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Focus on oil investing

Posted by jdavis on September 11, 2015

Let's remind ourselves of the oil price chart:

Around $30 in the early 2000s.

Rising rapidly then into a bubble (topping out at $147/barrel) and collapsing spectacularly just before the banking collapse in 2008.

Flat-ish from 2010 to last Summer (at $100 give or take), after the crash.

Crash over the last year to around $45, where we are now.

We drew the diagonal rising black line to indicate the price points, where oil has remained above over the last 13 or so year.  This shows a rising trend, even if there have been huge collapses along the way.

Some commentators say the trend line will be broken and we will see oil in the $20s/barrel again or the $30s.

Others say, the low is in and we can expect to rise into the $70s or $80s over the next couple of years.

Our view is "we don't have one".  We KNOW that the oil price collapsed from c $110 last Summer to around $45 now.

We also know that, during that period the index of large oil and gas companies fell by around a quarter.  Small companies callapsed some 75% to 90%.  Some will go bust, probably as they owe too much.

Others will survive with less competition.

We also KNOW that oil will be demanded by governments, businesses and households for many years, irrespective of other forms of power coming onstream.

We also KNOW that oil companies, traditionally, rake in huge profits and pay large dividends.  So, a previous dividend of, say, 5% could remain for new investors who invest at much lower prices.

Thus, we have no idea what will happen to the oil price.  But we invested in Global Energy shares AFTER oil crashed and AFTER major falls in energy company share prices.

For our clients, the dividends, once they settle, should be lucrative and they will compound the price of the shares by reinvestment.

Can the share prices fall further?  Yes.  Can oil fall?  Yes. 

Have we bought according to our investing principle of Buy After The Quality Global Level Asset Has Crashed Or Collapsed?  Yes. 

Is this sound medium to long term investing?  Yes.  Have we reduced medium to long term capital risk with this investment?  Yes.

 

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