Location: Columbus, Ohio, United States

Thursday, January 08, 2009

The advice of many...

Today I went to a thing for owners of green energy companies. Good times, but I left the meeting super jazzed about the WilderHill Clean Energy ETF. An ETF is kind of like a mutual fund that trades like a stock. Again, me...super jazzed.
I log on ready to jump in, google for general information on ETF-s, and read this on Motley Fool:

Before investing in this mutual fund you need to ask the 3 basic questions:
1. How diversified is it? Very, in one sense: The 37 stocks are spread over diverse industries, but quite a few of these companies, including perennially unprofitableBallard Power (Nasdaq: BLDP) and strugglingPlug Power (Nasdaq: PLUG), are small and bleeding money. It also ignores one of the world's largest wind energy technology companies in General Electric (NYSE: GE). Hmmmm.

2. What will it cost? The PowerShares WilderHill ETF is relatively cheap in that it charges only a 0.60% expense ratio annually. That's decent, and not far off from other low-cost, broad-market index funds. Let's move on.

3. Is it run by someone you can trust? Probably, but there really isn't any way to tell. I mean, yeah, the prospectus (which you can download here) mentions that portfolio manager John Southard has been in the business for at least 13 years and with PowerShares since 2002. But it doesn't say whether he's had any success investing in speculative small caps or in the clean energy industry. His returns as a fund manager don't appear to be mentioned either. Uh oh.

I can't find a good reason to invest in the PowerShares WilderHill ETF, especially when I know so little about the manager. Remember: When you buy an ETF or a mutual fund, you're spending good money to hire an expert who will make you more cash than you could have made on your own. Buying for "exposure" to clean energy or any other sector is like spending money on the lottery because you want "exposure" to gambling. Neither makes sense -- unless, of course, your only aim is to lose money. Again, no thanks.

My point isn't that you should or shouldn't buy an ETF, it's that I do better when I sit down and shut up and learn before doing stuff.


Blogger SHANNA said...

UGH!! that is such good advice. i have a horrible habit of jumping before evaluating!! good for you for doing your research.

6:26 PM  

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