Green investing is not for amateurs

DALLAS - The growing trend toward clean and alternative energy sources represents an investment opportunity for those who do it right.

But to make more green from "green investing," investors have to cut through the hype and determine what is a fad and what technology has lasting power and lucrative potential.

Otherwise, your green investment could prove to be a losing effort. Investors view the environment as a major long-term investment opportunity, according to a survey by Allianz Global Investors AG, whose Allianz RCM Global EcoTrends Fund invests in companies that have exposure to the alternative-energy, pollution-control and clean-water industries.

"The environment is a fertile investment area at an early stage of growth," said Bozena Jankowska, lead portfolio manager for the fund. "It is one of the few sectors where the public and politicians are in alignment and inclined to act."

Finite resources such as oil, metals and even fresh water will continue to become more scarce and more expensive, she said.

"If businesses do not become more efficient in their use of these resources, costs can mount and ultimately impact the bottom line," Jankowska said. "This goes beyond just wanting to do good. It ultimately comes down to good business sense."

However, there is more to it than that. As with any investment, you need to do your homework before diving in.

"Someone who is considering buying a green stock should go through the same steps as he or she would when buying any other stock," said William Reichenstein, a finance and investments professor at Baylor University. "Consider its valuation compared to comparable stocks, its industry, and the stock market. Make sure the stock fits into your overall portfolio."

You have to cut through the hype, and when it comes to green investing, there is plenty of it. Do not expect to reap rewards immediately.

"The hype is that people are going to say, 'Oil is $100 a barrel, and it's still continuing to go up, and of course we have to move toward clean tech,' " said Jack Uldrich, author of Green Investing. "It's easy to sell the potential of clean tech, and global warming also adds to that.

"But step back and understand that for all of oil's negatives, society, industries, don't change that fast."

You should look at green investing as a "10-, 15- and maybe a 20-year investment opportunity," Uldrich said.

If you are going to buy individual stocks for your green investing, make sure you understand each technology and its moneymaking potential. Can it sustain its usefulness?

"Does the technology make sense financially?" said Brian Jacobs, managing director and head of sales at Allianz Global Investor Distributors. "Is the company sound? Does it have the finances it needs to be sustainable in the future?"

"We don't invest in companies unless we see a competitive advantage that's confirmed by strong orders, a rising backlog, or an increasing market share," said Paul Woods, chief executive officer of Odyssey Advisors L.L.C., a Los Angeles firm that manages a portfolio of "clean energy" stocks.

"The only way to cut through the hype is to do your own research, and that's a very tall order because most of what you hear is garbage," Woods said.

The research required to stay on top of this rapidly evolving field is time-consuming and makes it a challenge to invest in green technologies through individual stocks.

"It's really difficult to do this, especially as an investor," said Brian Bruce, director of the Finance Institute at Southern Methodist University's Cox School of Business. "If you want to invest in this trend, find people who have done socially responsible investing for a long time and who have a lot of expertise and invest in a green mutual fund, and let them make the judgment calls."