Don't Be The SuckerAmid all of the truly groundbreaking new technologies, innovative companies, and fresh-minded thinking surrounding renewable energy, organic agriculture, distributed generation, and other green memes lurk ugly, but familiar beasts — the penny stock operator and the private placement promoters. With a penchant for press releases and the skillful use of all the appropriate buzz words, these charlatans are not only making off with some ill-gotten booty from unsophisticated investors, they are diverting much needed investment dollars that could otherwise be going to the more deserving ventures.

It is amazing that people fall for these things a mere six years after the meltdown of the "new economy" internet debacle. However, if you know how to look, they are not that hard to spot. Here are some tips to protect yourself:

1) No listing… no dice. Qualifying for a listing on the NASDAQ is not that hard for a company, and qualifying on the AMEX is even easier. Profits are not a requirement and neither is revenue, for that matter. This is a good rule, by the way. Some industries, especially in technology and medicine, require many years before a product is ready for market. It only takes about $40,000 in listing fees, $4 million in assets, and about 400 investors. If a company has what it takes to survive in the public markets, such as a solid management team, an interesting product or technology, and a reasonable business plan, it is also not that hard to find a reputable underwriter to help you meet these requirements. Usually, a pink sheet stock is on the pink sheets because the reputable underwriters took a look at the prospects and said "no way". This alone should clue you in to the highly speculative nature of the enterprise.

2) Is it news, or fluff? If you look at the company's web site, or widespread personal finance sites like Google Finance, you can usually spot the "Company News" link. In many cases, what looks like news is only a press release. Sometimes, it is more cleverly disguised, but it still amounts to fluff. If the source is Business Wire, PR Newswire, CSR Wire (which is for the SRI crowd), or something similar, then this "news" was written by someone with an agenda. It's not the wire's fault. That is what they do. Even if the source seems more real, see if the reporter is critical in the analysis. Many local papers are anxious to write about local "success stories".

3) …and you are? If the first two reasons have not scared you off, take a look at the management team. First off, there should be more than one, and they should all have different last names. You would think that investors would not be so gullible, but I was pitched just last week by someone hoping to fund a "blank check company" with one CEO and one director (the same person). What is likely to happen is that the "officers" will form a compensation committee (of one) and decide on a grossly exhorbitant salary for the management team. Second, it is reasonable to expect that company leaders have proven themselves to be good stewards of public money.

4) The Woody Allen Rule. Seriously, unless you are yourself a multi-bazillionaire, ask yourself why people would want you to join their country club. Like Woody Allen, you should resolve that any club that would have you as a member is not a club you want to belong to. The very best IPO's and private placements are reserved for Wall Street's best clients. This unfortunate fact is conspiratorial and wrong, but a fact nonetheless. It is a good rule to follow for ANY investment, whether real estate, "fine art" Dali prints, collectibles, or stocks and other securities.

5) … and you are (part 2)? A lot of companies that failed to ignite investor interest in other fields, are just changing their names and starting anew. Take, for example, Western Wind Energy, a company that was, until a few months ago, a mining firm. Another example is Newgen Technologies, also a former mining company, now on its third name. Neither company ever produced a nickel's worth of revenue.

Some of these scams have legitimate sounding names and even more legitimate business plans, but watch your wallet. As always, be diversified, keep investment costs low, maximize your company's 401(k), and be systematic in your saving. You will do just fine.

Mark Brandon is the owner of First Sustainable, a Registered Investment Advisory catering to socially responsible investors. His column appears in Green Options on Mondays.

Green Giants: Yvon Chouinard of Patagonia; recycling computer parts at H-PThe current issue of Fortune is a treasure trove of stories of companies that got the green religion. Some did it from the standpoint of a moral imperative. Others did it for the other type of green — money. The cover issue is about the so-called "coolest company" on earth, Patagonia, maker of outdoor apparel and gear. Alas, it is not a public company.

