Tuesday, July 29, 2008

Where Local Makes Love to Sustainable: SRI Banking

Local and regional banks are getting a bad rap thanks in large part to the bevy of socially parasitic mortgage brokers that dealt out most of the subprime loans that are the weight around the neck of our national financial infrastructure right now. Of course, the subprime issues are more a symptom of corporate excess than the underlying cause, but that's neither here nor there. For now, suffice it to say that local banks are not all bad. In fact, many of them promote sustainable, socially responsible solutions to their regions.

So what are these banks, and how do you join the fray?

While the number of purely sustainable solutions are small, the concept is alive in a couple of banks worth looking at, even if from afar. And if you're not already in CRATX, the Community Reinvestment Act Fund (as detailed here), you should definitely consider it. But here are some truly excellent solutions to make more than just your stocks sustainable or responsible, but to extend the same thinking to your savings and cash.

Wainwright Bank & Trust

I just recently mentioned Wainwright's stock, WAIN, as a part of my last Seeking Alpha article, but their Green business loans and Equal Exchange CDs are worth getting excited about. For a minimum of $1,000 and a 3 year commitement, you can open an Equal Exchange CD in which the funds are loaned to Equal Exchange which invests in Fair Trade coffee farms and farming practices. Not only is this exciting from a sustainability standpoint, but the APY is a none too shabby 3.00%, costing only 70bps from average CD rates.

There is always a catch, of course - there are penalties for early withdrawal (situationally depending). If you already have an account at Wainwright, you can have CD interest depostited directly into your money market, checking or savings accounts, a nice little perk. The CD is FDIC insured and sustainable, what more could you want?

Well, if you're a homeowner interested in greening your house, Wainwright offers a Green Loan specifically designed to target green home improvements. Green loans offer rate reductions and no closing costs, all perks to make the investment in reducing your long term energy costs. If you're a non profit, Wainwright is one of the few institutions country wide with a division devoted entirely to communtiy and non profit development. With over $500M in community investment loans, Wainwright cements itself as one of the leaders in socially responsible and sustainable banking.

Not to mention the stock is currently paying a 3+% dividend yield. See more information at www.wainwrightbank.com.


ShoreBank is the original socially responsible bank. With a 35 year history, a diverse management team, and a long standing commitment to community investing, ShoreBank is now the gold standard of SR banking, despite it's growing corporate entities. For the retail consumer, ShoreBank has a bevy of Developmental Deposit accounts (checking, savings, money market, time deposit, and IRA) that target community development projects with the funds. They offer market rate APYs, meaning you're not paying in yield to be responsible. So, all things being equal, there's no good reason not to be responsible.

Beyond just the typical deposit account, ShoreBank has excellent online high yield savings accounts that offer higher yielding rates and the same social developmental projects. Best of all, the high yield savings accounts have $1.00 minimums, online access, and no monthly fees.

The newest product on ShoreBank's ever increasing roster is the EcoDeposit through their ShoreBank Pacific branch. EcoDeposits are designed to invest in companies that reduce energy inefficiencies and waste in an effort to preserve the Pacific northwest forests. In many ways, ShoreBank has designed these programs to act almost as charitable contributions that pay you for your efforts.

For more details, check out www.sbk.com.

So be smug and save sustainably while you invest sustainably.

Sunday, July 27, 2008

Smug Profile: Waste Not, Want Not

Smug's next stop on the profile bandwagon is an industry that definitely does not get its due accord - waste and recycling. Waste management, like water treatment, is an inevitable need of every civilization. In that way, when taken as a whole, waste should tend to act more like a commodity than equity. I'm still watching for the moment you can readily buy and sell futures contracts on recycled metals (especially in ETF fashion), but for now, we can at least take solace in Market Vectors' Environmental Services ETF:

Ticker: EVX
Inception: October 10, 2006
Asset Type: ETF
Markets: Global
Smug Category: Waste
Included in Smug Asset Pool?: Yes

Returns: YTD 2.30%

Expense Ratio: 0.55%
Total Market Cap: 42M
Annual Turnover: 3%
Current Yield: 1.03%

With a moderate expense ratio, EVX offers exposure to what Smug believes is one of the unaccounted for basic needs investments. Along with food, water, clothes, and a roof over our heads, it is inevitable that we will produce waste. The long term prospects are astounding as populations soar and growth in China and elsewhere abroad booms, the need for increasingly efficient and intelligent waste management is tantamount. Along with water, we consider waste a commodity and expect to move with lower correlations to the overall market as the track record increases.

