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What's Your Cleantech Stock Strategy in 2011?

The stock market moves in cycles. Most investors will tell you that each cycle happens in four stages. The key to making money (or not losing it) is knowing what stage you're in so you can make the right decisions.

The first stage of the cycle is called Capitulation. In this stage, which usually follows a period of crisis, the lack of buyers causes stock prices to bottom out. The most recent example of this was the winter of 2008, after the implosion of the financial markets.

In the second stage, buyers start entering the market and moving up prices. This steady climb upward is typically called the “Wall of Worry,” because even as stocks rise in price, most investors are still waiting for Armageddon.

Once the market has climbed enough to signal a positive trend, buyers enter en masse hoping to ride the boom. This is the Euphoria stage – and it usually ends badly for a lot of investors.

Finally, in the fourth stage, after the market peaks and there aren't any more buyers left, a steady plunge downword takes place. Investors usually cling to hope at the beginning of the decline and then eventually sell off their assets in a state of fear and panic, bringing on the stage of Capitulation. (For greater detail on this cycle and how it impacts solar stocks, read this column from analyst J. Peter Lynch).

Today, the American stock market is somewhere at the beginning of the Euphoria stage. But the cleantech sector, which has had a rough year in the public markets, is still in the Capitulation phase. Some analysts think stocks – especially solar and wind – have yet to hit bottom.

When the bottom comes, surely there will be some good deals for savvy investors in 2011. But how do we know when we've hit the low point? And how do investors evaluate companies in this volatile, constantly-changing sector? Money can be made – but it's certainly not easy.

In this week's podcast, linked above, we'll talk to Money Manager and Writer Tom Konrad, who will give us some insight into how he invests in public cleantech companies. We'll also chat with Investment Analyst J. Peter Lynch about the four stages of the stock market cycle.

Inside Renewable Energy is a weekly audio news program featuring stories and interviews on all the latest developments in the renewable energy industries.

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