energy investments

[windsurf]

About a month ago, I put 25k into the Vanguard energy fund and it has jumped up about 3k as of now. I am almost tempted to cash this out in spite of the 1% ass-bite for checking out inside of a year. On the other hand, maybe I should be pumping more cash in? What say the forum??

 

[kz]

Three years ago I made an investment into an energy fund that was rated a 1 on a scale of 1-5. For the last two yrs it is rated a 5 and I'm up considerably on that investment.
Personally I'm not adding to that fund presently and have taken a very small percentage off the table. I'm concentrating on health care and international funds currently.
Good luck on your decision.

 

[Spanky]

It's not wise to pump more $ into a hot sector.

 

[HFWR]

Only if they raise their dividends; I wouldn't play the sector just for the capital gains, at least at these levels.

 

[wildcat]

Don't chase hot money. The Katrina bubble reminds of the tech bubble. People buying energy stocks/funds regardless of fundamentals.

 

[JPatrick]

I'd say the easy money in energy has been made, at least for awhile.  I have a high % of my portfolio in energy as well.  I wouldn't consider bailing out, but I'm very watchful these days with the thought of cutting about 1/2.
I'm thinking next week may mark the high (for 2005) in many prices such as gas, NG, and crude.
OTOH, we still have more hurricane season to go.
Bottom line

 

[JPatrick]

I'd say the easy money in energy has been made, at least for awhile.  I have a high % of my portfolio in energy as well.  I wouldn't consider bailing out, but I'm very watchful these days with the thought of cutting about 1/2.
I'm thinking next week may mark the high (for 2005) in many prices such as gas, NG, and crude.
OTOH, we still have more hurricane season to go.
Bottom line

We are waking up (Sep 6) to oil prices that actually weakened over the weekend perhaps due to the fact that other nations along with the US are releasing reserves into the open market.  Regarding gas prices, this weekend saw many Americans yelling foul, finally.  You think an angry mob of consumers can't affect prices??  As stated above, I think we may have seen price highs for awhile.
The first hour of trade today should be pretty revealing about how the energy sector will do for the immediate future.  Oil may come down and that may bring energy stocks down albeit for no really good reason considering most energy stocks are priced to excel anywhere above $45 a barrel. OTOH oil may come down while energy stocks rise thanks to a better outlook for the NOLA situation.  In any case, the first hour may give the needed clue regarding buy, sell or hold.  When the dust settles energy stocks ought to be great holdings for years to come.
Regarding the overall market, I'd been hopeful that a well defined buy signal would emerge, but now I don't think so.  Short term action depends on oil, how fast the recovery of oil assets in NOLA, what the FED will do Sept 20, and what kind of picture emerges for the Holiday Season.  Minus oil issues, The NOLA issue will now become- - how to make money on reconstruction.
Soooo, I'm starting to scale in the cash I've been holding for several weeks.  Hope you all will join me so we can produce a nice rally

 

[vinhmen]

Color me contrarian - I hesitated to buy into Energy at the beginning of this year because "you don't chase hot sectors".  Well, glad I overcame those doubts, as returns have been 50+% YTD. 

I also hesitated to buy into REITs for the same reason, and ultimately did not.  Now I'm kicking myself for that decision.

The lesson?  As in sports, sometimes you gotta ride the hot hand while it lasts.  How many decided not to chase Tech sector in 1995, when Greenspan declared irrational exuberance?  True it did eventually crash and burn, but some on this board made their way to FIRE by continuing to ride the wave and getting off at the right time.  Sure the timing is tricky,  but - with a little luck - it can be very rewarding.

 

[wildcat]

but some on this board made their way to FIRE by continuing to ride the wave and getting off at the right time. Sure the timing is tricky, but - with a little luck - it can be very rewarding.

That is fine. I respect your stance but it seems those few that do make it riding the wave just provide others with the hope that they can do it as well. Most fail but those stories plant the seeds.

 

[Nords]

The lesson? As in sports, sometimes you gotta ride the hot hand while it lasts.

How many decided not to chase Tech sector in 1995, when Greenspan declared irrational exuberance? True it did eventually crash and burn, but some on this board made their way to FIRE by continuing to ride the wave and getting off at the right time. Sure the timing is tricky, but - with a little luck - it can be very rewarding.

Whoa, Vin.

First, let's look at the hot hand analogy. This paper expands on Gilovich's original claim ("There's no such thing as a hot hand") and postulates that the hot-hand phenomenon works on the court because the other players believe in it.

"Is the hot hand a fallacy or adaptive thinking? In a sense it can viewed as both, it depends on what question one thinks is the most relevant one to ask.
Why the hot hand wins is quite clear. The hot hand rule has no effect on the percentage of shots hit by a player and does not introduce any dependencies between successive shots by the same player, instead it leads to the player with the higher shooting percentage being given more shots. In effect, the hot hand increases the allocation parameter for the player with the higher shooting percentage."

In other words the heuristic works as long as people believe in it. So instead of basking in the warm glow of the "hot hand", in a theater of Greater Fools loudly proclaiming their faith I'd be edging toward the exit with a tight sell stop. Momentum investing can work but it's awful hard to sell when no one wants to buy. Timing is even more critical than you make it seem and most don't jump in soon enough or eke out the rise. When it comes to a retirement portfolio I don't want to have to count on "luck".

Second, I don't believe that very many people on this board made their way to FIRE by riding the wave and then adroitly stepping off. One poster regularly cashed in his company stock as soon as he could and for several years was routinely regarded by his coworkers as an idiot. Note that he didn't ride the wave, though-- he diversified. We're all dirty market timers to some extent but the vast majority of our holdings are long-term and not subject to momentum investing.

