Stocks in the green economy are popular right now. Should you buy shares in green companies?
- It depends.
- It depends if the stocks you are looking at fit your financial targets.
- It depends on the individual stocks you are considering.
- It depends on how diverse your holdings are.
There is no simple, single answer that applies to every trader.
Are You a Trader or Investor?
Investors buy shares in stable companies that will provide dividends and growth that outstrips inflation. Investors often hold stocks for years, riding the daily ups and downs of the stock price, holding for the long-term upward trend.
Traders buy stocks with a view to short-term growth. Many traders will buy and sell stocks on the same day. Traders are hands-on. They track the stocks they hold and are ready to sell instantly if they enter the loss-making territory.
Green stocks can be good or bad, just like in any market sector. You have to be selective. The sector is fairly diverse and includes EV stocks, battery makers, turbine blade manufacturers, solar panel stocks, and recycling specialists.
There are green stocks to watch and there are electric vehicle stocks you should research. It would be foolish to ignore the green economy when you are looking for profit.
Reasons to Buy Green Stocks
The bigger companies could be worth adding to a long-term investment plan, but many of the newer companies to the market don’t have the track record you need to be confident holding them for the long-term.
Traders will buy a stock where they see again in the next few hours, so will probably hold some green stocks.
The only good reason to buy green stock is profit. You are not going to solve the climate crisis by buying shares in Tesla. Selling your shares in polluting companies might make you feel good, but it won’t affect those companies’ policies or profits – The market is too big. If a stock price falls and there is an opportunity to make a profit, there will always be buyers.
Reducing your Risks
There are always going to be some risks when you trade or invest.
You can never reduce your risk to zero. There will always be a chance of losing money. You should never trade with money you cannot afford to lose.
- The key is to know your risk tolerance and to trade appropriately.
- The highest risk would be to put all your money into one stock because you expect its price to rise. If the price falls, you could be wiped out.
- The lowest risk would be to put your money into a bank. It’s safe but depreciating every day with inflation.
- There is a multitude of risk levels between these two extremes – Different degrees of diversification, different amounts of research, and different strategies.
Knowledge is so much more than information. Information is never going to be enough. Learn to read financial charts, learn about trend lines, resistance levels, and support levels. Get to grips with candlesticks.
You are only ready to trade when you can read the data for yourself.
You can never research too much. You need to understand the company, the sector, the market, and the economic cycle before you invest a single cent.
It’s your money you are investing, so do your own research. NEVER buy or sell based on any one source of free advice like a newspaper or online stocks tipster.
Use paid advice services because their company profits depend on the accuracy of their predictions. They have whole teams of people who are experts in different fields. Even then, remember it is only advice, it’s your money, so make sure you understand the advice before initiating any trades.
Should you limit your trading to the renewable energy sector?
Think back to 1999. Technology and internet stock prices were going crazy. It’s so crazy the entire dot com sector crashed com in 2000. That seems unlikely to happen to green stocks, but you should always diversify your holdings.
You can set up a stop-loss position so your stock sells automatically if the price falls to a level you choose. You might buy a stock at $0.40 and set a stop-loss position of $0.37. Doing this means you lose 3 cents a share, but not doing it could mean you losing 20c a share.
You can also set up a take-profit position, selling your stock automatically if the price rises to a level you choose. You might buy a stock at $0.40 and set a take-profit position of $0.45. You watch the price go up and your automatic sell cuts in at $0.45. The price keeps rising to $0.50 for a few minutes but then crashes back to $0.41. Your automatic take-profit position locked in your 5c per share profit before the price fell.
When you start trading you will make mistakes. You will lose money. The best way to reduce this risk is to open a free virtual trading account at your preferred broker. You trade with pretend money. You make pretend profits, but your losses are only pretended ones, too.
Using Green CFDs
A Contract for Difference (CFD) lets you bet on whether a stock price will fall or rise. You never own the stocks, and the trade is for the difference in the stock’s price between opening and closing the contract.
You can borrow a stock and sell it if you think a stock’s price will fall. You then have to buy the stock before the contract expires, hopefully at a lower price. This is called ‘shorting’.
If you think a stock’s price is set to rise, you borrow the money to buy the stock and sell it before the contract ends, hopefully at a higher price. This is called ‘going long’.
YOUR Stock Choices
NEVER follow a trend you don’t understand. Educate yourself, understand the market and do your own research.
Green stocks might be the flavor of the month, but flavors of the month change, so look at stocks in many different market sectors. Look out for and buy green stocks if they fit your investment plan, but avoid over-emphasizing the green sector.
Stock trading always carries some risk. Do everything you can to reduce your risk: Education, research, diversification, stop-loss positions, and virtual trading are all equally important to successful trading.