Being Positive And Patient About Environmental Investments

Some commentators liken the share market to a massive herd that moves one way and then the other. Whatever collective noun you prefer, there is no doubt about how big the current movement is, and its general direction. With world share markets plumbing long forgotten depths, and the once mighty Australian economy joining its global peers with a December quarter shrinkage in size, there is plenty to be negative about.

Now would seem to be a good time for contrarian investors to practise their lonely art. But in my many years as a finance journalist, one thing I’ve learned with great interest is that counter cyclical investing is a terrific idea that is backed up by years of great research and when done well it can work spectacularly. But in practice it is so hard to do that even professional investors shy away.

And it’s easy to see why. The economic outlook becomes dire, investors feel poor, confidence is low, capital is short, and capital preservation, not investment, becomes the main game.

Even those brave investors prepared to think about investing have a few questions to consider first. Will shares become even cheaper? Can they afford the risk if they do?
And how long will be the wait before they begin to rise? In the end counter cyclical investing is a combination of science and art, of good research consummated by an act of faith or confidence.

Although such confidence is now in short supply, investors shouldn’t use that as an excuse to go short on good research. Whether it is for capital protection, portfolio management, or preparing for the next market up swing, the times make research more important than ever.

For environmental investors, even a little research shows there is a lot to be positive about, and even investors with only a vague interest in the environment know there are many big picture positives. The most recent include president Obama’s New Energy for America plan, the European Union’s leadership on Climate Change and other key issues, and the Australian Government’s upcoming Carbon Pollution Reduction Scheme and Mandatory Renewable Energy Target.

But even at the industry and company level, there is a lot to be positive about. The latest half year reporting season was on balance a good one for many of Australia’s leading environmental stocks. Even in the gloomy circumstances there were some outstanding, market leading performances.

Even the companies that made losses, mostly through mark-to-market writedowns, had sound underlying profitability. And more companies increased dividends than decreased them.

So the big picture fundamentals of environmental investment as well as the small picture fundamentals of many companies are positive.

However, environmental investors and businesses are hostage to the even bigger picture of global economics. Unfortunately the global economic crisis may put back by many years those innovative companies that need more capital or healthy markets to develop, and wipe out some that can’t afford to wait for an upturn. While a lucky few are flourishing anyway, the positives of environmental investment suggest that for most companies the return of good times should deliver good fortune

Warren Buffet is quoted as saying “The stock market is a wonderfully efficient mechanism for transferring wealth from the impatient to the patient”. The question no one can answer is how long is patient?

By Victor Bivell
Victor Bivell is editor of Eco Investor Magazine. See www.ecoinvestor.com.au