Last we left Dana Dlott – whose opinion I have come to respect over the years – his position was: ‘Borealis is a stock swindle, pure and simple. You have chosen to participate in it in the hope of making some money. It’s up to you to decide whether this is moral or not.’ (He went on to explain a bit more about why this was the case.)
Well, over the weekend, he sent this:
It has taken me some time to get back to you about Borealis, partly because I wanted to think more about it and part because I had to attend some meetings out of town.
Let me start by saying I think I was too harsh on them and you because I mixed them up with some other outfits that are simply peddling nonsense such as energy from hydrinos and gravity shields.
Borealis is a different story. They aren’t peddling nonsense, they are selling novel technologies that promise to improve the efficiencies of common processes involving heating, cooling and motion, by a little bit. Their basic sales pitch is the old, ‘If I could sell a $23 toaster to everybody in China we’d make $23 billion!’ They are saying if we could sell our coolers to every electronics company in the world, if we could sell our motor drives to every electrical company in the world, if we could sell our thermoelectric generators to every automaker in the world, we’d be rich!
To analyze this pitch it isn’t really necessary to know too much science or engineering, but let’s start there. It is clearly a fact that there is a lot of improvement possible in power generation, cooling, heating, motion control and so on. Contrary to what they would have you believe, their technologies have a lot of competition. I would mention acoustic refrigerators and improved thermoelectrics vs. cool chips, a wide variety of semiconductor thermoelectric generators, fuel cells vs. power chips, and a wide variety of motion controllers and motor drivers vs. chorus motors, all being developed with much less hype but perhaps more realistic expectations.
These are tough applications. It is not nearly enough to be a little bit better in the laboratory. Devices that are going to tackle these applications have to have a lot of other qualities. They have to be rugged and cheap to manufacture, have to be resistant to a variety of harsh environments, have to have a variety of political and legal properties to pass government approvals and legal challenges, and have to physically fit well with existing technologies, since nobody is going to redesign all the world’s cars and computers to fit slightly better devices inside.
Lester Thurow put it very well in a speech I heard him once give (on NPR). He said that various elements of the old wisdom were turned on their heads, one being ‘if you build a better mousetrap, they will come to you.’ This better mousetrap business worked fine in the early days of Polaroid, which is the classic example, but today it is not a good proposition. Back then photography had only one monolithic giant, Kodak, and a new better approach could be a big winner. Thurow mentioned companies that invented PCs (Xerox), cell phones (Motorola) and so on and showed that the real money was made by somebody else who was able to manufacture and market the technology better, cheaper and more reliably. Not only did inventing a new technology not put you at an advantage, it could put you at a disadvantage because you spent a lot of money on the invention and by locking in the earliest designs lost a lot of flexibility.
All this is once again to say if investors get caught up in the ‘better mousetrap’ (which isn’t really true in this case) and the ‘sell to China’ frenzy, this stock could do well for a while. Investors and insiders might make a lot of money on the ‘greater fool’ paradigm, but the idea that this stuff could really make billions by revolutionizing these old common areas in a highly competitive world where there are hundreds of start ups developing different variants of competitive technology is ridiculous. Technology for technology, what Borealis really has going for it is better hyper marketing.
☞ Well, this is certainly less harsh than the prior critique, and as always, I remind newcomers to this site that (a) I have a ton of this wild speculation; (b) I assume it has to go to zero if only because, if it proved real, it would be such a huge hit that – well, such things just don’t happen to me. (This was much the same way I knew, when he jumped into the race in 1991, that Bill Clinton could not be elected President – no one I knew could possibly be President.) But as inclined as I am to agree with the several very smart readers who have written in to tell me over the years why Borealis is at best an unintentional fraud, what I find so tantalizing is the possibility, however slim, that there’s something to it. On the one hand, you get Dana’s completely definitive comment last month. On the other hand, you see that Rolls Royce and Boeing and SemiKron have been willing to be publicly associated with this company – and have presumably looked at it more closely than some of our readers. And then last week I got a look at an extensive and sophisticated private research report that essentially confirmed all the company’s wild claims . . . my greedy little heart was soaring, let me tell you! . . . until I Googled the author and was taken straight to an SEC action against him for touting two high-tech stocks a few years ago without disclosing his interest. He didn’t go to jail or anything, but the two stocks over which he was gushing, I was disappointed to see, had gone to zero. The reason I write about Borealis so often is that I am just completely mystified. There are so many reasons to think it can’t be real. And yet what if Boeing, Rolls Royce and Semikron have been right to see something of possible value here? So I’m happy to think Dana is at least a little less certain the Borealis technology is bogus, and here’s what I think. I think, as always, that unless you have money you truly, truly, can lose without a moment’s remorse, you should not buy this stock (or any other speculation). But if you do have some play money, how can you resist? With its market cap still only $40 million or so (about the cost of a single corporate jet, as I keep reminding you), if it should prove real . . . well . . . let’s just leave it at that.
ONE MORE ASSIGNMENT FOR YOU
Joe: ‘Now that your esteemed readers have done such a great job addressing how to burn and rip CDs, how about asking them for the best way to copy all of my old VHS tapes to DVDs. My latest computer (a Gateway 200XL laptop) has a built-in DVD burner. I’ve decided to copy all of my family VHS-videos (you know, the ones I think my kids will want when they grow up) to DVD. What is the best software to use for this undertaking?’
Quote of the Day
That I'm their competition.~Famed hedge fund manager Michael Steinhardt, when asked the most important thing an investor could learn from him.
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