All in all, consider it as exposure to a relatively obscure but well positioned sector. And be smug, invest sustainably.

Saturday, July 26, 2008

Al Gore's Green Challenge: Ignore It and Start Small

Al Gore recently gave this speech challenging our country to use 100% renewable sources within the next 10 years.


While you would think that would make us green investors jump for joy, instead all I hear is a reverberating echo. As much as I love the challenge, and I love Mr. Gore's science, mission, and rhetoric even more, the problem is ideological. How do you take historically consumptive and self interested Americans, from Wall Street to Main Street, and get them to believe that green energy is necessary (or even possible)? Especially in a country that ridiculously fights the notion that global warming is even occurring!

Permit me one self righteous, proselytizing rant: not until green can line the pockets of the already wealthy while keeping the status quo will it ever be viable. That means paying government with special interest money to rival oil, gas, coal, and other pollutant energies. It also means venture capitalist cash flows, double and tripling profits of Wall Street financiers, and forcing (and I do mean forcing) the average joe to comply with green energy initiatives. If it's going to happen in 10 years, green will have some serious moving and shaking to do right now.

Green Energy Becomes Tradeable Commodity

Julian Murdoch of Hardassetsinvestor.com wrote a piece on the movement we could expect from a move to green. He points out one thing in particular that both caught my eye and gave me concern: "...wind, solar and geothermal power aren't tradable commodities..." This is both troubling and promising at the same time, and here's why.

When the CME figured out how to make weather derivatives a viable investment vehicle, who's to say we couldn't trade excess energy from solar flares (a fairly random occurance)? Or the excess energy from geothermal activity, or storm activity that generates stronger waves? The fact is, they will figure it out. It will be sketchy at first, incredibly difficult to understand, and basically akin to betting on football games, but they will figure out a way. The CME (and all of Wall Street for that matter) is easiest to describe as a giant Vegas, setting prices designed to have a market on either side. The brokers are the bookies, and you are the gambling addict. When viewed in that light, it's easy to understand how there's a market for just about anything you can bet on.

What troubles me about green energy as a commodity is it's inherently linked to natural occurences. A mine, once found, yields a certain amount of ore which can be manufactured and refined. This means there is a limited quantity for that commodity - when the mine runs out, the ore price rises. If green energy commodities, like wind and solar, come into being, you are dealing with sustainable, hypothetically infinite "mines". The market implications are totally unquantifiable at this point, and my gut instinct is to assume no Wall Street market maker is interested in a game that isn't rigged. To that extent, there may be pressure to force us, the consumer, to pay for the commodity in ways we don't pay for it now.

Call it my deeply ingrained cyncism, but I think there's danger in motivating green commodities too abruptly. I think Mr. Gore's challenge was primarily aimed at Congress, but I think what it lacks is the acknowledgement that Congress is elected by you and paid for by big business. I think the big change will come from you, the little guy.

Start Small, Not Big: Don't Wait For Big Brother

While Mr. Gore's challenge is inspirational, the serious change has to happen with you first. Wall Street will sit up and take notice when investors invest in green. If Wall Street sees money in it, expect profiteers to enter the market, prices to skyrocket, profits will be made, corruption will be abundant, and eventually the market will crash! But hopefully not before it's actually done some good.

Starting small can happen in many ways, all of which are in your control:

1.) Call your broker, call your 401(k) provider, call your retirement administrator and ask for green or socially responsible. Pressuring at the institutional level can easily help sway the tide from the inside.

2.) Self directed brokerage account? Set a percentage to be green and responsible, and rebalance once a year. Even if that percentage is just 5%, it makes a difference in the long run. Plus, it can't hurt to diversify.

3.) Do the little things around the house: recycle, don't use plastic bags, find a farmer's market, and maybe even if it's yellow let it mellow. Outside of urbana (and to large extent, suburbana), recycling still isn't the norm. You don't have to buy a hybrid or solar panels right away to make a difference. In fact, there is evidence to suggest that the environmental cost of making a new hybrid is far greater than just buying a used car (used hybrids top all, though). At the risk of standing on a pedastal, imagine if everything you threw away you were forced to throw in your backyard (or in a corner in your apartment). Suddenly those 20 beer bottles and used milk containers would be much better off in the recycle bin!

