Green Investing Promises Long Term Profits
By
Timothy Lutts, Cabot Chief Investment Strategist
From Cabot Wealth Advisory 6/7/08
Sign up for free Cabot Wealth Advisory e-newsletterMore than three decades ago, the
Socially Responsible Investing movement got under way,promising investors that it would make their money grow by investing only in companies that did good, and not in companies that did bad. Today the movement is still in first gear, and the reasons for this are two-fold.
First, there's no clear definition of what's socially responsible. Of the 300-plus socially responsible funds worldwide, some screen out corporate bad apples, some avoid investment in alcohol, tobacco and guns, some invest in community development projects, and some advocate as shareholders for good corporate policies.
The bigger reason for the movement's lack of success, though, is simpler; for the most part, these funds have failed to do as well as the broad market. As a result, they haven't attracted big money!
In many cases, bad was more profitable. The poster-boy for bad, in fact, is Altria (MO), previously known as Philip Morris, which is still an excellent conservative investment. And it pays a 5.2% dividend!
Alcohol, too, has been a great investment. The group as a whole has outpaced the broad market throughout the past two decades. Standout performers include
Central European Distribution (CEDC)–vodka,
Molson Coors (TAP)–beer,
Brown Forman (BFB)–whiskey and
Anheuser Busch (BUD)–beer.
Guns (found in the leisure sector) have been less profitable as an investment, though products designed for military use have enjoyed their own bull market.
Yet the urge to invest for the good persists among people...and it is an honorable urge. In fact, a couple years back, one of my daughters
suggested I start a newsletter recommending socially responsible investments. But I explained to her that while I might be able to sell subscriptions, the advice itself would tend to be sub-par. (Also, I don't feel comfortable telling people what is right and wrong.)
And then this year I went ahead and launched Cabot Green Investor.
So what gives? Am I a hypocrite? Have I changed my principles?
Neither.
As my father is fond of saying, money goes where it's treated best. Institutions plow money into growth companies with excellent prospects and they withdraw money if prospects are poor. It's simple.
Three years ago, I started
Cabot China & Emerging Markets Report because I saw a lot of money flowing into Chinese investments. To say that's worked out well would be an understatement. (The letter earned 76.8% in 2006, 74.1% in 2007 and an amazing 108.7% in the twelve months ended May 31, 2008. All these numbers are from Hulbert Financial Digest.)
Today, while the Chinese juggernaut continues, my strong conviction is that a lot of money will be flowing into Green investments in the years ahead (it's already started), and that investors who hop on board the train early will do very well.
The reasons for this conviction are no secret. Oil prices are sky-high and likely to remain so, while the growing perception of global warming as a major challenge means serious incentives are being devised to encourage technologies that pollute less, and accomplish more with less energy.
In short, companies with Green solutions will see revenues and earnings grow rapidly.
The fact that Green investments are good for the planet is an added benefit, and makes me feel even better about the investment advice in the newsletter.
But for most people, profits are the number one reason to subscribe.
So here's a taste of what editor
Brendan Coffey has given readers so far.
The biggest producer of biodiesel in China. It's up 15% since Brendan recommended it on February 7.
The leading provider of environmental services and the largest hazardous waste disposal company in North America. It's up 17% since Brendan recommended it on March 6.
The world's leading metal recycler, with 120 sites on four continents. It's up 13% since Brendan recommended it on April 3.
A major manufacturer of components for wind energy systems. It's up 34% since Brendan recommended it on May 1.
Admittedly, there are losers, too. But the biggest loser is just 14%. As in all Cabot growth investing systems, the key to profits is letting the winners run while cutting the losers short.
If this sounds like a system that would work for you, then I suggest you give Cabot Green Investor a try. From biodiesel to solar power, recycling to wind power, you'll find all the best Green investments in Cabot Green Investor.
Information on Cabot Green Investor