Green is Hot

QUOTE OF THE MONTH:

“Green is hot. Not only is the private demand rising, but governments are falling over themselves to subsidize these industries.”

Dr. Marc Miles, global strategist and editor,
2006 Index of Economic Freedom



Green Chips: Mega Stable Corporations with a Focus on Green Are Trading for a Song! By Natalie Pace. Includes a Green Chip Stock Report Card™.

According to the Social Investment Forum, $2.3 trillion (out of $24.4 trillion under professional management) were traded with socially conscious screens in the United States in 2005—nearly one out of every ten dollars. Socially conscious companies embody open and transparent business practices, ethical values, respect for employees, communities and the environment, and have a vision of working for the world at large, as well as shareholders. Whew! Quantum physics might be easier than figuring out which companies are socially conscious! Who has the time? Fortunately, there are a lot of watchdog organizations that make the job easier than it sounds. And, thankfully, there are a number of socially conscious mutual funds available, which can exponentially cut down your research time.

In 2007, the best-known socially conscious funds were Domini and Calvert. I’d love to report that being socially conscious was good for your wallet, but over a ten-year period, those funds underperformed. Ouch—not what those socially conscious visionaries of the late 1990s hoped would happen.

But their vision might still come true. The happy news is that the top-performing industry in 2007 was alternative energy, after being virtually non-existent for the prior three decades. Oil hit $100 a barrel, but investors still loved the clean energy stocks more. With the explosion of interest in alternative energy and green investing, a number of additional socially conscious mutual funds and ETFs have begun to sprout and more will likely follow.

Green is Great For Your Wallet
There will be a slew of brokers and friends who are anxious to warn you that this approach was a loser in the past. Remind them that driving while looking in the rearview mirror is a good way to crash. The Internet was a colossal loser for investors from 2000-2002, before Google went on to become the most successful IPO of all time. Apple Computer single-handedly resurrected the music business, at a time when the music companies were trying to sue their customers into paying for downloads and Tower Records had to shut its doors. As Dr. Marc Miles, a global strategist, said in February 2008, “Green is hot. Not only is the private demand rising, but governments are falling over themselves to subsidize these industries.” Don’t be stuck in the past, ever.

Just to illustrate how hot companies are becoming when they take the socially conscious high road, consider one of the top performing stock picks in 2007: World Water & Power. I featured the company in my April 2007 ezine. Just one month later, in late May, the company’s chairman and CEO, Quentin T. Kelly, traveled in Toronto and Vancouver with California Governor Arnold Schwarzenegger on the California Trade Mission to Canada. Mr. Kelley was selected due to World Water & Power’s leading role in building prominent solar energy projects in California, including the Fresno airport solar complex, and an agricultural system that is the largest solar-powered agricultural system in the world, as well as the only self-sustaining water utility. World Water and Solar was also selected to provide ten solar-driven water-purification units for use in Darfur, Sudan, that will each deliver some 30,000 gallons of safe drinking water daily at sites throughout that ravaged desert region. This is the kind of company that thrills the socially conscious investor and the capitalist alike.

I bring up this company as an example in particular because World Water and Solar was trading off the boards during that time period—meaning that, if you had been pouring over technical charts or earnings reports or analyst recommendations about that time, you would almost certainly not come across this one. The company was not a holding in any mutual fund. The only way you could have stumbled on what a player World Water was becoming was by looking at the products, the customers, and the forward-thinking projects that the CEO was engaged in—by investing in the company as an individual stock.

Additionally, as the ultra high-risk investment, World Water would typically be the first stock dumped in a panic if there was any concern in the larger stock markets. So what happened when the subprime mortgage market stumbled so badly in the summer of 2007? Instead of plunging, World Water came through strong, while the blue chip stocks took a beating. The stock markets look like a flat line by comparison to the stellar returns that World Water posted and sustained during the period between April, when my feature article on the company appeared, and September, when Chairman Bernanke and the Federal Open Market Committee cut the Fed Funds rate by 50 basis points in an attempt to restore confidence in the capital and credit markets.

That means that investors who take positions in these green, socially conscious companies are less willing to give them up—even in uncertain times. In that case, new investors are going to have to pay a higher price—something we all love when we’ve bought our positions early.

Exit Oil: Invest in Renewable Energy
Interested in socially conscious investing, but want to try a newer fund? WisdomTree, iShares, PowerShares, and the American Stock Exchange website all list ETFs, grouped by industry, investment style and other factors of ineterest. Doing a search for socially conscious mutual funds or ETFs on your favorite engine should also yield results. Calvert and Domini have websites. Also, it’s your broker’s job to know what funds are out there, so s/he should be helpful in your search as well.