Need some guidance to step one? Start here, then move on to this.

Thursday, July 24, 2008

New Investment Management Paradigm

I have been approached by the gurus at Rainbox Portfolios to be one of their premier portfolio managers. It is definitely a tempting idea, and could be a new way to invest, but I'm just not clear how viable it really is, especially for smaller investors. Here's how it works:

I would operate and maintain what amounts to a live portfolio and research platform. For a monthly subscription fee, the client would have access to Smug research reports and live updates on portfolio changes. This might appeal to the DIYer who isn't entirely sure how to DIY. Every time Smug gets a trade signal from the green trading model, you get the trade signal too, in the form of an email indicating a price to buy (with a cushion), number of shares, and cost information. The only thing left for you, the client, to do is to place the trade as indicated.

This appeals to me on a few levels. Firstly, there is no bias for portfolio size. If you have a $10,000 portfolio or a $1,000,000 portfolio, your fee structure is exactly the same: the monthly subscription fee plus the cost to trade, which you can control. For instance, I prefer using optionsXpress for some of my accounts. The trading cost is $14.95 per trade regardless of size of the trade (though bigger accounts can get lower per trade costs) and there are no annual fees. I haven't found any hidden fees yet, either, in my time using them, so all in all, I'm satisfied.

Assuming your self directed accounts are in the $15/trade ballpark, which most of them are, here is a look at what portfolio size corresponds to what annual fee. As you would be making the trades yourself, I built in a cushion for "hassle" and "time to trade" as follows (all values are annual):


Hassle Cost: 0.45%
Time Cost: $28.00
Trading Cost: $14.95
Annual Fee: $0.00
Turnover %: 50%
Assets: 12
Growth Rate: 5.00%

Annual Fee Breakdown:

Fee $2,500 $5,000 $7,500 $10,000 $20,000 $30,000 $50,000 $100,000
$7.50 11.38% 5.69% 3.79% 2.84% 1.42% 0.95% 0.57% 0.28%
$10.00 12.53% 6.26% 4.18% 3.13% 1.57% 1.04% 0.63% 0.31%
$12.50 13.67% 6.84% 4.56% 3.42% 1.71% 1.14% 0.68% 0.34%
$15.00 14.82% 7.41% 4.94% 3.71% 1.85% 1.24% 0.74% 0.37%
$17.50 15.97% 7.98% 5.32% 3.99% 2.00% 1.33% 0.80% 0.40%
$20.00 17.12% 8.56% 5.71% 4.28% 2.14% 1.43% 0.86% 0.43%
$25.00 19.41% 9.71% 6.47% 4.85% 2.43% 1.62% 0.97% 0.49%

You can see why this becomes incredibly appealing to DIYers with $30K or more invested in the portfolio. If I were to set the subscription fees at what I consider my midpoint (Rainbox suggests a $20/month fee, but that seems steep to me), $15/month equivocates to an annualized 1.24% expense ratio. That's in the ballpark of most mutual funds, only you're not obligated to make any trade you don't like. If your portfolio is bigger, in the $50K - $100K range or beyond, the savings are exponential. At some point, the cost of a "professionally run" portfolio decreases to below ETF levels, and eventually to almost negligent non existent levels. It offers complete control with investment manager research and advice. My expense ratios are higher than Rainbox's in part because I added in the "hassle" and "time cost" of managing your own portfolio. The "time cost" assumes trades take about 7 minutes each and your time is worth roughly $20/hour. The "hassle cost" component assumes you get the trade email and wait to trade for 5 days, either due to laziness, busy-ness, vacation, or any reason at all. It makes the assumption that for every day you wait to trade, you lose about 0.15% in profit. That's a fairly big assumption, as you could actually avoid losses by waiting, but adding it as a component makes it a more realistic model of how the subscription service would work.

