Like a lot of people on WSO, I am a young budding investor. I am fortunate to have some money to spend in the markets and am looking for long term stock picks. I read a lot about contrarian investors who all like to buy out of favor companies. Basically, I am wondering if right now is a good time to put some money in oil related companies because many oil related stock prices have dipped significantly. Is now a time to be greedy when others are fearful or are oil related companies to be avoided?
Any thoughtful insight is appreciated!
lol you are about 2-3months too late.
Lexington is right. At my energy fund we began buying up smid and large oil and gas in Jan and Feb. Some haven't moved at all since as they're still needing to complete some asset and operational restructuring but a lot of companies have already moved significantly off of lows and will probably sit where they are at for an extended period of time IMO
whos in on halliburton
Other than the fact that oil appears to be bouncing off of its low point on a chart, what is your logic? In order for companies to grow profits, the price of oil has to rise. Why do you think the price of oil with rise? What is the time horizon for your investment? Given the fact that growth has slowed in Asia (and much of the rest of the world), do you see the demand for oil increasing in the near future? The supply of oil is proving to be much less elastic than one might think right off the bat. How do you account for that?
My advice is to do some research on why the oil market is the way it is right now (which can be hard to do because there is so much information out there). If you have a better understanding of the underlying commodity, you will have a better understanding of how companies do business. I'm not saying not to go long, just make sure you can defend your theory with more than just a price chart.
What's to say the price can't collapse even further? What's to say the price will move at all for the next 2 years.
Without doing any research, you are basically blindly guessing. Just because something has fallen a lot or risen a lot doesn't mean it's a good long or good short, respectively.
http://www.project-syndicate.org/commentary/oil-prices-ceiling-and-floo…
Great read, makes you think twice. That being said, you might want to look at drill ETFs
Good read.
if you had just looked at the just the retail flow before you posted... you wouldve seen that more than $3billion in retail money bought oil with the same assumptions you have...
the spec long position (probably cleaned a bit since Friday) is the highest in 2014... there are quite a few structurally long biased guys out there that would always find $40 oil "cheap" regardless what the technical supply factors are (the real money accts)... and then of course there's you... the "retail money".
for the sake of disclosure, my book has been short a decent chunk of the spot futures since Thurs of last week..
but i think i may be bit too early... but the reason why i jumped in despite the chance that we may see a continued draw in inventory.. is because I think the USD will continue to get bid up at current level and i think the last $5 in crude really came off of unwinding of few crowded trades related the the long USD related trades.
so now counting USD strength as a cushion for my short position, you have to realize that production hasnt decline at all despite the sharp fall in rig count... The sauds and the iraqis will continue to increase production... both combined have increased production by about 1mm/bd and we will likely see antoher 1mm rise from the Saudis alone by either late 2015 or early 2016. If you think Sauds are satisfied with Brent back at $65+ after driving the price down for a few months, you are mistaken. I think Sauds are determined to not be left with a bag shit, like coal producers were (when the world finally moved away from coal as a source of energy), I think they would rather deplete their reserves at $40-$50 given that the supply equation has changed... the prior paradigm was broken as soon as we realized that there were a lot more oil than "peak oil" have suggested for the last 20yrs or so..
you may also see another 1.5mm of supply come back to the market by mid 2016 if Iran gets a decent deal... Libya can come back online the in 2016. the world is simply awashed with oil.
prior to the dollar strength, i was looking to short in August when the refiners go into maintenance and the summer gasoline demand eases and we start to see a build again rather than a draw... and if production keeps at the same pace domestically here in the U.S., I think its pretty much a guarantee that we might actually see a build in supply.
but the issue was that when i talked to every decent oil analysts on the street... they all suggested waiting until august to pull the trigger on the short side... so i knew the timing was a suspect given the consensus on timing of the trade... and of course the market once again found a way for guys like me to jump on the trade earlier than we would have liked by having the USD move back up quicker/earlier than we had hoped..
anyhow... the lesson is... there are plenty of smart money guys who have been playing this from both sides. You had credit guys and PE guys making rounds in Houston, Bakken/Eagleford states long before you realized oil was an interesting play on the long side. And by the time you thought it was a long, you had guys getting ready to short it once more...
i would not even consider myself a smart money at all when it comes to commodities... in fact, im merely a tourist... but even a guy like me can make money at the margins simply because of the $3billion retail money that piled into the trade... and i would lump you in that pile of free money...
now i hope you take this as a lesson... i hope this invigorates your desire to further dive into trading and become a better trader... few years back..when i was back in college... a billionaire HF guy gave me an asswhooping and made me feel real stupid for suggesting something as a buy based on some quick market observations... he made me feel very small and even made doubt whether i had the necessary skills/mind to make money in the market... as brutal as his criticism was... it also changed the way i approached trading... i realized broad generalizations, astute they might be, is as good as flipping a coin once you start playing with guys running $500mm book...
PM me if you want to chat more. again, i know my post came off bit condescending... but that was part of my intent to drive home the points i made in the latter half of this post.
Qui quia voluptate odit. Ea quo ea nihil pariatur ut voluptas.
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