However, other stories are more complex. Take, for example, the case of Dupont (NYSE:DD). After decades of resisting pressure about their ozone-depleting CFC's, the company learned that CFC-substitutes not only soothed environmentalists, but also increased profits. This caused the CEO to direct his team to find similar innovations. The result is a reduction in greenhouse gases on the order of 76 percent. Of course, as with many of the most astounding cases of reduction, it logically follows that they were heavy polluters to begin with. Other features in the article include Goldman Sachs (NYSE: GS) and their project financing innovations, Swiss Re (OTC:SWCEY) and its weather-derivative innovations, and Hewlett Packard (NYSE:HPQ) and its industry-leading e-waste initiatives.

Socially Responsible Investors often fall into three categories. Some object to owning companies involved in dirty businesses. For these, Dupont will never be acceptable. They do, after all, still make Teflon which has been shown to have ill health effects. Another category accept that, as long as the company leads its field, and makes genuine efforts (without greenwashing), it is worth owning. Waste Management (NYSE: WMI), for example, is clearly in a dirty business, but among waste companies, it has a pretty respectable agenda for accomplishing its economic reason for being without trashing the planet. The third category, and the one I find most exciting, is the customer who recognizes that there is money to be made in being more efficient.

Which one are you?

Mark Brandon is the owner of First Sustainable, a Registered Investment Advisory, catering to socially responsible investors. His column appears in Green Options on Mondays.

Image source: CNNMoney.com

Skeptics abound about the whole concept of socially responsible investing. Some of them have merit. Others are just plain silly.

Statement: SRI does not perform as well as traditional investing
Status: Mostly False
Explanation: As more people become of aware of investing responsibly, a lot of naysayers point out that social portfolios and funds have underperformed market indexes over the last few years. This much is mostly true, but it is not that simple. Following the tech bust and subsequent recession, the market enjoyed a cyclical upturn in 2003, which continues to the present day.

In this cycle, as in most early-stage cycles, the stellar performers have been commodities-based companies, extractive companies, heavy industrial companies, and of course, oil companies. Many socially screened portfolios have not participated with these companies because they tend to rely on socially troubling practices. Commodity players (some, not all) are in developing countries paying exploitative wages. Heavy industry pollutes. Oil companies are a root cause of global warming emissions. But, since overall market indexes incorporate these companies, SRI indexes have trailed.

However, with an over-weighting toward technology and health care stocks, SRI portfolios outperformed for seven years prior to the last upturn. Most of the run-up in those cyclical stocks occurred in 2003. So, any study of the matter that does not take multiple cycles into account is just plain incomplete. The best scholarship on the topic, represented by the Social Investment Forum’s Moskowitz Prize, shows that there is no real difference between screened and non-screened performance over the last 25 years. The verdict is that SRI neither underperforms, nor overperforms traditional investing on a financial return basis.

Statement: SRI is more risky.
Status: False
Explanation: Adherents to the Dow Theory claim that by narrowing your universe of stocks through social screening, you increase your risk by decreasing diversification. The problem with that notion is that, by definition, managing a portfolio requires narrowing your universe of stocks. If that is too much work or too expensive, just get an index fund and be done with it.

Statement: Companies do not pay attention to social investors.
Status: Mostly False
Explanation: Skeptics point to alcohol, tobacco, and gambling companies, long the target of social divestment strategies, and show that the social divestment movement has not really made them change their ways. This is probably true. Divestment probably does not work when a socially repugnant enterprise is the core business. In these cases, activists can only hope that they behave more responsibly, such as has happened with cigarette settlements, better labeling, etc.

Social investment activism has been very effective with companies that have repugnant practices in the everyday pursuit of their not-especially-repugnant businesses. For example, Nike (NYSE:NKE) was once shamed as a pariah of sweat shop labor. Today, that company is one of the most progressive companies on the issue. Social investors recently persuaded large publicly traded financial companies such as Goldman Sachs (NYSE:GS) and Lehman Brothers (NYSE:LEH) to pledge to clean up their project financing guidelines. I could go on and on. If the company's core business is not socially IRRESPONSIBLE in and of itself, SRI can have a huge effect.

Statement: National divestment campaigns do not work
Status: Jury is still out
Explanation: Social investors like to take credit for forcing companies to divest from Apartheid-era South Africa. The economic isolation was one reason that the white leadership eventually caved. I, personally, think that SRI contributed to Apartheid’s downfall, but realize that there were several other issues that contributed as well. Alas, this is a subject for another post, or even another Green Options blogger.