Want to know the kicker? If you paid no one and totally self directed, a $20K portfolio costs you roughly 0.99% annualized fees using the assumptions above. That's why online broker houses exist and seem so cheap - they are actually making fair sums of money off small accounts. An account of $10K with 50% turnover and 12 assets costs you about 1.98% per year - on the high end of just buying and holding a mutual fund! So here's a look at the same chart above, only the numbers reflect the excess cost of subscribing (as in, how much you are actually paying for a "management fee"):

"Management Fee" Breakdown:

Fee $2,500 $5,000 $7,500 $10,000 $20,000 $30,000 $50,000 $100,000
$7.50 3.44% 1.72% 1.15% 0.86% 0.43% 0.29% 0.17% 0.09%
$10.00 4.59% 2.30% 1.53% 1.15% 0.57% 0.38% 0.23% 0.11%
$12.50 5.74% 2.87% 1.91% 1.43% 0.72% 0.48% 0.29% 0.14%
$15.00 6.89% 3.44% 2.30% 1.72% 0.86% 0.57% 0.34% 0.17%
$17.50 8.03% 4.02% 2.68% 2.01% 1.00% 0.67% 0.40% 0.20%
$20.00 9.18% 4.59% 3.06% 2.30% 1.15% 0.77% 0.46% 0.23%
$25.00 11.48% 5.74% 3.83% 2.87% 1.43% 0.96% 0.57% 0.29%

At the mid price point of $15/month, the equivalent management fee is only 0.86% for a $20K portfolio. That's not too shabby, considering most management fees run between 0.50% and 1.00% for mutual funds, and up to 2.00% for hedge funds. The nice part is, as the portfolio size increases, your management fee decreases!

So how do I get paid? The subscription fees go to me, though there are expenses I would incur in utilizing the service. For one, I incur the credit card processing fees, plus a 25% commission fee to Rainbox. Here's how much I would make based on subscriber accounts:

Smug Income Breakdown:
Subscription ACCOUNTS
Fee 1 5 10 25 50 75 100
$7.50 -$47.54 -$6.10 $23.21 $105.12 $239.64 $373.82 $507.93
$10.00 -$45.72 $3.01 $41.41 $150.63 $330.65 $510.34 $689.95
$12.50 -$43.90 $12.11 $59.61 $196.13 $421.66 $646.86 $871.98
$15.00 -$42.08 $21.21 $77.82 $241.64 $512.68 $783.38 $1,054.00
$17.50 -$40.26 $30.31 $96.02 $287.14 $603.69 $919.90 $1,236.03
$20.00 -$38.44 $39.41 $114.22 $332.65 $694.70 $1,056.42 $1,418.05
$25.00 -$34.80 $57.61 $150.63 $423.66 $876.73 $1,329.45 $1,782.10

The breakeven is pretty low at 5 accounts for all but the cheapest subscription price. In fact, if I charged only $0.99/month, I'd only need about 40 accounts to barely break even after costs.

It sounds excellent in theory to me as a way to a.) create income for Smug and tap into a wider audience, and b.) allow investors to make their own choices at a minimum of cost. A new paradigm, right?

Well, I'm not entirely sure. First of all, the likelihood of DIYer's paying for advice is low, and the likelihood that online readers would subscribe and have $30K+ to invest solely in Smug's models is even lower. Rainbox is in beta form right now and actively soliciting managers (like me) to not only give it some credibility, but to help launch it successfully. The question I have is: will it work? I've set up a poll to the right side, I'm wondering how much you, the interested green investor, would be willing to pay for a subscription service like this? Nothing? $1.00 per month? $20.00 per month?

Comments and criticism appreciated, I'm looking to make a decision whether or not to offer the service in the coming weeks. Look out for more green commentary in the next few days, and a profile of the environmental services ETF, EVX.

Tuesday, July 22, 2008

Dividends: The Green Investor's Atlantis

Big media attention distracts from the fact that green is still a niche investors' market. As more and more utility companies sign on to green initiatives, steady yielding dividends should get easier to come by. Until then, there are ways to piece together some nice income, albeit more unstable than traditional income vehicles.

I've put together, at the request of a Seeking Alpha commenter (thanks EnfantTerribles) a Sort Of Incredible Green Income Machine. Here's the list, with some suggested allocations as well:

Asset 100.00% Yield
Portfolio Yield
PAXHX 17.50% 7.43%
CRATX 15.00% 4.64%
DSBFX 15.00% 4.47%
CSIBX 10.00% 3.87%
DUPFX 5.00% 3.13%
LRY 15.50% 7.28%
IDA 10.00% 4.07%
WFMI 5.00% 3.46%
WTR 3.00% 3.29%
ORA 2.00% 0.43%
LNN 2.00% 0.34%

Total Yield:

Agriculture 7.00%
Bond 62.50%
Diversity 0.00%
Eco Reserve 0.00%
Energy 12.00%
Low Carbon 0.00%
Real Estate 15.50%
Recycle 0.00%
Social 0.00%
Technology 0.00%
Total Green 0.00%
Water 3.00%

As you can see, the majority of the holding are bonds, which isn't ideal for diversification's sake. All the yields listed are based on Friday (7/18) closing prices and the last dividend paid. They are most definitely not guaranteed, but the Smug systems do their best to weed out inconsistent payers. There are some non bond holdings worth looking at, and some stock holdings as well yielding above 3%. The overall stock allocation, however, falls less than 50% at around 38% instead. That should give some cushion for growth amongst the bonds and hopefully continue to flirt with that 5% yield mark.

