you enjoy and therefore look forward to and those which you don't. I realise this is a luxury and am incredible lucky to be able to pick and choose what I do but I do think that many people in the latter stages of their careers can actively take this into account. It does involve being clear about what interests you and two tests I apply are; do I look forward to doing it and secondly, am I learning from the experience. This second point is really important. I am a big fan of the importance of continuing to learn and stretching yourself. I even came across a psychological term for this used by Carol Dweck, apparently it's called a 'growth mindset'. Education doesn't stop at leaving school or university and experience doesn't stop on leaving an executive career.

If I take these three criteria they can be applied to different types of 'investment'. I will explain three classic ones and then look at new one to me that hits all three criteria. Firstly, investing in quoted shares is primarily an economic decision although I believe that having a societal impact screen is also important, even if it's only a decision on what not to invest in. Secondly, support of charities obviously scores highly on the impact scale but I also think that it is important that you support charities that interest you and where your time or money can make a real impact on the cause. Thirdly, investing in start up companies (so called Angel investing) whilst primarily driven by a hope of an economic return is usually guided by the level of interest in the business area and technology of the new company and an assessment of the impact your investment and mentoring can have. This explains why over three quarters of the investments I have made are in the energy related space.

And so to the new 'investment' opportunity I have recently come across: support of social enterprises. These are organisations that are using business principles to maximise social impact rather than maximise profit. They are often called not for profit but an alternative way to look at it not for loss too.

Under a new government scheme there is tax relief for loans to some of these organisations which means that all three of my criteria can be met; a modest economic return for an impact on an organisation and an issue facing society in an market or place that interests you. What's not to like. I have just closed my first such 'investment' in a community bakery and hope to do more.

The real trick is to look across the portfolio of your investment in time and money and make sure there is a balance between all three criteria; economic, impact and interest so that personally your are achieving a good triple bottom line. 

An Energy Tipping Point

I have been thinking about the long term themes that are driving the UK electricity industry and started by looking back over the last thirty years and then considering what things might look like in thirty years time. I have identified six themes.

1. BIG TO SMALL.

Thirty years ago and indeed until a few years ago our electricity was produced by around 100 large plants, each one of which consisted of a few units of 400MW+. Now there are over half a million small electricity producers ranging from community wind turbines to roof top wind turbines along side a decreasing number of older, large ones. This trend will, I believe, inevitably continue as the developer of any new house, office or factory will be looking to include on site generation. In 30 years time we will have millions of mini power stations.

2. CENTRALLISED TO DISTRIBUTED.

One consequence of the industrial scale of our power plants is that the electricity system became incredibly centralised. A classic example was the concentration of power stations along the so called megawatt valley in Yorkshire. As a result control of scheduling and dispatch was concentrated in initial three, and now one, control room full of smart engineers. This will change as the whole electricity network shifts from an analogue mode to a digital one. The network of 30 years time will be multidirectional, self healing and fully distributed. The smart engineers will be replaced by a smart network. 

3. CARBON TO SILICON.

The industrial era electricity was successfully built on carbon, initially coal and latterly gas. This was largely completed before we realised the long term consequences of CO2 emissions and the link to climate change. The energy industry has been one of the major beneficiaries of the lack of a price of carbon. But this is changing. In the UK we are very very unlikely to see any new coal fired power stations built unless they have carbon capture technology fitted and the pace of new gas stations has slowed to a trickle. Renewables have filled the gap supplying 25.3% of our electricity in the second quarter of this year. The biggest shift in the very recent last has been the rise in solar where capicity is already over 8GW (that's twice the capacity of our largest coal station, Drax). The trend in solar panel prices and advances in technologies like this film solar suggest we are heading into the silicon age. 

4. SUPPLY TO DEMAND 

Energy policy, investment and technology has been focussed on the supply side of the industry. What shall we build, how and where? However, all the disruptive change is now happening on the demand side with home automation, energy management systems and active demand all figuring highly in the new business start up arena. More and more customers, be they large property owning landlords or owner occupiers, are now getting engaged with their energy demands. The new questions will be what  energy do I need, how will I manage it and where should I get it from. When customers take charge of an industry, Revolution happens. 

5. PRODUCTION TO STORAGE

The twentieth century electricity system used flexible production to manage the peaks and troughs of demand. This has lead to demand for services like spinning reserve and stand by generation. These use energy to be ready to supply energy which has always seem a bit odd. This production centric view also leads to the bizarre situation of effectively free marginal cost energy being wasted (wind farms and solar panels being left idle when demand is low). Now one of the biggest areas of energy research is in storage including batteries, phase change materials and physical storage systems. Storage can be at the home level, at the neighbourhood level or connected to the grid. 

6. PETROL TO ELECTRIC 

The internal combustion engine has revolutionised personal transport and petrol and diesel have dominated vehicle fuel. However, we are seeing more and more car manufacturers are releasing all electric and hybrid cars. They are clean, quiet and fast and the range is steadily increasing, especially in the hybrid mode. I now drive a BMW i3 around town and suspect that more and more city cars will be electric.

I believe that, right now, we are at the tipping point in all these themes and realised that a picture could paint a thousand words.

Why do I think it's a tipping point. Mainly because all of theses themes have becoming increasingly clear over the last few years and the changes in digital technology and  awareness of climate change are respectively an enabler and a driver of change. After ten years or so of fits and starts all these themes seem to be gathering pace and are chipping away at the forces of inertia that the old forces have built up. Exact tipping points can only been seen clearly in the rear view mirror but it does feel that, taking the long term view, the future will be a lot different than the past.