However, anecdotally at least, one can look at occasions of forced divestment through government regulation to see how this works. Companies have been forced to divest from countries with oppressive political regimes for decades. Forced divestment from Cuba, Iraq, Iran, North Korea, Libya, the former USSR, and its allies frankly has a mixed record. Economic isolation definitely caused some communist regimes to crumble. In other cases (Cuba, Libya, Iran), sanctions have not had much effect on destabilizing regimes. And, in others (Iraq, North Korea), it could be argued that sanctions have caused suffering only among the population while actually strengthening the targeted regimes. Having an enemy to rally against while at the same time exploiting black markets created by sanctions helped Saddam hold on to power, and is probably doing the same for Kim Jong Il.

The current campaign to divest from Sudan is a current hot-button issue. In my opinion, this is a case where national divestment could work. Oil revenues are giving the genocidal government its power. Foreign oil companies make those revenues possible. Make no mistake. The ethnic cleansing going on Darfur is all about claiming oil-rich land. If it were just about claiming political power (as in Cuba, or North Korea), I would be more skeptical that financial investors could change the minds of maniacs.

Mark Brandon is the founder of First Sustainable, a Registered Investment Advisory catering to socially responsible investors. His weekly column appears in Green Options on Mondays.

Standard & Poor's, the granddaddy of indexing companies, has launched three new "thematic indices" for the clean and green crowd. Although not currently tradable, do not be surprised if index mutual funds or ETF's are soon created to mirror these baskets. They are:

S&P Global Clean Energy Index: Representing 30 companies, 10 countries, and a total market capitalization of $117 Billion, this index is a composite of clean energy producers, equipment makers, and technology companies. The top 10 holdings are:

1. MEMC Electronic Materials (NYSE:WFR)

2. Vestas Wind Systems A/S

3. Renewable Energy Corporation AS

4. Suntech Power Holdings (NYSE:STP)

5. Solarworld AG

6. Germany Q-Cells

7. Endesa-Chile

8. Copel -PNB (Companhia Paranaense de Energia SA)

9. ACCIONA SA

10. Sunpower Corp.

S&P Global Infrastructure Index: Representing 75 companies, 22 countries, and an aggregate market cap just shy of $1 Trillion dollars, this index focuses on utilities, transportation and energy. It's top 10 components are:

1. Abertis Infraestructuras

2. E.On AG

3. Autostrade SPA

4. TransCanada Corporation

5. Macquarie Infrastructure Group

6. Williams Cos

7. Suez SA

8. Kinder Morgan

9. Enbridge Inc

10. El Paso Corp.

S&P Global Water Index: Representing 49 companies, 14 countries, and $227 billion in aggregate market cap, this index focuses on water utilities, water equipment makers, and water infrastructure. It's top 10 components are:

1. Veolia Environnement

2. Suez SA

3. Mitsubishi Heavy

4. Kubota Corp.

5. United Utilities

6. Danaher Corp.

7. ITT Corporation

8. Nalco Holdings

9. Pentair Inc.

10. Severn Trent

Although not perfect, these indices do a respectable job of separating out companies whose clean tech activities are only a subsidiary of a larger company. For example, even though Shell Solar and BP Solar are giant players in the solar space, it's impossible to buy their stock and not be entangled primarily with their non-renewable businesses.

The way to take advantage of these indexes is to find a broker or adviser that can handle what is called a Separately Managed Account (SMA). These accounts allow you to purchase underlying components of indices to more or less mirror its performance. Ideally, SMA's require $250,000 to run efficiently without getting killed by transaction costs. With less than that, stick to the existing clean tech ETF's, like the Powershares Wilder Hill index.

Mark Brandon is the owner of First Sustainable, a registered investment advisory catering to socially responsible investors.

Market meltdowns, like the one we saw last week, and the one that may be forthcoming this week (as of this morning, the Asian markets took another nosedive), are no reason to panic.