Because of the high concentration in yielding bond mutual funds, there isn't much in the way of inter-green diversity either. Real estate is an obvious place for steady yields, and our one traded "almost green-ish" real estate stock pick, Liberty Property Trust (LRY), makes for a nice yield especially now that real estate prices have tumbled despite ever consistent cash flows. If those cash flows dry up, though, better watch out. Also in the stockpile is IdaCorp (IDA), an Idaho based energy company generating most of it's energy from hydroelectric sources. Utility companies are usually recession-proof tools, so I wouldn't be surprised to see the price tumble a bit if serious recession concerns start to fade in the backdrop. That said, over the last 7 years the price has remained fairly consistently around the $30/share mark, possibly a good sign for forward stability as well.

I also included Whole Foods Market, Inc (WFMI), as they are a nice solid yielder, but as a "specialty" grocery store with food prices on the rise, it's a bit of a risky play. If you're looking for a really steady yield without as much volatility involved, stick with the mutual fund options. Domini, Pax World, and Communtiy Capital Management are old hands with solid business models. PAXHX clocks in as the cheapest overall bang for you buck - currently a 7% yield, a 1% expense ratio, and a measly $250 minimum!

All in all, it's wise to tread lightly looking for green dividends. I wouldn't be surprised if they start cropping up here and there in the not too distant future, especially with the first pure green REIT on the horizon (in SEC filing stage), but for now, be careful and don't expect great stability except from some of the tried and true stalwart bond funds.

Monday, July 21, 2008

Quick Links

Renaissance Capital announced it's Green IPO index. Hold your breath for when the CBOE gets a hold of it - we'll have a green futures market in earnest!

Apparently, it's not just us normal joes who see green in Green - the richest of the rich are making tracks. Now, if only my phone would ring....

Environmental emissions will make it harder for traditional industry to compete with green. Duh.

Not only are the richest of the rich going green, the smartest of the smart are too.

Community Investing is fully subscribed.

If you have links you want to submit, email them to links(at)smuginvestments.com.

Friday, July 18, 2008

Error in Seeking Alpha Article

For those of you who read my recent post on Seeking Alpha, a math error was pointed out to me (it was a late night and Excel was not my friend). The point still remains the same, but the numbers are much more reasonable - here is the revised chart:

CGW -13.22%
CGW -13.22%
EVX -2.86%
DBA 44.88%
GEX 14.39%
DSI -20.61%
PBD -3.54%
EVX -2.86%
PBW -9.06%
EWZ 30.05%
PHO -4.65%
FXA 11.99%
PUW -8.91%
PAXHX -6.67%
PZD 2.41%
PBD -3.54%

PZD 2.41%
S&P 500 -19.69%
UDN 12.04%

S&P 500 -19.69%

Overall: -3.18%
Overall: 5.45%
v S&P: 16.51%
v S&P: 25.14%

The overall performance was -3.18% versus the overall performance of 5.45% in the diversified portfolio, an 8.63% swing.

That looks MUCH better, I was wondering what happened! Don't let my late night typos fool you, the strategy still works, especially in the long run. Thanks to imagomundi for catching the error!

Thursday, July 17, 2008

Green Investing on a Budget: $10K Portfolio

So you have $10,000, you've read yesterday's post, you're all set up and ready to invest responsibly, and you have no idea where to start. First, you can start with our earlier posts: here, here, and here. It lays the baseline for what I'll talk about in terms of asset allocation.

