Tuesday, June 9, 2009

Green Investing - How to Make a Profit AND an Impact

Every time I turn around, I see another press notice stating that another securities house is entering the sustainability index market. Creating a fund made up of securities from firms that are environmentally sensitive, in one way or another. Sometimes the securities are all from alternative energy firms. Sometimes the securities are from firms that have a reduced carbon footprint. Sometimes the securities meet certain benchmarks of economic, social and environmental sustainability.

Either way, I feel nagged somewhere in the back of my brain.

Should I be investigating the environmental sensitivity of my own investments?

Should I be jettisoning stocks from firms with a big, bad footprint?

Should I be speaking with my portfolio?

Of course!

Except - - it's not that simple. Over the years, I've developed a fairly cautious approach to investing. I buy only value stocks. I have created a few rules for myself, and I check related benchmarks before I buy. I'm not an investment advisor, so I'm not going to share my methods here. The minute one of you decides to try them and lose, I'd be on your dirt list. Even so, my method, faulty though it may be, keeps me somewhat ahead of the Dow and the S&P indexes. What it looks like now - with the market so vulnerable: when everyone else is losing, I'm losing a little less! Can't fight that.

So, how can I abandon my strategy? The strategy that's keeping me a little less poor than I otherwise would be? How can it be responsible to give up my stock-picking methods and adopt someone else's picks, just because they are green?

I advise against blatant, all-out abandon of whatever decision-making processes you've successfully used in the market. But, I do have a compromise position. ADD the green criteria to the purchase-related benchmarks.

Here's how I do it. I create a table. Across the top of the table are my criteria for a stock purchase. Again, I'm not going to give you the entire method because I dont' want anyone following it. But I'll give you enough to show you how I do it, in case you want to devise a similar system using your own investing rules.

So, for example, I look "real news" about a company. I need to see contracts, partnerships, new technologies and patent approvals, etc. Preferably lots of contracts. I don't count "market-maker" news - anything about stock performance, dividends, etc. Other across-the-top criteria might be things like a low P/I ratio, a certain minimum level of capitalization, signs of under-valuation, etc. I also have a thumbs up or down space for reports I respect (e.g Reuters, Argus, Standard & Poors). By the way, all this information is available to me for free online at Schwab, where I keep my accounts. I assume it's available to you, too, at whatever online brokerage you use.

Along the verticle axis of the table are the names of companies whose stock I'm considering. For each stock, I determine how well each company meets each of my criteria, and make a notation in the square. When I'm done, the companies meeting my criteria are the ones I buy.

How do I make this whole process green? I simply added green behavior as a box across the top of my table! It's another criteria that MUST be met if I'm going to buy.

Where, you might ask, does one find out whether a company meets green behavior criteria? Well, at present there are a wealth of competitive brokerages offering sustainability index funds. You could buy into these funds. If you're a fund sort of person, just make sure you apply the same performance criteria you apply when selecting any fund. Don't get it just because it's green.

Or, if you prefer putting individual stocks in your portfolio, simply look at the list of individual securities these funds hold, and do your research to see which of them meet your purchase criteria. If you pick 'em that way, you'll be able to rest assured that the integrity of your pick system is being maintained and that you're investing green.

I think that's almost all you need to know to get started. The last piece: the granddaddy of all sustainability index companies is SAM, or Sustainable Asset Management, founded in 1995. Possibly the oldest group identifying companies meeting sustainability criteria, it is at the top of the credibility charts. Start there to find sustainability funds. Their website contains a wealth of educational information. http://www.sam-group.com/htmle/about/portrait.cfm.

You can also google "sustainability index funds." You'll no doubt come up with a LOT of funds. It's trendy right now. Just do your homework. Look at their criteria for inclusion, and why they consider these firms "green." Just because a firm sells an alternative energy product doesn't make the company green.

One last note: I know choosing stocks isn't a quick, lunch-hour activity for most of us. Why not bookmark this blogpost, and pull it back up the next time you sit down to review your portfolio, so you'll have the SAM link handy?

And if you find or know of any really great "green" securities, please come back here and post your pick in the "comments" section!

Go forth and invest wisely and green!
Now, time for me to get on the road to KC. Ciao!

If you find particularly healthy stocks, that are also environmentally friendly, I urge you to let us know here. All the best, and happy investing!


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