Around the end of 2015, I got the urge to buy individual stocks. I already maxed out my employer sponsored retirement plan and my Roth IRA, and I wanted to try to make money off a theory I had. I was religiously reading the WSJ for any and all energy/oil related content, and was noticing what lower and lower oil prices were doing to small fracking firms in Oklahoma and Texas. Prices peaked in mid 2014, then began a downward slide to February of 2016. I noted that new techniques in fracking were helping redevelop oil formations previously written off as too expensive. This increase in supply prompted a feedback loop with other international producers, namely OPEC. As increased supply drove down prices, OPEC continued to pump to keep market share instead of losing customers to the Okies. Prices further nosedived to unseen levels.
This brings me to December of 2015. A WSJ article detailed the pains experienced by the frackers in the low price environment, and the cost cutting and efficiency that were helping these guys survive. Oil prices then were somewhere in the $30-40/barrel range, I think. I figured that oil is a globally demanded product that isn't going away anytime soon, and that there has to be a rebalancing after this oversuppply.
The first company I bought was CHK, just a few shares. I didn't even look at P/E ratios or any other formal metric. I just noticed the price was a fraction of what it was in mid 2014, and that it will probably go up from here. I figured I ought to diversify amongst other companies, in case CHK went belly up or someone else figured a cheaper way to get the stuff out of the ground. I bought competitors, again not based on any formal metric, but just an eyeball test on how discounted the price was compared to a year ago. PXD, NFX, CLR, EOG, PE, WNR, NOV, NS, and APC made up my portfolio.
There were others, but these ended up being the real winners. I bought a share or two of each, as spare cash allowed, in January and February of 2016 as prices bottomed out at $27/barrel. Prices slowly rebounded as the year wore on, and so did the stock prices. At one point I was up 35%; CLR had tripled in value from when I bought it. I analayzed the tax implications of my new gains and realized I'd have to hold on for awhile to make a cash out worthwhile (I can do ltcg for 0% at my income level).
As the year wore on, and prices increased further, I got greedy and l bought companies I'd overlooked in the bottom of the market, figured there was still upside potential. Some of those have incurred losses since I've bought them. The oil market has reached some sort of equilibrium right above $50, where OPEC and the frackers are both doing OK. Further price increases will reactivate abandoned rigs in Texas, and price decreases may spur more OPEC production cuts. The opportunity is gone; I'm reigning in my buying spree.
I went to college for a science related degeee, took some Econ classes, but have no finance or business acumen. But I recognized the macroeconomic need for a good, and the absurdly low price it was fetching, and what that price was doing to the companies that produce that good, and made a good move. It wasn't much money, I only bought a share or two of each company. But it has me looking for another sector-wide downturn where buying across the sector produces gains instead of having to split hairs over balance sheets and annual reports of company A vs company B. I just don't have the patience or knowledge to perform that level of analysis.
My tentativeness now in buying more of the oil patch could be a grave mistake; world events may prompt a demand surge or output cut that gets us above of this $50 price purgatory. I'm just hesitant because it feels like less of a sure thing than it did a year ago. A market oversupply could easily last a decade, leaving prices at or below $50, stalling any further growth of my plays. I will hold for now, maybe double down on earlier buys if prices drop a little bit, but I'm resistant to buying more on the way up for fear of hitting a ceiling.
Submitted January 31, 2017 at 10:43PM by Jack_straw627 http://ift.tt/2kSNoJR