Here are some good suggested portfolios for the $10K investor at varying risk tolerance / time horizon levels:

Concept: Complete Portfolio
Risk Level: High Risk
Timing: Long Horizon (5+ years)
Suggested Allocations:

PAXHX 14.50% $1,450 Bond
DBA 17.50% $1,750 Agriculture
EVX 15.00% $1,500 Recycle
GRN 16.50% $1,650 Low Carbon
PBD 18.50% $1,850 Energy
DSI 15.00% $1,500 Social
Cash 3.00% $300

In this scenario, the one mutual fund, Pax World High Yield, adds bond exposure to round out the overall holdings. It has an average expense ratio (roughly 1%) and a very low minimum at $250 for non IRA accounts (IRAs have no minimum), so it fits well amongst the ETFs. DBA makes an excellent hedge in agriculture, as well. I couch this allocation with the disclaimer that many of the other pieces are correlated, since achieving maximum diversity with $10,000 is difficult to do. You should see some nice diversification with the agriculture play (typically, agriculture is zero to negatively correlated to the S&P) and the bond play making over 30% of the portfolio non correlated. In the future, it may make sense to add TAN, FAN, or FUE, the solar, wind, and biofuel ETFs, but for now, PBD covers all those bases. The second portfolio is for more green specific biased investors who only want $10,000 of coverage in their total portfolio, in which case more risk is warranted (and unavoidable).

Concept: Total Green
Risk Level: High Risk
Timing: Long Horizon (5+ years)
Suggested Allocations:

EVX 15.00% $1,500 Recycle
FAN 10.00% $1,000 Energy
FUE 10.00% $1,000 Energy
GRN 15.00% $1,500 Low Carbon
PBD 10.00% $1,000 Energy
PHO 15.00% $1,500 Water
PZD 12.00% $1,200 Technology
TAN 10.00% $1,000 Energy
Cash 3.00% $300

Overall, this is 40% in green energies - biofuel, solar, wind, and a combination of all forms in PBD. Because it's technology intensive, it will have some pretty high beta and some pretty volatile motion. Ultimately, it's a position play in a larger portfolio, and not well suited to a $10K only investor. The water and recycling components (PHO and EVX respectively) round out the total green theme, with some carbon (GRN) thrown in as well. This portfolio is not for the faint of heart, and I certainly wouldn't recommend it to anyone as their total portfolio. But as a green piece that you can leave alone for a good long while, it's worth considering.

In the next few posts, I'll detail some low(er) risk $10K portfolios, and I'm going to start focusing on some day trading as well. Look out for more!

Monday, July 14, 2008

Green Investing on a Budget: Set Yourself Up

Let's be honest - 90% of investors fall below the $1M net worth requirement for many of the hedge type assets available to institutional types. In fact, as more and more high net worth individuals turn to alternative assets to complete their portfolios, most of us are stuck with either 1.) 401(k)'s run by someone else with broad, if not comical, options, or 2.) amounts too low to qualify for much in the way of diversification (see here for why diversification is important).

In light of this fact, it makes sense to review the way a $10,000 do-it-yourself-er can invest green and be diversified. It's definitely possible to have a responsible, diversified portfolio with $10,000. To do it, we considered the following things as paramount:

1.) Liquidity is a must. $10,000, even in a self directed IRA, should be almost entirely liquid. Typically, investors with only $10,000 in investable assets are in the accrual phase of investing, and may need to draw for big item purchases like a real estate or schooling. It makes sense to be liquid and stay liquid where possible.

2.) Avoid fees where possible. Avoiding fees is impossible - everyone charges you for everything you want to do in this country, especially when they think you won't notice. It is absolutely imperative to look at the fees for what you're investing. Can't get through the legalese? Email me - I'll do it for free. Fees, while the necessary bane of investing, can be limited by doing research and being prepared. The first and most important fees to understand are the trading fees. There is a great, competitive field for online discount brokerages now, and fees can be reasonable. Still, do some reading and find what's right for you - I use optionsXpress personally and love them, but read this and this when considering some of the bigger (and smaller) online firms. My advice: stay away from the Fidelity's and Merrill Lynch's of the world. If you already have a broker you like (or you have no choice about), read every prospectus when determining how much you're paying for someone to manage your investment.

3.) Unless you watch the markets daily, avoid turnover and emotional selling. This is a really basic rule, and easily the most difficult to follow. As a portfolio manager, it doesn't get easier. I bought AAPL stock on November 19, 2007 for $164.92 after fees. By December 31, 2007, it closed at $198.08, a solid 20.1% gain. As a long holder, I kept holding and watched my shares hit a low of $119.15 of February 26, 2008 close. That's a rollercoaster of up 20.1% to down -27.8% in a matter of 3 months - a 47.9% swing! The point? This will happen, and probably to you. Stock timing is like playing roulette. The best advice is don't try to time the market. Even Mark Twain said, "Buy good quality common stocks and hold 'em until they go up. If they don't go up, don't buy 'em." Green investments will go up and down, there will be good news and bad news, and the talking heads will blast it and praise it. Don't listen to sensationalism. Besides, if you've seen it on the news, you're already too late.