Even if you don’t want to become an activist investor, what you might not realize is that chances are very high that you are already invested in all kinds of corporations that you may not wish to support. If you have a retirement plan at all—whether it’s a 401(k), annuity, IRA or pension plan—you are invested in mutual funds, and each mutual fund invests in hundreds of publicly traded companies.

Every wonder how Philip Morris could make it through those decades of lawsuits by the cancer victims? With your money. Ever wonder how Exxon Mobil remains the largest corporation in the world with a market value of over $500 billion? With your money.

I meet people all the time who hate smoking, but invest in cigarette companies because the dividends are so strong. Others complain about a “war for oil” in Iraq, but drive gas guzzlers and have oil company stock (some without knowing it). In September 2007, Altria (Philip Morris) was one of the top holdings in the four most widely held mutual funds. Exxon Mobil was largest publicly traded company on Wall Street. Translation: If you own a mutual fund, chances are you own Philip Morris tobacco company, Exxon Mobil and all kinds of other companies and activities that you may not want to support—whether you are anti-oil or just sick of watching a tanned Larry Ellison (CEO of Oracle) buy Malibu real estate and race sailboats.

Is there really any reason to invest in clean energy over oil, defense and tobacco companies? Well, yes, even if the sole reason is that you want to participate in the world’s top performing industry (in 2007, and likely going forward as well). Why not invest in the products and services that are cleaning up our world? If Al Gore is right that global warming is a life-or-death concern, investing in clean energy could save our planet. If he’s wrong, we end up with cleaner air, land, water and energy. Sounds like a win-win to me.

There are a lot of naysayers out there, who pshaw the idea that you should engage your desires and emotions at all in investing, to which I reply, “Good luck.” Emotions are the criminals most responsible for stealing your gains. Like it or not, when your stocks go down in value, your blood pressure boils and you want to dump them quickly, and when they rocket up in value, the shock and thrill keep you clinging for dear life, even when it’s a good idea to let go. In other words, your emotions are your own worst enemy when you are invested in things you don’t really like and have no idea how to value. Your emotions can be a great ally when you are invested in things that are enriching the world, and you are confident that those investments will continue increasing in value in the years to come.

Seeing what companies your mutual funds are invested in is as easy as two clicks on your computer. Literally. That easy. On any major financial site, you can simply enter the symbol of the mutual funds you currently own, and then click on “Top 25 Holdings” to see what companies you're supporting.

If you don’t like what you discover, then simply tell your broker that you want to own funds that are more socially conscious. There are index funds, exchange-traded funds, and tons of easy options for you to choose from that target companies more in your sweet spot. Or, you could create your own socially conscious nest egg with a basket of carefully diversified stocks, with the help of a professional. It’s not that hard, and a good broker will be a valuable asset in this. This month, with so many large, green corporations trading for a song, is a great time to set up that new green basket of stocks. go to my original article at the NataliePace.com archived ezines, vol. 5, iss. 3, to access a Green Chip Stock Report Card.

Green Chips
All of the companies listed in the Green Chip Stock Report Card have active investments and policies toward reducing greenhouse gas emissions and creating renewable energy infrastructure world wide. Since 2004, General Electric has achieved a 500 percent increase in wind turbine production, and its wind business revenues exceeded $4.5 billion in 2007. According to the American Wind Energy Association, over the past two years, GE has supplied wind turbines representing nearly half of the new wind capacity across the United States. GE's 1.5-megawatt wind turbine is among the most widely used machines in the global wind industry, with more than 8,000 installed around the world.

Google is conducting Research & Development to build 1 gigawatt of renewable energy power, which would be sufficient to power the city of San Francisco. Johnson and Johnson is listed on the Dow Jones Sustainability World Index and won the coveted Green Partner of the Year Award in 2005. Intel and Google founded the Climate Savers Computing organization, which is commited to a 50% reduction in power consumption by computers by 2010. Microsoft is a partner of Climate Savers Computing.

Remember that the mega stocks are stabilizing forces for your long-term portfolio, not stallions you can win day-trading races with. The dividends of these large cap stocks, and the fact that they trade in a narrower range, means that you should be able to earn reliable, steady gains over time, without losing much sleep. That is no guarantee, however, that the current volatility in the markets will not force the price lower this year. So, adding these companies to your ‘Buy My Own Island’ Fund means taking a long view, with the knowledge that you are buying these companies near their 52-week lows, which will hopefully be a great price now and going forward.

The Bottom Line
I’m really glad that I don’t have to ride my horse to New York City, so I’m grateful for the role that oil and gas played (in the past) in making our lives easier. I’m just confident that if we can walk on the moon, we can invent solar-powered planes. (We already have solar-powered space stations.) If we can end slavery, we can end poverty. If we can eradicate polio, then we can find a cure for cancer that is better than chemotherapy. Collectively, our money promotes and creates the products, goods, and services in our world, so let’s be mindful about how we decorate our home.