Before last week, I recognized only three colors of snow. I knew about white snow, as we still have piles and piles of it on my front lawn. I knew about black, dirty snow, as we have piles of that as well at the end of my driveway. I knew about yellow snow, and enough said on that topic. But, blue snow? I was not familiar with blue snow, or don’t recall ever seeing it. However, that was before I saw a most informative news story about blue snow during the evening TV weather segment.
I have spent much of my life in snow country, or at least in places where snow is not an uncommon winter event. In all my years of being snowed on, never have I heard one mention of blue snow. I was more than skeptical about the authenticity of the news broadcast.
The next morning, Bear, my Newfoundland, and I went walking in search of this new winter phenomena. Sure enough, we needed to go no farther than end of my driveway to see all the colors of snow: white, black, yellow - and blue.
My friends, I am here before you now, as a blue snow convert. I have seen it several times over the past few days, as I have a heightened sensitivity to the different hues of snow color. Blue snow appears as patches of subtle color in the crevices of snowdrifts, usually a few inches from the surface and out of the direct rays of the sun. It reminds me of the blue automotive windshield washer fluid. Cape Cod does, in fact, have blue sky, blue water, and blue snow.
Blue snow is also controversial, and its mere existence has created a huge rift within the scientific community. Some scientists believe blue snow is created by light refraction. Others believe the opposite is true, and blue snow is caused by light absorption. According to the Geophysical Institute, University of Alaska, Fairbanks, blue snow and blue ice are common, natural occurrences. The blue color we see is created by the absorption of the red light spectrum, if the water to air content of the snow is with specific ratios and the light is from a specific angle. Looking inside a hole poked in clean, deep snow, with the sun at the proper perspective, there would be a mixture of color variations inside the hole. Near the opening, the snow would seem faintly yellow, becoming more greenish-blue deeper in the hole, and finally appearing vivid blue, like the color of windshield washer fluid. If the hole was deep enough, the color and light would completely disappear when all the light was absorbed by the snow.
Discovering Cape Cod blue snow is much like discovering new companies. I knew about the three everyday colors of snow, similar to my knowledge of, say, the auto industry. I knew about auto manufacturing companies, auto parts suppliers, and auto dealers. However, I knew nothing about the used auto auction business until I discovered one such company was a component of the S&P 400 Mid-Cap Index. Similarly, I was familiar with the big oil companies, but ignorant of oil infrastructure companies until they came up on my radar screen a few years ago. Likewise, I was familiar with money managers and mutual fund companies, but knew very little about companies that offer stock custodial and other mutual fund back office services.
As I entered the blue snow discovery phase, I maintained my normal amount of skepticism. The existence of blue snow needed to proven with my own eyes. The same is true for new companies I research as potential investment ideas. I maintain a comfortable level of doubt about them as well, until they “prove” to me their management team is worthy of my hard earned investment dollars. The “proof” is found by reviewing financial ratios such as management efficiency in generating return on capital, S&P Equity Rankings, debt levels, and gross operating profits, along with reasonable stock prices.
While skepticism and doubt may be advantageous during routine stock research, investors need to act when it is appropriate. If you believe management has proven their ability to generate above average long-term shareholder returns and the company stock is fairly valued, don’t be afraid to follow your instincts. Take the plunge and expand your investment perspectives.
You, too, can become a Cape Cod blue snow convert by expanding your horizons. Just as the colors of snow don’t stop at three, profitable investment opportunities are not limited exclusively to large capitalization companies.
George C. Fisher is a 30-year veteran in DSP/DRIP investing. He is author of All About DRIPs and DSPs (McGraw Hill, 2001) and The StreetSmart Guide to Overlooked Stocks (McGraw Hill, 2002). Mr. Fisher is an avid dividend reinvestment advocate and utilizes the strategy with all dividend paying stocks, both at the broker and direct with the companies using their DRIP programs.