I want to invest in the future! Tell me how!

June 4, 2006 11:39 PM

I've started to do some research on the best ways to invest in green/environmental businesses. Wind and other alternate power, carbon capture and storage, etc. I've been having a hard time tracking down information on individual companies and funds. Are there resources people can recommend for those interested in "investing in the future," so to speak, with standard financial instruments (stocks, funds, etc)?

Ideally, I'd love to see if there blog or community sites dedicated to tracking the latest developments, or highlighting companies doing new and innovative things that people can recommend.

(BTW, Most of the Socially Responsible funds I've looked at seem both simultaneously too restrictive and unfocused [not to mention underperforming], but I guess if anyone has anything super-exciting that might be worth following up on...)

posted by lhl to work & money (9 comments total)

Well I'm in Australia, so your mileage will definitely vary, but my superannuation fund a) has excellent top quartile performance, and b) says exactly who they're investing in.

I can't answer your direct question, however this came up number one on googling "socially responsible investing".
posted by wilful at 11:50 PM on June 4, 2006

Sorry, to clarify, I'm specifically looking for information other than standard SRI funds.

Also, although I'm actively looking to diversify internationally (and in the case of things like CCS, the most active companies appear to be international), I'm definitely looking for things that are available at least OTC via standard brokerages.
posted by lhl at 12:38 AM on June 5, 2006

You're right, stocks are an excellent investment vehicle for a variety of markets including emerging and new-development areas, as evidenced by their ubiquity in the American lifestyle. I strongly recommend sticking to stocks listed on the US-based exchanges with all the protections provided thereto. Not that it helped with the Enron, et al implosion, of course, but staying with the higher level of SEC and exchange oversight reduces the risk of losing everything by an order of magnitude or three. Although one can make a lot of money on OTC and pink sheet stocks, investors, particularly tyro investors, typically lose on penny stocks. It's a hard game to play.

Even with Nasdaq, NYSE, or AMEX exchange-listed stocks, small companies devoted to your niche can be highly volatile and occasionally illiquid. They often are in the "burning money" stage with no profits forecast in the near future. A tad more risky than Citibank, if you will. If you'd like better stability, a number of large companies have divisions dedicated to alternative/green power products, but I'm guessing you're not interested in those. If you are, they include the two biggest market cap stocks in the world, General Electric and Exxon Mobil.

Rather than give you a long list of potential stocks which individually selected could make or break you, I'll point back to spreading investment risk via funds, even though it's an area you've already explored. A quick search immediately turns up two decent candidates: a SRI-based mutual fund and an interesting alternative, an Exchange-Trade Fund. The mutual fund I found (and good chance you did too) that deals with your area of interest is WGGFX, the Winslow Green Growth Fund. It has a 4-star Morningstar rating and has consistently beaten the Russell 2000 Growth Index, based on their figures, which are probably accurate. Not bad.

The ETF is PBW, the PowerShares Wilderhill Clean Energy fund traded on the AMEX. As the name says, this year-old ETF tracks the Wilderhill Clean Energy Index. The Index has done much better than the Nasdaq Composite and S&P 500 indices for the last year, but slightly underperformed over five years. And, if you really want a list of individual stocks, you can look at the index components and cherry pick.

You mentioned underperforming SRI funds, so it might be a good idea to qualify those results. If one looks at a chart of the DJIA or Nasdaq at their highs of 2000, one sees a depressing sight. It's taken the market five years just to get back to those approximate levels for the DJIA and it remains much lower for the Nasdaq. The majority of funds will show poor results over that 5-6 year time period. Relative performance requires comparing funds to peers and indices, not to the absolute mound of money they made. As a group, SRI funds from what I've read have not seriously underperformed their peers. I know my two SRI-based Citizen's fund holdings are far below their all-time highs, but their performance is still at least average for all funds of that type, irrespective of SRI status.

And, that brings me to my closing remarks, accompanied by the sound of faint cheering on the announcement. There is usually nothing special as far as investigating resources for public companies in a particular niche. Good corporate governance is good corporate governance, whether it be a company like Home Depot, Coca Cola, or Waste Management. A basic understanding of financials and the way public companies operate will take you farther along the road to enlightenment than the average investor. The web has thousands of good sites for this type of research. Naturally there are special rules of thumb for particular industries -- e.g. utilities work with a lot less ready cash than typical companies because of the nature of their business and REITs depend more on FFO than profits -- but overall most of the same rules apply. Learn anything special for your area of investment and you're ahead of Joe Average Investor.

But if it's still blogs you want, Googling blog or weblog and alternative energy or green energy will pull up quite a few. Also, the Yahoo discussion boards for individual stocks can be extremely useful or totally useless depending on the board, participants, and one's 'ignore users' setting.
posted by mdevore at 5:34 AM on June 5, 2006

New Energy Finance provides analysis of alternative energy investments. You can sign up for news feeds and analysis of individual sectors.
posted by nyterrant at 6:30 AM on June 5, 2006

Ideally, I'd love to see if there blog or community sites dedicated to tracking the latest developments, or highlighting companies doing new and innovative things that people can recommend.

