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Energy Investment
Old 03-28-2011, 04:33 AM   #1
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Energy Investment

Energy! Wow... I would like to attribute it to my superior investment insight and intellect... but I know better! Still the money will spend just the same even if it was dumb luck!!! Assuming I don't scr3w it up!


I put a wad of $ on an energy mutual fund before the end of last year. My stated goal was energy hedge for personal expenses. My stated approach was tactical allocation. However... now Mr. Greed is on my shoulder whispering in my ear! When he shows up... I usually get lulled into.. well you know how the story usually goes!

The party always ends sometime... sooner or later it will this time too.

Are we just looking at the beginning of the energy bull cycle?

What should I do now? When should I exit? How do I know when to exit? How should I execute the exit?

Thoughts, ideas, outright predictions anyone!
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Old 03-28-2011, 07:22 AM   #2
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Seems to me that oil is likely nearing the point at which further increases will cause a lot of demand destruction, so I think oil prices don't have a lot of headroom (115 maybe). Nat gas OTOH is likely to finally get up off the floor. There is no way anyone is building a bunch of nuke plants now and coal is extremely filthy and environmentally destructive. So nat gas will show a pickup in demand from power generation.

Translation: oil names will chug along, but any company with lots of nat gas exposure will see that go from a millstone to a jewel. Exxon is looking brilliant for its recent purchase of XTO.
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Old 03-28-2011, 11:28 AM   #3
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I'm sticking with my 8% allocation to energy, but will be rebalancing in about a week when redemption fees for my latest fund addition go away.
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Old 03-28-2011, 12:27 PM   #4
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I like oil--certain big oil companies. I like XOM (but I do not own any). Also gas pipelines, but not natural gas producers. IMHO natural gas will remain excessively plentiful for years. I know nothing about coal, but I doubt that we will use less of it in the future.

Chinaco, do you think there will be fewer people in the world in ten years? 50 years? Do you think they will be happy riding rickshaws or will they want Maseratis?

I think an energy mutual fund is a good long-term idea. Rebalance on weakness.
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Old 03-28-2011, 12:34 PM   #5
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I expect to hold my VGENX for another 10-20 years. While the upside isn't unlimited and it will be a bumpy ride, I believe long term returns will be above market averages. We'll see...
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Old 03-28-2011, 05:17 PM   #6
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Just getting some opinions. Thanks
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Old 03-28-2011, 05:40 PM   #7
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I agree with Brewer regarding oil and nat gas. However, I believe many US small cap Oil and Gas Exploration stocks have room to go higher. Lots of companies in the sector have switched emphasis from NG to oil in their drilling programs. They are early stages of proving their reserves out. SD for example could move much higher regardless of oil price because they have just begun to prove out nearly a million acres in MS.
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Old 03-28-2011, 05:44 PM   #8
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While I expect world consumption of energy to keep rising:

1. I don't know what will happen to overall supply - especially in the short term

2. I don't know what form the supply of energy will take in the future (i.e. the division between coal, oil, gas (various forms), hydro, solar, wind, tidal, nuclear etc)

3. I expect share prices to fluctuate (as they always do) to at least some extent at levels which reflect either overly optimistic or overly pesimistic future expectations

So while I am overweight energy stocks (CNOOC, Yangzhou Coal, BHP, Sinopec and Caltex), I remain cautious and will not hesitate to sell if the share prices get too far ahead of the fundamentals. Likewise, I would buy more if prices went in the other direction.
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Old 03-28-2011, 07:32 PM   #9
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I currently hold some energy ETFs, such as OIH, XLE, and PXE. I also have some shares of smaller companies in oil drilling and services. There has been some recent pick ups. I don't know when and where they will peak, but I don't think it's any time soon. In fact, I have been thinking it is not too late for me to buy more.
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Old 03-28-2011, 10:21 PM   #10
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Quote:
Originally Posted by chinaco View Post
The party always ends sometime... sooner or later it will this time too.
It might be a while before it ends. Demand for oil and natural gas still persist.

Quote:
What should I do now?
Hold on.
Quote:
When should I exit?
Before it drops like a rock.

Quote:
How do I know when to exit?
When price falls below the 200 days moving average or your crystal ball tells (or warns) you.
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Old 03-29-2011, 04:36 AM   #11
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Experience has taught me that my greed causes worse pain than the remorse of missing more upside (opportunity cost).

I need to determine if I want change my goal and look at it as a longer term strategic allocation and opposed to a short-term tactical allocation in the sector.

In the tactical model... I have a target value (threshold) where I would begin moving out of the investment (in steps) and fold the money back into the strategic allocation (primary funds)

If I decide to make it a more long-term investment... I will still use that target value (threshold). And when I hit it, rebalance back to my original investment level and take the gain.