What about turnover? Well, that's just simple math - if you invest $10,000, a $15 trade fee represents 0.15% per trade. If you have a portfolio of 10 assets and you traded quarterly? - you're looking at being down 1.50% per quarter just in trade fees, or down 6% per year. That adds up quick, and digs deep into your returns. So keep the trades to a minimum in smaller accounts, or you'll end up on the losing end of trading fees!

4.) Be S.U.R.E. when you invest. At the risk of being cliche and using a ridiculous acronym, it helps remember. Whenever you sit down to make an investment decision, be:

elf aware, understanding your investment situation - don't go for the home run if you can't afford the strikeout.

Understand the costs involved.

Research your investment. It's not enough to just know what you own, if you want to be responsible, know who you own.

Execute and forget it. Assuming you're in it for the long hold, be in it for the long hold. Set yourself timelines if you have to (ie, no portfolio review for 1 year).

In the long term, especially using and index/ETF approach, there are very few total losers. In fact, even in the mutual fund world it's easy to look like a winner over the long term. If you're able invest, forget about it, and go on living, it's a good way to stay Zen.

Tomorrow's post: our suggestions of what to buy.

Friday, July 11, 2008

Green Report Card: 2Q2008

For basic retail investors, there are a lot of mutual fund options for green. We at Smug have steadily been analyzing some of them, at least in a superficial way (and in some more in depth ways), but with so many coming out, it makes sense to review them all in one place. Smug has created a basic scoring system that incorporates a combination of historical returns, risk measures (alpha, beta, R-squared, etc.), expense ratios, and front/back end load. It penalizes the youngest funds for the most part, but avoids overweighting funds simply for longevity. It's a good place to start if you don't know what you're looking for, and it combines some of our favorite green and socially responsible investments.

The first report card is below. If there are funds that you know of that don't appear, feel free to comment and let me know, we're more than happy to assess every green based asset.