Check out Cryptic Moth. These guys are travelling around the world making a documentary on solutions to plastic pollution. They're visiting many innovative companies doing new things with bio-plastics. The last company they visited was NEC Japan. From the Cryptic Moth blog: NEC’s bioplastic is the most environmentally sound in the world – thanks to mixing the 4,000 year old kenaf plant with corn-based PLA plastic.

p.s.: Thanks for asking this question, by the way-- I was thinking along these same lines just last night.
posted by Fuzzy Monster at 8:12 AM on June 5, 2006

I've started to do some research on the best ways to invest in green/environmental businesses.

You will need to take a careful look at the green technologies, the underlying regulatory framework, and the companies that make use of them. Conflicting regulations can make very strange things happen in the energy space.

Enron used to be one of the biggest operators of windfarms. They did this because government subsidies made them highly profitable. As far as I know, they didn't plow any money back into further green research prior to their meltdown.

Another promising green program was the Synfuel program. In theory, government subsidies when oil is cheap would have encouraged energy companies to develop green alternative fuels. In practice, now that the subsidy looks like it will go away (due to high oil prices), DTE is turning down its Synfuel production

Biodiesel looks promising (I've even got a few VCs inquiring about a biodiesel proposal I made a few years ago). The significant players are either megacorps for which Biodiesel will be a tiny fraction of their revenue (and so will be unlikely to impact the stock price) or fast-moving private organizations that are not exchange listed.

You may want to seek out local angel groups that are funding early-stage companies. They may be able to point you at some interesting opportunities. Beware that when you invest at the angel level, you should expect to lose your entire investment 99% of the time. When investing at the VC level, expect to lose everything about 90% of the time. If you have relevant job skills, it may be less dangerous to seek employment in the green space and keep your money in more robust investments.
posted by b1tr0t at 10:22 AM on June 5, 2006

Are you considering looking outside the US? Many of the world's major renewable energy companies will be non-US companies and will trade through stock exchanges outside the US. Major wind turbine manufacturers for example are based in Denmark, Germany and Spain and you may have to consider purchases there to access their stock.
posted by biffa at 12:29 PM on June 5, 2006

mdevore: thanks for the very thorough writeup. I'll have to reconsider WGGFX which I had passed over, and actually just found PBW after posting the question.

nyterrant, Fuzzy Monster: thanks for the links. A couple other links I found that look promising for keeping up with developments:
* http://www.altenergystocks.com/
* http://environmental-finance.com/
* http://www.greenbusiness.net/

(fm: glad to have kicked off what I think is a pretty interesting question that is probably on the tip of a lot of peoples' tongues)

b1tr0t: good insight, I definitely have a lot more research to consider. As biffa mentions, a lot of the larger renewable energy companies are outside the US, especially in the areas I'm interested in right now like CCS and Wind.

The majority of my money is tucked away in the standard investment vehicles (I'm maxed out on my 401k for the year, and have been actively diversifying in a variety of sector/international funds), so I'm by no means risking the farm here, but the headspace I'm at right now is that I don't think I'm ready to spend the amount of time/energy that would be required for angel/VC funding, but I think I *am* at the point where I'm willing to invest in small or micro-caps that have numbers I might be able to evaluate and are doing something I can really get behind (small enough that I can really make a difference without the nagging feeling that I'm just flushing my money away).

It's also definitely a good point about contributing directly. I think eventually I'll go down that path (the idea of building a wind farm has really struck my fancy, and of course there's no shortage of practical stuff I could do), but for now, investing is probably the best proxy effort at my immediate disposal.

biffa: yes, most of my leads are actually international right now. It seems like there is both a more mature industry, more interesting developments, and more stable corp/govt commitment in Europe.
posted by lhl at 1:20 PM on June 5, 2006

but I think I *am* at the point where I'm willing to invest in small or micro-caps that have numbers I might be able to evaluate and are doing something I can really get behind (small enough that I can really make a difference without the nagging feeling that I'm just flushing my money away).

Keep in mind that buying a company's stock doesn't directly benefit the company, unless it is via a direct offering from the company, like an IPO or follow-on. It does help to keep the stock liquid, but if your goal was to help the liquidity of a stock, you would want to operate as a market-maker rather than an investor.

You may want to look into corporate bond issues. I have not looked into them much myself, but it appears that bonds are becoming more and more accessible to the average investor. Beware that anything more exotic than an exchange-trade stock or option may have little or no regulation associated with it. BE VERY CAREFUL!

Finally, you may want to consider putting, say, 70% of your investment funds into more traditional investments, and donate the remaining 30% to a university department that is doing excellent green work.
posted by b1tr0t at 5:24 PM on June 5, 2006