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If one believes in $75-$85 crude over the next couple of years, then current prices reflect a no brainer. If on the other hand $35-$45 or lower crude is the reality for the next few years, then perhaps not. I'm maintaining my current 10%-11% weighting, but the 'no brainer' aspect is not nearly as clear to me. The recovery in the stocks could extend years into the future. Many like COP and CVX could have to cut their dividends. There is just no telling how long this will take to play out. According to one article I read, it has only been 17 years since crude was selling at $12 per barrel. The authors says, "and while full-cycle costs have been estimated at ~$40/boe, the marginal cost of bringing one barrel of oil equivalent to the surface is less than $14 today." There is still a lot of cheap production on line, and with the world economy in contraction or perhaps even in collapse, these low prices could persist for some time.
IMO we will soon see widespread business failure in the higher levered higher production cost companies. These failures will affect the backers and could cause destabilization in the banking industry. At the same time China is unraveling in a bad way, Europe is teetering, and the U.S. is stalling as well. I can't predict whether equities tumble 10% or 40% or more, but am flush with cash because I think that momentum is building to the downside with energy continuing to least the way at least through mid to late fall.
Alex
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Just bought a little more BRK-B.
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65 shares of CVX, just a tad below $78
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08-21-2015, 05:11 PM
(This post was last modified: 08-21-2015, 05:16 PM by jim.)
(08-20-2015, 08:10 PM)hendi_alex Wrote: If one believes in $75-$85 crude over the next couple of years, then current prices reflect a no brainer. If on the other hand $35-$45 or lower crude is the reality for the next few years, then perhaps not. I'm maintaining my current 10%-11% weighting, but the 'no brainer' aspect is not nearly as clear to me. The recovery in the stocks could extend years into the future. Many like COP and CVX could have to cut their dividends. There is just no telling how long this will take to play out. According to one article I read, it has only been 17 years since crude was selling at $12 per barrel. The authors says, "and while full-cycle costs have been estimated at ~$40/boe, the marginal cost of bringing one barrel of oil equivalent to the surface is less than $14 today." There is still a lot of cheap production on line, and with the world economy in contraction or perhaps even in collapse, these low prices could persist for some time.
IMO we will soon see widespread business failure in the higher levered higher production cost companies. These failures will affect the backers and could cause destabilization in the banking industry. At the same time China is unraveling in a bad way, Europe is teetering, and the U.S. is stalling as well. I can't predict whether equities tumble 10% or 40% or more, but am flush with cash because I think that momentum is building to the downside with energy continuing to least the way at least through mid to late fall.
It is a no brainer to pick XOM given its balance sheet vs that of its peers.
I think the current price range 35-45 is too low to sustain current level of production and many tight oil producers will not survive (thus the overproduction we've seen in the US). The price chart of CJES, specializing in fracking and completion, says something about the current state of its shale customers (E&P majors have little or nothing to do with shale oil, they rather drill in the arctic 
Maybe a 10-20 correction in the stock markets will put and end to this oil crash.
Bought a bunch of RDSB.
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Headed out to get some advil then figure out where to put some funds.
WOW, what a day.
Jimbo
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Yep. This week showed some the difference between cliche and fact. So many income investors like to brag, [I only care about the income stream, fluctuations in the NAV don't matter.] It is my guess that many espouse such but based upon weak resolve, and they end up being the retailers who when they finally do capitulate, lose the most. They also stay out the longest, therefore don't recover their losses.
A person needs to know his/her real tolerance for loss of principal and have a plan in place. We all expect our portfolio value to gradually increase. I can't believe that many at all would be willing to watch a million dollars turn into $400,000 without taking some kind of action. That kind of dramatic drop is possible, especially from current lofty levels, and the plan really needs to be in place, so that defensive actions are not directed by emotion and panic. The market is probably not in a bubble, but IMO it is bubble like, fueled by prolonged fed rates which have exaggerated corporate earnings. Also most corporate earnings have been fueled by cost cutting rather than through business expansion. How will profits get boosted during the next part of the cycle? This is looking more and more like the stage is being set for a 1-2 punch similar to that following 1929.
