Oil stocks

Hi Jim,

The Oil/ energy stocks are currently trending down…although, to be fair, their fall in the entire week is peanuts compared to what other tech stocks are experiencing (however, BRK B is only down 6.5% this week).

Is this simply a brief period of people taking profits and pausing… or is this more a case of the bigger institutions taking a decisive turn rotating away from these?

How do you evaluate these things?

Thanks a lot for your insight,
Charlie

The White House is contemplating restrictions on volumes of domestic refined products being exported. This could take away considerable profitable volume away from USA refiners and, in turn, crude oil companies.

https://seekingalpha.com/news/3849437-white-house-weighs-oil…

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Thanks…It is always touch to understand how these market sentiments work…Having seen my portfolio literally decimated with a 75% loss in just about a year, I was hesitant to jump on any more of the high fliers such as the energy companies, lest this also happens to be a badly timed buy (with rotation off from these to other new craze)…However, with inflation looking here to stay for a while, what would be a reasonably safe near term outlook for the energy companies ?

On one hand, Mr. Buffet bought a lot of Chevron and OXY, giving me some degree of confidence…but still, these are now already much more than what he bought for.

So, while I can understand the white house initiatives (or at least musings as nothing seems to have been decided) may cause near term downfall, would it be true to think that these stocks have a significant tailwind for the next 1 year or so?

Thanks a lot,
Charlie

Sorry, meant to ask “However, with inflation looking here to stay for a while, what would be a reasonably safe 1 year outlook for the energy companies ?”

<On one hand, Mr. Buffet bought a lot of Chevron and OXY, giving me some degree of confidence…but still, these are now already much more than what he bought for.>

You could look up Buffett’s record in buying and selling oil companies, starting with conocophillips. His timing wasn’t very good.

“ Sorry, meant to ask “However, with inflation looking here to stay for a while, what would be a reasonably safe 1 year outlook for the energy companies ?””

Most people ask the question: “what do I know ?” when picking stocks. Instead the question should be the reverse: “what I don’t know?”. Actually the question should really be: “what I don’t know that I don’t know?”

Whenever I am tempted to buy a stock, I look at people who are buying cryptos, and ask myself, how much about this investment that I don’t even know that I don’t know, and how much that I know that others don’t know.

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How do you evaluate these things?

I leave it to my investment team in Omaha.

Ever single time I have invested personally in oil and gas I have lost my shirt.
After the first couple, you’d think I’d have leared, but it took me a while.
Now that’s my rule.

No position, no opinion.

However, I do still watch things that are going on.

This little observation seems not to have attracted much attention:
Russia has completely cut off gas shipments to Poland, Bulgaria, Finland, the Netherlands and Denmark.
They’ve dropped the flow in the Nord Stream pipeline feeding northern Europe by 60% (!) in the last few days.
And Italy, Slovakia, and Austria are also seeing big reductions.
It’s looking to be a cold winter, as storage facilities are going to be empty.
Last month I replaced my gas hot water heater with an electric one.
Now I’m shopping for a heat pump, which I suspect will be hard to find later in the year.
Maybe I’ll buy two and sell the second one for a huge profit come November…

Ever heard of a guy named Thales of Miletus in the sixth century BC?
He made a fortune in derivatives.
He spotted that it was going to be a bumper olive harvest, so he bought binding options on the right to use all the local olive mills.
The key word being “all”.
I tell ya, heat pump futures.
https://www.youtube.com/watch?v=PSxihhBzCjk

Jim

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I leave it to my investment team in Omaha.

Ever single time I have invested personally in oil and gas I have lost my shirt.

I learned energy is rental and not a long-term ownership. Out of all energy, Missed the latest blast off.

Thanks so much everyone! This was easily the best question I have asked for which I found an immediate answer, that I completely can understand.

I am staying away from these…I have no idea about these, and I can clearly see that the people I respect also have the same belief…and these gives me a lot of confidence to stay away…and just keep learning.

Thanks a lot,
Charlie

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Having seen my portfolio literally decimated with a 75% loss in just about a year,

Now I know I’m a petty geek, but I just had to point out:
Technically, a literal decimation would only be a 10% drop : )

The non-literal meaning is of course well accepted and understood.
For that matter, so is the non-literal meaning of literally. I gotta get a life.

Jim

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Ha ha, thanks Jim…actually learned something new…Didn’t know the existence of this till you pointed out in a humorous way.

“Decimate: decimate originally referred to a practice in the Roman army of executing one in ten men in mutinous groups.”

Yikes, never knew the history behind that word!

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Yikes, never knew the history behind that word!

Hey, if it’s useless knowledge (and not sports related), I’m your guy.
Next week we can discuss why bleak and dreary are in effect opposites based on their original meanings.

Pro tip-- wasting time on obscure etymologies is generally more profitable (based on my experience!) than learning about oil and gas stocks.

One good approach:
Pick a business for which it’s all but unimaginable that they would be making more money per share in a few years than they are now.
(Nothing in the resource sector falls into that category for me)
Then, from among those candidates, buy the ones that are the cheapest relative to those likely future earnings.

Another viable approach:
Go ahead and invest in things that might have wildly unpredictable outcomes.
But only those opportunities, or ways of investing in the opportunity, that have a very low downside for you.
Heads I win big, tails I don’t lose much.

Jim

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I used to think working for oil companies that I’d do well in their stock. Never did. Then Buffet explained to me that they pretty much track the oil price, and if you really know where that is headed, you should just go straight to the commodity futures.

I did find that all the big oil companies with their expertise and data usually got their price projections wrong.

I finally did very well in this last crash and run up. Sold too soon, but found the bottom and loaded up at a good time. I’m mostly out of them now and not that confident BRK has a good position for the long term.

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Oil is a commodity. Prices of oil stocks usually track the price of oil.

Decisions made by individuals can impact oil prices quickly. The big one now is the war in Ukraine. Embargo of Russian oil makes for a shortage that drives up prices.

When will Russia be willing to do a ceasefire and negotiate? Will Russian oil again come to market?

I see no indication that will happen soon. Long war expected. But that’s a risk. Could happen at any time and cause oil price to fall.

Ditto if Saudi Arabia decides to pump more oil. Or deal with Iran. etc etc

And recession would usually reduce oil demand causing price to fall.

Buying oil stocks when prices are high can be a winner but the risks are real.

<When will Russia be willing to do a ceasefire and negotiate? Will Russian oil again come to market?

I see no indication that will happen soon.>

In the long-term, it is probably just a re-shuffle of the demand and supply relationships. More Russian oil will flow to the east, while more middle-east and north America oils will flow to Europe.

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