I suppose I could pull back my original investment and let the gains ride....
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Old 03-29-2011, 09:11 AM   #12
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VGENX is sitting happily in my Roth.
I bought 200 shares of HK just for fun in early 2010. Not planning to get rich off that stake. I am teaching myself to research a stock and follow it closely, just in case I ever get some nerve and dabble in individual equities.
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Old 03-29-2011, 09:46 AM   #13
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VGENX is sitting happily in my Roth.
I bought 200 shares of HK just for fun in early 2010. Not planning to get rich off that stake. I am teaching myself to research a stock and follow it closely, just in case I ever get some nerve and dabble in individual equities.

Step back from the ledge. Or at least promise you will only gamble invest a small portion of your portfolio.

DD
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Old 03-29-2011, 10:42 AM   #14
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Step back from the ledge. Or at least promise you will only gamble invest a small portion of your portfolio.

DD
Oh of course. I am the poster child for indexed mutual funds and having a conservative AA.
I only own 3 individual stocks directly (not via a mutual fund)...
BRK.B, CELG, and HK.
Total combined stake in these 3 individual equities is less than $8K.
Casino money.
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Old 03-29-2011, 11:06 AM   #15
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The comment was made that coal is dirty and expensive. I work next to a 5 year old co-gen plant. The company that built it spent the money to do it right. One wood burning stove puts out more particulates than the entire plant according to EPA monitoring statistics. Being downwind from the coal plant at work and downwind from a wood stove burner at home, the EPA is right. Coal CAN be made clean. The real issue is whether the owners want to or can legally. My point is to not reject coal power too prematurely. Considering what is going on in the world, coal will be with us for a while.
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Old 03-29-2011, 11:29 AM   #16
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Talk about index investing, I remember that in the market crash of 2000-2003, investing in S&P500 that was loaded with tech stocks turned out to be not so conservative. And then, the index became loaded with financials that blew up spectacularly in 2008-2009. Not too nice either. It is more speculative than people want to admit. Heh heh heh...
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Old 03-29-2011, 12:31 PM   #17
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The comment was made that coal is dirty and expensive. I work next to a 5 year old co-gen plant. The company that built it spent the money to do it right. One wood burning stove puts out more particulates than the entire plant according to EPA monitoring statistics. Being downwind from the coal plant at work and downwind from a wood stove burner at home, the EPA is right. Coal CAN be made clean. The real issue is whether the owners want to or can legally. My point is to not reject coal power too prematurely. Considering what is going on in the world, coal will be with us for a while.
We will still be burning coal long after the last oil or NG well stops pumping.
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Old 03-29-2011, 03:40 PM   #18
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Experience has taught me that my greed causes worse pain than the remorse of missing more upside (opportunity cost).

I need to determine if I want change my goal and look at it as a longer term strategic allocation and opposed to a short-term tactical allocation in the sector.

In the tactical model... I have a target value (threshold) where I would begin moving out of the investment (in steps) and fold the money back into the strategic allocation (primary funds)

If I decide to make it a more long-term investment... I will still use that target value (threshold). And when I hit it, rebalance back to my original investment level and take the gain.

I suppose I could pull back my original investment and let the gains ride....
If I were in your shoes I would gather up some data as follows:
1) get monthly adjusted close prices from Yahoo history for VGENX (or whatever your investment is) and an alternative

2) Put in spreadsheet with columns: VGENX month gain, alternative month gain, VGENX 12mo gain, alternative 12mo gain, switch monthly gain. Where switch month gain is your chosen strategy.

One strategy might be to move 20% of VGENX to the alternative if VGENX 12mo gain some precentage more then the alternative gain, then hold off for X months, and test for the switch again. You could also move back to VGENX if the alternative has gained a certain percentage more then VGENX.

Compute CAGR = product of months ^ (sum months / 12) and optimize for CAGR. I think you can get data going back maybe 20 years.

This is a lot less painful then guessing with your money. Doesn't guarantee success going forward but if it failed in the past why depend on it in the future? Anyway this is somewhat how I check out my hunches.
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Old 04-03-2011, 09:01 AM   #19
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My sector fund keeps marching forward.

I am reading the "The Age of Deleveraging" by A. Gary Shilling.

He believes we are facing a decade of world-wide deleveraging and that deflation is more likely than inflation. Some interesting statistics. During wars : inflation After wars: deflation.

One of the investments he recommends is North American Energy.... just about all aspects of it. He believes petroleum and natural gas will be good bets.


He also thinks health care because... well you already know why.

Productivity enhancers... and technologies (anything) that increases productivity... increase profits in a slow growth economy.

Makes sense to me.
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Old 04-03-2011, 10:56 AM   #20
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Translation: oil names will chug along, but any company with lots of nat gas exposure will see that go from a millstone to a jewel. Exxon is looking brilliant for its recent purchase of XTO.
Here's the paradox for me: Let's assume your analysis is spot on. That's fine, but the second part is - we need to assume that "the market" hasn't already fully priced those expectations into the stock price. Heck, the market may have over-priced the expectations. So the paradox is that a seemingly good investment could become a bad investment if the market got in ahead of us.

Maybe you also feel that the market hasn't priced this in, but that does require two things to be right - the energy analysis and the stock price analysis. I tend to not be very confident that I can get both right very often (and I'm usually right about that!). Obviously, YMMV.

-ERD50
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