I will have a table at "GreenfFest" to be held at Howard Community College in Columbia, Maryland on Saturday. I will be available to talk to people about investing in "green" companies (actually the more prevalent term in the investment world seems to be "Cleantech").
In line with my overall philosophy, I would limit direct exposure to this sector to 20% of total assets. I would recommend, as well, that investment in a single ETF be limited to 5% of assets and for a single company it be 2.5%. This is a volatile sector where you could hit a homerun or easily strike out.
Today there are a lot of forces converging to make this a significant growth area. But it also is an area of intense competition and is affected by the price of fossil fuels.
Solar seems to be the first area of promise with wind power a distant second and biofuels a sort of wild card. Geothermal and wave power are on the fringe. All of these face an uphill battle to become competitive with a massive infrastructure that is already in place. From a different perspective, there is a lot being done to become more efficient (energy efficient homes and office building construction etc.) and to clean up fossil fuel energy production.
I look at this a bit like bio-tech. Bio-tech companies have enormous potential, but the specific companies are very difficult to analyze unless you are a scientist and want to specialize in the area. The drugs are complicated, there are trials, companies burn through cash and many have never made a profit, patents expire etc. In the end, I think it is best to select a good ETF or fund that is well diversified. To me, it is exactly the same with "green " companies.
Thus, if you want to do good and do well at the same time, I would recommend ETFs. FAN will get you windpower and TAN will get you solar. Check these out on Yahoo Finance and, in particular, their specific holdings. There are, of course, many other ETFs - these are just examples with cool (pun!) tickers.
As usual this is intended to be educational. . eaders should do their own research and consult with an advisor before making an investment.
To be honest with you, my gut tells me green technology may be the next internet bubble. Anything that is over-hyped always gets my antennae up. We all want cleantech to work, and be cost competitive with fossil fuels, but is the price of these companies right for investors, and how much risk do they bring with them. Hard questions to answer. I think solar will continue to get better, wind power I'm not too sold on, but I do believe in nuclear power and that great under-hyped, out-of-favor-with-politicians North American resource natural gas (We're only standing on top of a hundred year supply of it; we should be running our cars on it).
ReplyDeleteWhat bubble do organic food producers fall within? I don't think that will ever bust
ReplyDeleteI don't think green/cleantech is the next internet bubble although timing in area is important. It has been set back enormously by the global recession. The sector would have to go a lot higher though before I would be concerned about a bubble .There are areas that will lose big but I think in the information age we could get some spectacular innovative processes sooner than people expect. We are not that far, for example, from solar being able to stand on its own.
ReplyDeleteOne point to keep in mind is that some of the biggest companies are foreign. China is desperate for breakthroughs. It is hard for me to fathom how the emerging economies can continue to grow at significantly above average growth rates without some movement away from fossil fuels.
This is an area also where I believe the news will be positive on an ongoing basis. Everytime we see a poor polar bear floating on an ice floe it is great news for this industry!
As for organic food - Wholefoods continues to be the fastest growing food chain in the world.
I would welcome the day when I could install solar panels on my roof, generate electricity for my house plus feed any excess out onto the BG&E electric grid if the payback period was 1-2 years. Last I checked, the payback period is approximately 7-10 years. With all the smart people work on this, I have no doubt the costs will continue to improve as the products get better.
ReplyDeleteI looked at FAN right after it first came out and thought it pretty pricey at that time. Looks like it has come down a lot in price since that time. I'm not too keen on wind power due to its unpredictability and the issues with transmitting the power from where it is produced to where it is needed. To quote George Will: "To produce 20 percent of America's power by wind, which the Obama administration dreamily proposes, would require 186,000 tall turbines—40 stories tall, their flashing lights can be seen for 20 miles—covering an area the size of West Virginia. The amount of electricity that would be produced by wind turbines extending the entire 2,178 miles of the Appalachian Trail can be produced by four [nuclear] reactors occupying four square miles of land. And birds beware: the American Bird Conservancy estimates that the existing 25,000 turbines kill between 75,000 and 275,000 birds a year. Imagine the toll that 186,000 turbines would take." I think nuclear, natural gas, solar, biofuels, geothermal are the future. But politicians, being politicians, will pour tens of billions if not hundreds into windmills.
I may be one of the few people around who's never set foot in a Wholefoods store. I only eat genetically engineered, inorganic foods (just kidding). None of their stores are convenient to where I live. But I was highly entertained by John Mackey's opinions on health care, and the reactions.
Grouch-
ReplyDeleteWe're going to have you in a solar paneled house driving an all electric vehicle before the middle of the decade.