Green from Green

In case you haven’t heard about the latest buzzword, it’s “green”. Green living, green cars, green houses, green lifestyle, and now – green investing. The mutual fund market has been quick to provide a push button conscience cleaner – SRI (Socially Responsible Investing) index funds.

Let’s take a step back and look at the situation for a moment. We are running out of the resources that make our life possible on this earth. We’ve put poison into our air, our waters, and our bodies. Why? Convenience.

Convenience got us into this mess, and I have a hunch that convenience isn’t going to get us out. Green investing can be VERY profitable. This is because better technology yields better results, and better results means savings. Savings means profit.

2 reasons why the real profits aren’t in a green mutual fund or stock

  1. Large companies might not want to make progress. If you have a monopoly on an inefficient product, it’s sometimes more profitable to fail at progress. Don’t believe me? Watch the documentary Who Killed the Electric Car? and decide for yourself.
  2. Small companies have to be innovative to grow and profit. A startup company who has to face its VC investors needs to make progress fast. There’s a little more incentive here than there is for an Exxon or most any publicly traded company or fund. Look at some of the most recent incredible successes: Microsoft, Dell, Google, Paypal, Myspace, Ebay, Facebook, etc. With each of these companies, the real innovation came early because it had to, and it’s often followed by stagnation once funded with billions of dollars (where’s Microsoft’s continuing innovation?)

If you are thinking that I recommend you search the garages of America for the next Bill Gates, Michael Dell, Larry Page, or Pierre Omidyar, then think again. Get creative, think outside of the box.

Here’s one I’ll throw at you to get the creative juices flowing (and feel free to play devil’s advocate):

Find a company that installs solar panels on homes and buildings. Ask how many years it takes for the equipment to pay for itself through savings. Ask how many years the equipment will last and/or the length of the warranty period. If the warranty period is significantly longer than the cost recovery period, offer to provide lease financing – meaning you will buy the equipment and have the end user lease it from you. The equipment salesman can then go out there and sell the solar panels for zero cost to the property owner (makes for an easier sale so they’ll really like you), and there’s profit in it for you. Your actual profit will vary depending on which equipment supplier you use and the rates of the power company in that area.

My challenge to you: Take the above scenario and crunch some numbers before you hand your money over to a green mutual fund.

Reader Interactions

Comments

  1. Thanks, Allen. I’m just getting it started. I’ve authored education courses, white papers, and newsletters… and the ease of blogging I’m already starting to like. I think this will be a much better way to publish. Keep the feedback coming, good or bad. 😉

  2. A realistic assessment, but don’t forget how goverment intervention can contribute to a sector’s profitability. Without initial and ongoing goverment subsidies, petroleum may well have been a hohum investment from the start. Without the complex plethora of USA subsidies today, gas might cost $10 a gallon, which is almost what it costs in Europe now.

    Some very astute companies are marshalling government resources to profit from wind farms and it’s business, not hippie dreams, that are fueling their growth. Companies like Archer Daniels Midland and Cargill making a bundle in ethanol, and they’re not exactly known for preaching a corporate culture of sustainability. It’s all about the subsidy-driven profit for them. Large fortunes indeed have been made by moving into a hot sector just as government decides it is a priority. You need look no further than a military logistics company like Dick Cheney’s Halliburton to see evidence of that.

    It is also instructive to know that not every investor is in the game to maximize profit. Since it’s largely a crap shoot to choose the top producing funds anyway, why not choose a reputable company or fund associated with a relatively clean and forward-looking product? A growing number of people believe that whether you win or lose in any given year, using green investing principles, at least you can sleep at night. More and more, we are recognizing our personal connections to the climate crisis and our unique role in addressing its excesses. Maybe investing in a green fund is just a drop in the bucket, but can the bucket ever be filled without any drops?

  3. Thos(MN), great thoughts. Subsidies are an interesting topic, and government intervention can most certainly affect a sector’s profitability. I agree that petroleum may have been a “hohum” investment due to its inefficiency had there not been subsidies.

    Without the complex plethora of U.S. subsidies today, who knows what gas would cost. In such a place and time where we all utilize a more efficient source of energy, there would be so little demand for gas that hardly anyone would be drilling for oil and refining it.

    In the industrial age it IS all about the subsidy-driven profit, but I believe that is a different story in our current information age. For one simple example, look at eBay and PayPal. Those may be a foreshadowing of the many major global commerce changing innovations to come that are fueled by pure innovation in a [somewhat] free market. I think that is the case; look up TESLA MOTORS. There’s no lack of subsidy holding them back.

    Also, about people who don’t care about profit or loss but just want to feel good… Purchasing guilt reduction and accepting a potential loss is a silly way to react to the fact that choosing a good fund is a crap shoot. My personal response is to not choose a fund, and invest my money instead of surrender it.

    My definition of investing is to strategically place my assets in ways that will cause them to grow substantially with as much control and little risk as possible. Within that definition, I can’t allow myself to invest more than 5% of my assets in the stock market because I can’t control it or limit its risk. That 5% is invested into individual stocks so that I at least know where my money went. The remainder is invested in things I can understand.

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