The Downside of Time Travel

JinkoSolar Holding (NYSE: JKS) has overtaken another Chinese company, Trina Solar (NYSE: TSL), as the global leader in solar photovoltaic (PV) module shipments, based on 2016 numbers recently released by the research and consulting firm GlobalData.

Given the explosive adoption of solar PV — it’s a $40 billion market that has grown by an order of magnitude since 2009 — one might expect JinkoSolar’s stock to have soared.

Imagine that in February 2012 you are armed with the knowledge that JKS would become the world’s leading solar PV supplier within five years. You probably would have concluded that this would be a good long-term investment. And strictly speaking you would have been correct, as JinkoSolar’s share price is up 90% since.

But — and this is the point I want to drive home today — the key to that performance is “long-term.” It was actually a wild ride.

But let’s say you invested in JKS in February 2012. By the summer of 2012, your investment had lost about 75% of its value. You might have lost patience and thrown in the towel. But then shares went on a run, and a year later you were actually back to positive territory, but just barely. Your first-year return was 12%, but you had to endure a 75% loss and hang on in its wake to achieve that.

But then the price started to drop again, and by the end of March 2013 you were once again looking at a loss of about 50%. Understandably, you might again be ready to throw in the towel, but remember that you are armed with the knowledge that JKS is going to first place in a hot sector.

Then shares went on an epic run. From a 50% loss at the end of Q1 2013, by November 2013 you would have been looking at a gain of 300% in just over 18 months. Of course, since I’ve already stipulated the five-year return is 90%, that means the share price has declined dramatically since, despite exponential growth in the solar market, and JinkoSolar’s climb to #1.

Put it all together, and JinkoSolar’s past five years in the stock market look like this:

Source: Google Finance

So JinkoSolar’s five-year performance is pretty good, as you might expect, but the ride has been extremely rocky. This also highlights the advantages of the long-term investing discipline I advocate. Despite the incredible growth of the solar PV industry and JinkoSolar’s rise to the top, if you had missed out on that surge in the second half of 2013, your five-year returns would have been very disappointing.

There are two takeaways here. The first is that short term investors can easily miss out on the benefits of long-term trends. (Of course that goes both ways; had you only held the company in the second half of 2013 you would have made a killing). The second is that the solar sector isn’t for the faint-hearted. It can be extremely volatile, but also extremely rewarding. I suppose another takeaway could be that a rising tide doesn’t necessarily lift all boats, as #2 TrinaSolar’s five-year stock-market return is a whopping 6%.

The solar sector has sold off since Donald Trump won the presidency, but we still think the sector has promise. Join as at The Energy Strategist as we identify and recommend the strongest stocks in this fast-growing sector.

I would also like to make another pitch to subscribers to join me, my colleague Igor Greenwald and the rest of the Investing Daily team at our exclusive Investing Summit on April 6-7 in Old Town Alexandria, Virginia. We will discuss our best investment ideas for 2017, so reserve your seat now.

(Follow Robert Rapier on Twitter, LinkedIn, or Facebook.)


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