In fact, unless you are on the cusp of retirement (or currently retired), market corrections are mostly positive news. Corporate profits are at multi-year highs. U.S. corporations have as more cash on hand than at any time in history. Because of the first two reasons, dividends and buybacks are also on the rise. The correction allows you to buy these assets and cash flows for that much less.

Whether you invest responsibly or not, most individuals need to keep these four principles in mind:

• Be diversified. Unless you have a few million and do not need to work, you should not be concentrated in any one company or asset class. Even if you are getting generous options grants from your employer, you should periodically diversify to protect your downside. Proper allocation is where a good financial adviser can really earn his or her pay, because arriving at such an allocation requires taking into account your life stage, your goals, your current assets, your income, and a lot of other factors.
• Be low cost. The average actively managed mutual fund charges an astounding 1.57 percent of assets each year. If you figure that stock returns historically average 8 - 12 percent, that is a lot of money for no risk. Still, that figure would be fine if they consistently outperformed the market benchmarks. Alas, they do not. While about 40 percent of actively managed funds beat their benchmark in any one year, less than 15 percent beat the benchmarks over 5 years. If you consider that index funds charge 60 to 90 percent less than 1.57 percent, you might as well be content with market returns.
• Maximize your company's 401k plan. Nowhere else can you get a tax deduction, tax deferral, and free money in the form of a company match. Think about it. A company match means that you get a 100 percent return automatically. No investment vehicle in the world can offer that kind of return without risk. Even if your company does not have a match, the tax deduction can enhance your dollars by 15 to 35 percent. Still pretty good.
• Be systematic. Whether you resolve to invest once a week, once a month, once a quarter, or whatever, be disciplined about saving a set amount. This is yet another reason to utilize your 401k plan, because money will be taken out of your paycheck every time you get paid, and you will not even miss it. Systematic savings plans also allow you to take advantage of lower prices when the market corrects.

If you follow the above principles, then most of you will do just fine. Concentrate on making money through your employment or entrepreneurial endeavors. The more one obsesses over making money in the market, the more likely they are to start market timing, and believe me, almost everyone who tries to beat the market with timing fails. Even the professionals.

You might be wondering which, if any, vehicle accomplishes this task. My favorite mutual fund is the Vanguard FTSE Social Index Fund (VFTSX). Based on the FTSE4Good Index Series, it focuses on environmental sustainability, human rights, and corporate governance. The management fee, at 25 basis points (versus the aforementioned 157 basis points for actively managed brethren), is the lowest among all SRI funds. Versus non-screened indexes such as Vanguard's S&P 500 Index Fund, this fund is a little more heavily weighted towards technology and healthcare companies, but not so much that it would wreck a sound asset allocation.

Whether with a social slant or not, the 401(k) is the most popular vehicle for investing. And it should be. For most people, I advise that before you contribute to any other savings account, you should max out your 401(k) contributions. No other vehicle offers you tax deduction, tax deferral, and a possible match.

However, if you wish to invest responsibly, your plan may not have any SRI (socially responsible investing) options. That does not have to be the end of it. Let me share with you a little secret. These plans are SO easy to administer these days, that it is now practical for a firm of ANY SIZE to have a 401(k) plan. My company administers 401(k) plans for small businesses, and to add another fund to our roster, it takes about 30 seconds of plugging in the fund name and CUSIP number. That's it.

Now… it is not exactly that simple for some plans. Plan administrators, especially those associated with payroll firms, are known for literally gouging their customers with fees for every little thing. This includes taking 30 seconds to expand the roster lineup, and then pretending that it was some high level consulting.

I recently concluded a 401(k) takeover plan where the 23-employee firm had only two participants in the 401(k) plan, the owner and his partner. With about $90,000 in total assets, they were being charged about $6,000 per year by ADP. This is unconscionable. Congress recently took some actions to halt the gouging, but that is a subject for another post. If expense is the HR person's objection, they need to re-evaluate their plan provider. Simple web-based programs are now scalable and so easy to use. They should not require massive fees.

So, why are SRI options typically not available? Because nobody asks for them. All you need to do is make your HR Department aware of the demand, and it CAN BE accomplished in no time. Of course, some companies spend months evaluating their 401(k) plans (usually at huge expense by the aforementioned highly paid consultants). That is ok. Even at large companies, HR departments do not receive that much comment about their fund lineup. Even one voice may be enough to accomplish the goal.