Ticker Fund Score YTD 1 Month 3 Month 1 Year 3 Year 5 Year Expense
PAXHX Pax World High Yield A 12 1.67% 0.82% 3.17% 1.70% 7.07% 7.43% 1.00%
NALFX New Alternatives Fund A 6 -3.35% 4.30% 14.45% 5.00% 22.46% 19.82% 0.95%
TICRX TIAA CREF Social Choice Equity 6 -2.05% 2.43% 7.02% -6.31% N/A N/A 0.21%
AECOX Allianz RCM Global EcoTrends Fund A 5 -8.00% 4.39% 15.50% 22.77% N/A N/A %
SPEGX Spectra Green Fund 4.5 -9.53% 0.73% 3.74% 2.07% 15.93% 13.55% 1.24%
PARWX Parnassus Workplace Fund 3 3.39% 3.41% 11.07% 1.45% 8.69% N/A 1.20%
VFTSX Vanguard FTSE Social Index Fund 3 -4.97% 1.81% 6.18% -13.80% 3.97% 6.62% 0.24%
CGAEX Calvert Global Alternative Energy Fund 2 -5.95% 4.62% 16.73% 22.33% N/A N/A 1.85%
PORTX Portfolio 21 Fund A 2 -1.95% 2.95% 6.06% -4.21% 14.16% 15.21% 1.50%
SMCNX SAM Sustainable Climate Fund 2 -2.66% 5.56% 13.30% N/A N/A N/A %
CSIBX Calvert Social Investment Fund Bond 1 -0.15% -0.19% -0.99% 5.12% 4.04% 4.66% 1.11%
WGGFX Winslow Green Growth A 0.5 -16.99% 6.23% 6.75% -6.68% 12.42% 15.85% 1.45%
ARFFX Ariel Focus Fund 0 0.64% 0.82% 6.05% -7.66% N/A N/A 1.25%
DUPFX Domini European PacAsia Social Equity A 0 -4.84% 0.86% 4.78% -10.28% N/A N/A 1.58%
DEUFX Domini European Social Equity A 0 -5.78% 0.33% 4.53% -13.72% N/A N/A 1.60%
DPAFX Domini PacAsia Social Equity A 0 -3.47% -0.10% 4.71% -2.14% N/A N/A 1.59%
DSEFX Domini Social Equity A 0 -3.24% 1.47% 8.05% -10.56% 5.07% 7.35% 1.08%
GAAEX Guiness Atkinson Alternative Energy A 0 -7.45% 2.87% 13.51% 4.25% N/A N/A 1.64%
PGRNX Paw World Global Green Fund 0 N/A 4.40% N/A N/A N/A N/A %
PXINX Pax World International Fund 0 N/A 2.68% N/A N/A N/A N/A %
PXWEX Pax World Women's Equity A 0 -2.41% 2.09% 6.28% 1.22% 6.39% 8.45% 1.29%
SMWNX SAM Sustainable Water Fund 0 -1.11% 4.48% 6.99% N/A N/A N/A %
WGSLX Winslow Green Solutions A 0 -8.88% 3.81% 8.66% N/A N/A N/A 1.45%
MPIAX MMA Praxis International Fund -1 -4.34% 1.37% 5.13% -1.12% 14.38% 15.79% 1.72%
GCBLX Green Century Balanced Fund -1 -4.05% 0.93% 2.73% -5.14% 4.60% 8.11% 1.44%
GCEQX Green Century Equity Fund -1 -4.64% 1.57% 5.87% -8.68% 4.73% 6.93% 0.95%
CSXAX Calvert Social Index Fund -2 -5.17% 1.49% 5.94% -9.13% 4.87% 6.89% 0.75%
CSIEX Calvert Social Investment Fund Equity -2 -0.93% 2.38% 7.72% 2.77% 7.79% 8.51% 1.21%
CWVGX Calvert World Values International Equity Fund -2 -1.62% 1.86% 8.50% -8.24% 13.61% 15.15% 1.60%
MYPVX Citizen's Sustainable Core Opprotunity Fund -2 -7.22% 1.69% 3.27% -10.04% 6.95% 10.16% 1.29%
CSIFX Calvert Social Investment Fund Balanced -3 -2.29% 1.07% 2.89% -3.65% 4.49% 6.22% 1.19%
CAAPX Ariel Appreciation Fund -3 -3.60% 1.94% 4.66% -14.83% 3.40% 7.91% 1.12%
DSBFX Domini Social Bond Fund -4 0.76% -0.70% -1.77% 5.81% 3.42% 2.66% 0.95%
SCFSX Sierra Club Stock Fund -4 -4.75% 1.88% 4.64% -12.92% 3.17% 6.71% 1.26%
BCIIX Brown Capital Management International Inst -5 -10.06% 0.16% -0.08% -10.62% 11.96% 16.18% 2.00%
CMIFX Calvert Social Investment Fund Enhanced -5 -3.14% 1.76% 5.85% -10.51% 4.38% 6.91% 1.20%
CRATX CRA Qualified Investment Retail (CRAIX) -5 0.26% -0.78% -1.11% 5.06% N/A N/A 1.00%
WAEGX Citizen's Emerging Growth Standard -8 -4.58% 2.90% 6.68% -5.94% 8.33% 10.45% 1.88%
ARGFX Ariel Fund -9 -8.47% 1.31% 0.83% -20.24% 0.02% 7.88% 1.03%

And this quarter's top scorers in the Smug Asset Categories are:

Category YTD Ret Ave Score Best Bet Name
Agriculture 0.00% 0.00

Bond 0.64% 1.00 PAXHX Pax World High Yield A
Diversity -2.41% 0.00 PXWEX Pax World Women's Equity A
Eco Reserve 0.00% 0.00

Energy -6.70% 1.00 CGAEX Calvert Global Alternative Energy Fund
Low Carbon 0.00% 0.00

Real Estate 0.00% 0.00

Recycle -8.88% 0.00 WGSLX Winslow Green Solutions A
Social -3.87% (1.18) TICRX TIAA CREF Social Choice Equity
Technology 0.00% 0.00

Total Green -6.20% 2.70 NALFX New Alternatives Fund A
Water -1.11% 0.00 SMWNX SAM Sustainable Water Fund

Obviously, it's been a tough year, mostly recently. That's why asset allocation matters (see our previous posts here, here, and here).

Note that this information is culled from various third party sources and we cannot vouch for its accuracy. Also note that the scoring system is a Smug model and subject to change in future posts.