Most here are very diversified. That is good. Many here are just starting out, that is good, as lots of cost averaging can take place after a major drop. Many who have more mature accounts, don't seem to really be prepared for the dramatic drop in principal which is possible, IMO is very likely. Cliques won't work! It is getting late to develop a realistic plan for when and if the portfolio value moves into free fall.
Alex
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08-22-2015, 12:44 PM
(This post was last modified: 08-22-2015, 12:47 PM by rayray.)
(08-22-2015, 06:53 AM)hendi_alex Wrote: Yep. This week showed some the difference between cliche and fact. So many income investors like to brag, [I only care about the income stream, fluctuations in the NAV don't matter.] It is my guess that many espouse such but based upon weak resolve, and they end up being the retailers who when they finally do capitulate, lose the most. They also stay out the longest, therefore don't recover their losses.
A person needs to know his/her real tolerance for loss of principal and have a plan in place. We all expect our portfolio value to gradually increase. I can't believe that many at all would be willing to watch a million dollars turn into $400,000 without taking some kind of action. That kind of dramatic drop is possible, especially from current lofty levels, and the plan really needs to be in place, so that defensive actions are not directed by emotion and panic. The market is probably not in a bubble, but IMO it is bubble like, fueled by prolonged fed rates which have exaggerated corporate earnings. Also most corporate earnings have been fueled by cost cutting rather than through business expansion. How will profits get boosted during the next part of the cycle? This is looking more and more like the stage is being set for a 1-2 punch similar to that following 1929.
Most here are very diversified. That is good. Many here are just starting out, that is good, as lots of cost averaging can take place after a major drop. Many who have more mature accounts, don't seem to really be prepared for the dramatic drop in principal which is possible, IMO is very likely. Cliques won't work! It is getting late to develop a realistic plan for when and if the portfolio value moves into free fall.
I never sold a dime during the 2008/09 financial crisis and faired better then not some but all of my friends and family that moved their investments around. Of course, they all moved their investments after the drop, which is too late. Since I plan on being in the market for, well, forever, a market correction doesn't mean anything to me. As I get older I contemplate on holding a larger position in cash but I think about these major corrections or bubbles in my investment years. The Dot Com Bubble, the 2008/09 financial/real estate fiasco, and and and, well that will be determined. Maybe Bonds? When I think about these events before my investment days I can think of Black Monday and the Great Depression, oh yea, and the gas crunch of the 70's. No correction or bubble ever seems to be the same and I highly doubt we'll see a "1929" again--it's too regulated. I have no clue when or what type of correction will happen; however, to me a market correction is actually a very healthy event for those that don't plan on selling funds in order to live. It's even better for those that are still putting money to work in the market, and it's even better yet for those who sit on large piles of cash to invest after these corrections take place. I'm not lucky enough to fall in the latter group. Well, I suppose I can allocate about 20 percent of my portfolio for such occasions but I would rather invest in values of today then wait for that correction to happen and deploy that 20 percent tomorrow. I can never time the bottom and I can never time the top. I'm so unlucky in that regard so I guess that's why my favorite quote is...
"It's a market of stocks not a stock market."
I'm buying quality stocks not the stock market and my holding period is forever.
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08-22-2015, 01:38 PM
(This post was last modified: 08-23-2015, 08:47 AM by hendi_alex.)
I was fully invested going into 2008-2009. Did some quality upgrading but was 100% in equities the whole time. It turned out just fine, but sure wish that I had a big allocation of cash to have feathered in during early 2009. I'm positioned for that this time round.
Alex
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Same here. I've build 10% of my equity portfolio into cash, I'm aiming for 20 by Xmas. We'll see if Tax-loss selling creates some deep discounts.
Ronn
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If XOM was a 'no brainer' last week, then it will reallllly be a no brainer today!
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(08-24-2015, 06:59 AM)hendi_alex Wrote: If XOM was a 'no brainer' last week, then it will reallllly be a no brainer today!
Sure look like that to me
Will be adding more XOM, CVX and RDS this week, probably today (this will be 2nd out of 4 planned purchases).
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