Why Do Green Energy Experts Buy Solar Stocks?

Tom Konrad CFA

Green energy experts accept that solar panels are one of the least cost effective ways to reduce your carbon footprint. Nevertheless, many buy solar stocks. They should rethink their investment strategies.

I recently spoke on Stock Selection in the Era of Peak Oil and Climate Change at the ASPO 2009 International Peak Oil Conference. Whenever green energy enthusiasts find out that I analyze green energy stocks professionally, they react in one of two ways. Many want to know my top stock pick in general ( New Flyer Industries NFI-UN.TO/NFYIF.PK ) or in their favorite sector (see below.) Others tell me about their own green energy investments.

My guess is that the latter group hopes I will stamp some sort of stock guru seal of approval on their portfolio. If so, they usually go away disappointed. This is not only because I have not yet been issued with a special seal by the stock guru union. It’s also because, even if I had such a stamp of approval, I would seldom need to use it.

I find that even industry experts who know more than I do about green energy fail to apply that knowledge when it comes to investing. Enthusiastic amateurs are often worse. The typical green stock holdings of a brilliant cleantech engineer are a couple solar stocks, like First Solar (FSLR) and Sunpower (SPWR.) People who will lecture tirelessly on the need to improve the efficiency of buildings before slapping solar on the roof don’t walk the walk when it comes to their investment portfolios. Instead, they take whatever portfolio they have, slap on a couple solar companies. They forget all about the efficiency stocks and other, more cost-effective renewable options such as wind, geothermal, and biomass that they would recommend if they were asked about what we needed to decarbonize the economy.

Invest In What You Know, Use What You Know

To be fair, none of these people are professional investors. They cannot be expected to make the same sort of decisions that a professional would. On the other hand, many are extremely knowledgeable when it comes to green energy. The old adage Invest in what you know does not mean that a pilot should buy airlines. It means that that a pilot will have more knowledge of the airline industry than an industry outsider, and my be able to use this knowledge to either choose between well-run and poorly run companies, or to have a better understanding of industry cycles, and buy when industry fortunes are on the upswing, and sell before a decline in profitability. The key to successful investing is not depth of knowledge, but knowledge that other market participants lack.

Likewise, an energy rater will know that efficiency improvements will deliver much faster paybacks than solar PV. Yet, based on my informal survey, energy raters are more likely to own a solar stock than an energy efficiency stock Dedicated greens know taking mass transit or biking to work is much greener than any private car, even an electric one. Yet these same greens are more likely to have investments in electric vehicles or battery stocks than investments in mass transit or bicycle companies.

But I Don’t Know any Energy Efficiency Stocks

When I ask these people why their portfolios don’t match their lives, they usually tell me they don’t know what stocks to buy. Ignoring the fact that people who aren’t willing to do several hours of research for every stock they own should not be venturing into the Wild West of individual stock investing (don’t say I didn’t warn you) here are a few of my favorite investments in each of the major green energy sectors.