On 24 June 2021, Mr. Mukesh Ambani made a grand announcement that Reliance Industries will invest 75,000 crores in the next 3 years into the green energy space. Tata Power is considering IPO for its renewable energy arm. And for the first time since the Paris agreement came into effect investments in renewable projects have overshadowed the traditional fuel-powered projects. And not just that We have leaders from all across the world.
President Biden and our Prime Minister Modi Ji who have already set very ambitious targets to shift to renewable energy. And to get to net zero emissions in the next few decades. If you haven’t realized it yet, we are witnessing the rise of another technological revolution in the form of green energy revolution. And just like any other revolution in its initial stages, this is going to open up a huge scope of opportunities for both, entrepreneurs and investors. So, if you’re someone who wants to participate in this revolution.
As an investor or as an entrepreneur then this episode is for you. Because by the end of this episode you will have 2 incredible superpowers. From an investor’s standpoint, you will learn about a powerful framework using which you can spot the hidden gems of the stock market which 99% of the people fail to see. And from a startup standpoint, you will learn about what exactly is happening is the green energy sector and what kind of business opportunities or threat.
Do you have to look out for while you participate in the green energy revolution. This is a story that dates back to 24 January 1848, California when a carpenter called James Marshall noticed some shiny flakes in the channel bed while he was building a mill. After a bit of examination, he realized that those shiny flakes were nothing but the finest quality of gold which was at least 23 Karat. But when he informed the owner of the mill,.
The owner assumed it to be just some pieces of gold lying around here and there. And was more concerned about the completion of the mill. But meanwhile he gave the workers the permission to dig for gold during free time. But you know what guys? Little did he know that what his carpenter had found were not just a few pieces of gold but a freakin’ gold mine with more than 340 tonnes of gold! And when the workers realized this, they went rogue left all their work and started digging for gold.
As the news of this gold spread like wild fire. And what followed next was nothing short of madness. The same California, which was once a rural place had more than 300,000 people rushing in to dig for gold making it one of the largest migrations in the American history. People from all across the country, in fact, all across the world left everything they had, including doctors, engineers and lawyers and bought horses to go look for gold. And this gold rush, ladies and gentlemen,.
Lasted for about 7 years and during these 7 years there were several groups of miners who succeded and many failed. The rush was so bad that several men died because their horses fell down from the hill because they were over loaded with gold. While many others died in accidents and some even got murdered in their fight for gold. But inspite of that, during this gold rush, there were hundreds of people who got rich. Now, if I asked you who exactly got rich in the California gold rush.
What would your answer be? Who else? Obviously, the successful gold miners right. The ones who walked away with a ton of gold or the workers who first discovered the gold mine, isn’t it? Well, not really? The real winners who got rich during the gold rush were this special group of people who never went to the gold mine. In fact, they never got a single piece of gold from the gold mine. Then the question is- How did these people get rich?.
As it turns out guys, This group of people that I’m talking about were the entrepreneurs who instead of going for the gold mine build businesses that would cater to the gold miners. Because when the gold miners flocked towards California these people realized that the demand for certain materials would skyrocket and would create a business opportunity for them. So, you know what? Instead of going for the gold mine.
These people sold shovels and horses to the gold miners. Cherry on the cake, they sold these items at an extravagant price of as much as 50 times the original price. WHY? Because the demand was too high and a man would not think twice to pay more for a shovel that’s going to give him gold, right? Guess what? This gave rise to some of the most succesful companies in America.
That had nothing to do with the gold mine but merely cater to the requirements of the gold miners. For example, in 1853, that is 5 years after the gold rush began a German-American businessman understood that although there were a lot of horse vendors there wasn’t a garment maker who could make rugged garments specifically for the miners. So, he started making rugged pants for the miners and this man was none other than Levi Strauss.
And the rugged garment that he designed was the jeans pant which then went on to redefine American fashion forever. Another New York butcher decided one day to walk to California eventually, he opened up a meat market to serve food to the hungry miners. And later, he took the profits to Milwaukee to set up a meat processing plant. This man was none other than Philip Armour and the company that he founded was the Armour meat packaging company that went on to become one of America’s largest meat packaging firms.
You see these two gentlemen? They looked at the unsettled atmosphere of California and started a company to offer what miners desparately wanted and that was stability. So, they offered secure and honest banking, transportation and even mail delivery service. These two men were none other than Henry Wells and William Fargo and their company Wells Fargo became a Fortune 500 company worth 19 billion dollars as of 2019. Now, my question to you is What is the business lesson that you learnt from this story? If you take a step back, you will realize.
That when the gold rush happened, while everybody had their eyes on the gold and thought that the miners would become successful. the actual winners were the ones who actually built the supply chain for the miners. And regardless of who got the gold and who did not these entities of the supply chain won, by default. This is what you call ‘second order thinking’ or in the stock market world when you invest into such companies, it’s called pick and shovel strategy that while everybody has this herd mentality.