So, speak up. Your co-workers will thank you.

Mark Brandon is the founder of First Sustainable, a socially responsible investment advisory, as well as the author of The Sustainable Log blog and newsletter.

For years, socially responsible investing (SRI) meant buying an indexed mutual fund with the alcohol, tobacco, and gaming stocks weeded out. Today, an explosion of research around corporate governance and an increased public awareness, has contributed to an evolution in the term. The definition has evolved to include environmental performance, human rights, labor rights, gay rights, animal rights, abortion rights, board diversity, community investing, and more. In fact, the first order of business for me, as a socially responsible investment adviser, is to determine your definition of social responsibility, because it is different for all people. For different groups, being socially responsible may be wholly irresponsible for others. Investors in the Ave Maria family of Catholic Values funds would not be at home in the Women's Equity Fund (FEMMX), and vice versa. This column, however, is about activist investing.

For many, making your voice heard with the management of companies or funds in your portfolio is best achieved by voting with your feet, or divesting your portfolio of any companies that conflict with your social criteria. XYZ pollutes the Hudson River, so you sell XYZ, theoretically depressing the stock price. For others, this method is too passive. How is management going to know that you sold because they are bad citizens? After a few decades of anti-tobacco investing, those executives have not come any closer to abandoning their lethal product.

The first step to becoming an activist investor is to vote your proxies. Most people do not even realize that by owning a fund or stock, you are entitled to vote at company meetings. Your broker should be forwarding you the company proxies which contain ballot items that affect the direction of the company, including who serves on the board of directors. Since frightfully few investors actually bother to vote, sending in your vote gives you a disproportionately strong voice.

Just like in our democracy, it is easy to wonder if a small fry investor's vote actually counts, and I am afraid to say that this is true on some levels. One share equals one vote, so in most large companies, management tends to ignore small investors. That is why you should pay attention to the large investors in a company. You can find out who are the top 10 institutional investors from many publicly available sites, such as Marketwatch and Morningstar. Pension funds, especially those benefitting public employees, are likely to agitate on moral grounds. Sadly, large fund complexes tend to vote with management. This is a scandal in itself, but that is the subject of another post. Aligning yourself with the actions of the larger investors helps you become part of a political party, so to speak, instead of the Ralph Nader "crazy voice in the wilderness".

Of course, voting your proxies are not that interesting if the issues that matter to you are not even on the ballot. Surprisingly, there is no uniformity among companies with regard to this issue. For some, you may find resistance to ballot initiatives, especially one that threatens management. Still, for others, getting on the ballot may just mean phoning the investor relations department and proving that you own at least one share. Annual company meetings, which are required of all public companies, are usually not that imposing. Coverage of the annual meeting of Berkshire Hathaway (NYSE: BRK.A) may make you think that all such meetings require the use of a convention center.  Actually, most annual meetings take place in a venue no bigger than a hotel ballroom, and some are so sparsely attended that they happen in the company cafeteria.   At these meetings, just raising your hand and speaking out is the best way to get your point across. Going to the meetings may also allow you to interface with the aforementioned large investors, too. There is no reason to be intimidated by these people. Management works for you, the shareholder.

Does any of this work? Does it matter to the issues? Does it matter to the share price? The answer to this is a resounding "yes". The winner of the 2006 Moskowitz Prize (a UC Berkeley prize for social research) found a measurable wealth creation effect for the beneficiaries of CALPERS, the California pension fund which happens to be the largest and most active institutional investor. Shareholder revolts are behind some of the biggest issues of our time. SRI forces can take credit for the divestment from South Africa, which in part, brought down Apartheid. Activist investors have forced electronics makers to enhance their recycling efforts. Activists have shamed sweatshop operators into changing their ways. Nike (NYSE: NKE), which once was a sweatshop pariah, is now a leader in the fight against sweatshops. These are but a few examples. It is clear that agitation is both effective and profitable.

Get out the vote.

Mark Brandon is the founder of socially responsible investing advisory First Sustainable, and the author of the Sustainable Log newsletter and blog.