I think most of us got to FIRE by LBYM, DCA, & asset-allocation diversification. I think less than a handful of us did it by being brilliant momentum investors, although Gary Smith is one shining example. In his case he worked his @$$ off to acquire his assets and I think he earned every penny, perhaps at an hourly rate below the minimum wage. But maybe the aggregate response of the other posters will tell us more about their FIRE approach.

I'm not saying that momentum investing doesn't work. I'm saying that it doesn't work for the vast majority of those of us who got to ER. The grass just isn't that green.

 

[Spanky]

I also hesitated to buy into REITs for the same reason, and ultimately did not. Now I'm kicking myself for that decision.

Based on the following valuation, it may time to get out of REIT and get into emerging market despite its recent runup.

P/E Earning Growth Rate
REIT Index 38.7 -4.7
Emerging Mkts Stock Index 10.7 21.2

 

[wildcat]

Aside from that REIT dividend yields are very low compared to historical norms & that is much of your return. Before REIT mania started the sector used to trade at yields of 8-9%+. Do REITs deserve the premium or has something changed to warrant the valuation? Not buying it.

 

[vinhmen]

I'm not saying that momentum investing doesn't work.  I'm saying that it doesn't work for the vast majority of those of us who got to ER.  The grass just isn't that green.

Absolutely agree.  Anyone placing all of their retirement $ into a single targeted sector or fund is bound to be succesful beyond their dreams, or (more likely) wiped out before their objectives are met.  But to reflexively dismiss the power of momentum in today's market - as a portion of one's overall allocation strategy - is also an error methinks. 

The housing market is a perfect example.  It seems a week doesn't pass without another post about the inevitable bursting of the housing bubble.  I think most on this board, including myself, saw the bubble coming years ago, and yet it rolls on.  But as a result, we would have either sold or avoided purchase altogether and missed out on further gains.  My brother purchased a house in Southern California in late 2003, against my warnings of a bubble environment.  As you can guess it has since appreciated over 100%, and boy is he glad he didn't listen to me.  BTW, he is now planning on selling and moving to a cheaper locale.

Does that mean I advocate buying SoCal real estate today?  No I don't, but who's to say the person closing on a home tomorrow in Anaheim doesn't have the opportunity to sell it a nice profit in 2008, as we all continue to wait for the inevitable crash?

Is rebalancing not market timing?  Let's just say I advocate longer-term rebalancing for certain sectors.  Didn't someone famous once say the market can stay irrational longer than one can stay liquid ... or something like that 

 

[Spanky]

My brother purchased a house in Southern California in late 2003, against my warnings of a bubble environment. As you can guess it has since appreciated over 100%, and boy is he glad he didn't listen to me. BTW, he is now planning on selling and moving to a cheaper locale.

The housing market in the San Francisco Bay Area is also crazy. I visited my sister in Alameda recently. A 1,000 ft house built in 1930 is selling for $800K. What are they thinking? Can they really afford it? Are they anticipating (or hoping) to sell for more? I guess there is always a bigger fool!

 

[Spanky]

..Does that mean I advocate buying SoCal real estate today? No I don't, but who's to say the person closing on a home tomorrow in Anaheim doesn't have the opportunity to sell it a nice profit in 2008, as we all continue to wait for the inevitable crash?

I would not buy one at today's price. Whoever makes a purchase today would have my sympathy. It might be okay to buy a house in Riverside county since that is the trend that people are considering moving from Orange county to Riverside county.

 

[Jarhead*]

The housing market in the San Francisco Bay Area is also crazy.  I visited my sister in Alameda recently. A 1,000 ft house built in 1930 is selling for $800K.  What are they thinking? Can they really afford it? Are they anticipating (or hoping) to sell for more? I guess there is always a bigger fool!

Spanky: Congratulations. You've just boosted the morale of the significant amount of posters on this board that live in low appreciation areas.

As for paying $800,000.00 for the above home, I think it's more about holding your nose after running through options.

#1 You can buy property for less than half that amount if you are willing to move 100 miles inland, and face a 7 hour daily round-trip commute.
#2 You can rent, (If you are lucky enough to find anything), and you may be able to find something available in a horrible neighborhood for $4000.00 a month. (Maybe).
#3 You can throw in the towel, and figure your job isn't that important to you, and get out of Dodge.

I went through that with both my daughters, and it's no fun.

Anyway, you posters that live in fly-over states, feel better now?

Jarhead

 

[LovesLife]

Never felt anything but

 

[peteyperson]

I don't think it is a matter of whether the sector is hot or not.

One either has a balance of asset classes and dollar-cost-averages into them all over time, or one learns how to evaluate each individual asset class in order to determine what is cheap vs what is expensive within a cycle. In the case of oil, one either accepts that worldwide peak oil is upon us & that most of the easy-to-drill oil has been obtained already or one does not. If one acknowledges increasing world demand, decreasing world supply, coupled with added costs to get at the remaining more expensive supply, then it stands to reason that oil will be more expensive than in the recent history. Whether $60 oil is substainable depends on fundamentals, alternatives and so on.

It is certainly not a simple question to answer.

Petey

Color me contrarian - I hesitated to buy into Energy at the beginning of this year because "you don't chase hot sectors".  Well, glad I overcame those doubts, as returns have been 50+% YTD. 

I also hesitated to buy into REITs for the same reason, and ultimately did not.  Now I'm kicking myself for that decision.

The lesson?  As in sports, sometimes you gotta ride the hot hand while it lasts.  How many decided not to chase Tech sector in 1995, when Greenspan declared irrational exuberance?  True it did eventually crash and burn, but some on this board made their way to FIRE by continuing to ride the wave and getting off at the right time.  Sure the timing is tricky,  but - with a little luck - it can be very rewarding.