And goes towards a supposedly lucrative opportunity. Some people take a step back and look at the repercussions of the herd mentality and find opportunities which will be created due to the existence of the herd mentality. And this is what happens everytime in the stock market and the business world. And surprisingly every time the gold rush happens, majority of the people end up going for the gold. And this is coming from the legend Warren Buffet himself that when the automobile revolution started, the rush was so bad.
That in the early 1900s there were about 2000 car companies in America. But by the end of the century there were only 3 companies left. But during this time, who do you think made money regardless of the success and failure of these automobile companies. They were the spare part manufacturers the companies that build factories for these companies and most importantly the oil companies who did not manufacture a single car during the automobile revolution. So, if this is very very clear to you let’s have a look at the evolution of the green energy industry.
And see how you could be a strategic investor or an entrepreneur during this upcoming gold rush. Now, there are 3 super strong forces that are going to catalyse the rise of green energy companies in the world. Number one, President Biden has set an ambitious goal to create a carbon-free power sector by 2035. And net zero emission economy by no later than 2050. Number two, in India, our Prime Minister has announced our renewable energy target to be.
450 GW by 2030. But as of February 2021, the installed renewable energy capacity of India stands at only 94.3 GW. And among that 450 GW target about 280 GW is expected to come from solar. And lastly, as a result of these conducive political conditions we’ve got giant companies rising up like Reliance, like Tata Power and Adani Green. Now, let’s talk about the most important part of the video, that is,.
What is the framework that you are supposed to use to build your business or to look for the hidden gems in the stock market. Step 1, read through the news and if you’re choosing a particular sector, look for every single emerging player in the market. And if you find it too tedious to go through the Internet and look for the headlines I would highly recommend you to use our knowledge partners- Smallcase website for doing your research. All you have to do is choose which sector you want to know the news about. For example in this case if you want to know.
All the major updates about the EV sector. All you have to do is go to the news section of the EV sector smallcase and all the major headlines have been stated in that news section. And not just that. The best thing is that the impact on the stock after the news came out has also been stated which makes it very very insightful. So, this way you can even spot the negative effect on the market which is, perhaps the most fantastic things about this website. Step 2, when you go through this news.
Identify the major classifications of the players in that particular industry. In case of green energy you’ve roughly go 4 types of players and this is where if you want to build a company, you can look to contribute to the value chain of either one of these players. The first type of companies are the ones that will be the forefront players who will transition from non-renewable energy to renewable energy. For example, for this type, we’ve got Toyota and Volvo.
Who plan to shift to renewable energy completely in the next few decades. The second type of companies will be the companies that will support these companies using their infrastructure or their finances. And here’s where we have companies like Panasonic who has now entered into a partnership with Toyota to make batteries. And it China you’ve got the EV manufacturer BYD who has also partnered with Toyota to design EV batteries in China. And this type also includes the banks that are supporting these companies. The third type of companies will be the ones who will be the essential entities of the supply chain.
Of companies like BYD and Panasonic. For example, With the rise of demand of solar energy we might see several small and medium scale companies that are a part of the value chain of the solar industry like the solar cell manufacturer or the solar glass manufacturer. And these two types, that is, the second type and the thrid type are the companies that are the shovel sellers in the green energy industry and here’s where you will find the hidden gems of the stock market. And the last type are the companies that are building end to end supply chain.
For example, Reliance is planning to build 4 giga factories to manufacture and integrate all critical components of the new energy ecosystem with the ambition of making an end to end system. With that we move on to the third step, that is, based on the insights that you’ve gathered you can then choose to diversify your investments into all these 4 types of players depending on your risk appetite. But if you’re someone who’s too busy or still in the learning phase you can opt in for a smallcase from that particular sector.
And you know what is the best thing I found about them, guys? Smallcase investors, specifically for the green Energy Portfolio use the second order thinking approach to diversify your investments into the categories that I just mentioned. So, while the world rushes to get the gold mine your investments will be strategically invested into the shovel sellers at the right time, just so that you can get the best returns possible. So, if you love their idea, use the link below to download the Smallcase app.
And even if you don’t want to make investments just download the app and keep an eye on the news section because that itself is enough to give you some extraordinary insights about the market. With that we move onto step 4. After you’ve invested your money into a selected bunch of companies regardless of how you’ve done it, whether you’ve done it through smallcase whether you’ve gone through an FA or by yourself do not sit back and get complacent. Keep an eye on what’s happening in the market.
And read every single news headline that appears in the news section. and constantly keep an eye on how the tragectory of the industry is shaping up. This way, you will know where exactly your money is going why is it being invested in a particular company and most importantly what are the risks involved in a particular sector. In case of green energy you’ve got low margins, rising interest rates or it could be a change of government in India or in the US or a calamity like the pandemic which could slow down the growth of the companies.
In this particular sector. And always remember guys regardless of how much money you make if you don’t know where your money is going your money will be gone in no time. And before I say goodbye, I just wanna tell you one thing keep an eye on Ola Electric and read this book called ‘The Third Industrial Revolution’ WHY? I’ll tell you that sometime.
That’s all from my side for today guys. Thank you so much for reading.