Whether you’re thinking about investing in your first green company or you’ve never invested before, here are five things to know before getting started.
Rona Fried: Founder and CEO of SustainableBusiness.com, a global news and networking website dedicated to green business. Online since 1996, the site was one of the first in the world to focus on green business, jobs and investing. Its flagship services are Green Dream Jobs and Progressive Investor, a hands-on green investing newsletter.
Fried is known for her wide-ranging knowledge of the green economy and environmental issues. She is widely quoted as an expert in green business and investing and has been writing the “Investing in Clean Energy” column for Solar Today Magazine since 2002.
Jeff Siegel: Co-founder and managing editor of Green Chip Stocks, an independent investment research service that focuses primarily on stocks in the renewable energy and organic and natural foods markets.
Siegel is also a contributing editor for Energy & Capital, where he provides direct advice to investors. He also works as a consultant and is the author of the best-selling book, “Investing in Renewable Energy: Making Money on Green Chip Stocks.”
1. Understand the risk
If you’re eager to get in on the growing green economy, stop for a moment to think about how much you want to invest and what you hope to get out of it. As we all know, the stock market can be very risky. So, set specific goals and parameters for your investment endeavors ahead of time to avoid stress and keep your hard-earned dollars from going to waste.
“If you’re looking for a green investment angle, you have to ask yourself the question: What do you want to get out of it?,” Siegel says. “Are you looking to solely make money? Or are you looking to support companies that are doing ‘the right thing,’ and you’re not all that concerned about…realizing gains and having yourself a nice profit at the end of the year?”
Another useful question to ask yourself is: How “green” does the company you invest in need to be? General Electric, for example, makes billions of dollars in revenue from wind turbines alone, Siegel says. But most don’t consider GE to be a “green” company. Be firm about your beliefs and set these distinctions ahead of time to minimize confusion, he suggests.
“You also have to consider what you’re willing to risk,” Siegel says. “The first thing I ask people who want to invest is…’Are you okay if you lose that [money]?’. They look at me like I’m crazy, but if you’re going to commit $5,000, there’s a good chance that you could lose some of that money.”
“If you’re okay with that, go for it because you could come out ahead,” he continues. “But if you can’t afford to lose any of that money, my advice would be to play it safe.”
Fried acknowledges that investing in green can be risky, as can purchasing stock in any other industry. But she notes that eco investment is a great opportunity “for long-term investors who don’t expect to see completely stable investments over the next few years.” In other words, if you believe green is the future and you can deal with a somewhat tumultuous market, you may end up with a big pay-day down the line, she says.
“Generally, green stocks have not had a great few years the last few years,” she says. “That’s a reason to stay away from green stocks for some people, but it’s also a reason to get into it for other people…You’re able to get into some of the stocks at very low prices right now, whereas a few years ago when they were booming you had to pay a lot for them.”
2. Know the company
Never invest in a company without knowing what it does and what its goals are. This tip may sound basic, but you’d be surprised how many novice investors shell out hundreds of dollars on a company’s stock without really knowing what they do.
After you’ve chosen a few potential companies, start by checking out the “Investor Relations” page on their websites for basic information about the goods and services the company provides, its management team and its recent financial statements.
“You have to do your research,” Siegel says. “If you decide you want to invest in a certain company, learn about the company. Know what they do. You could look at the quarterly reports and not understand anything but the intro, and that’s fine. Read the intro so you get an idea of where they’re coming from.”
After you’ve done a bit of preliminary research on a company, head to a financial information database like Google Finance and Yahoo! Finance to compare its earnings side-by-side with other companies. Or try analysis sites like Morning Star, Value Line and The Street to see what experts are saying. For more information, keep an eye on the news and public policy to see if current events may affect your company’s bottom line.
For seasoned investors who are going green for the first time, you may want to consider an industry newsletter to expand your knowledge of the environmental sector. Both Fried’s SustainableBusiness.com and Siegel’s Green Chip Stocks offer paid investment newsletters and free content that specialize in the green economy.
“I would certainly suggest people get informed first…and get familiar with what’s going on in green business and what the issues are,” Fried says.