["I still like Matt Simmons article from '98 (still on his website under "oldies") about the relative merit of drillers/OSX over E&Ps."]
1998 ehh ?
....he's been pounding the same drum thru quite a few boom to bust cycles now hasn't he - ie: your comments of:
["I have been maddened by the volatility in this sector. The '98 crash, followed by the meteoric rise in '00 and then the crash in June '01, followed by 9/11 and then the scandal ridden summer of '02 was quite a bit to digest. In investing I don't like to plan for worst case - its like sticking your head in the sand. To survive that unscathed, one had to be sitting in one's castle with the moat full of alligators and the drawbridge up."]
...to survive unscathed...you merely need to realize that Oilpatch Stocks are cyclical, were cyclical and will always be cyclical.
Just wait paitiently for the Triple Witching Top of valuation multiples, commodity price & sentiment peaks and Take the Money & Run, don't just walk Away into strength - not worrying about missing the final 10-20% potential run up...and if you are so inclined... make money in the opposite direction as well... going SHORT.
One thing that amazes me in EVERY single Oil and Gas cycle...is that those who are bullish will acknowledge that "things are getting pricey", but over-ride that with the arguement that the fundamentals are all still great and that all the analysts are still pounding the table that the Sector is going still higher and are showing price targets for the OSX and individual stocks 20%ish higher etc.
GREED by any other name - is still greed.
While GREED may be "good" in some contexts; it ALWAYS get's PUNISHED in Cyclicals.
Every single prior OSX cycle has always ended by Big Money selling into still strongly positive & often still ramping Sector fundamentals (earnings, dayrates, commodity prices etc) as well as still strongly Bullish Sector Sentiment.
YOU MUST EXIT INTO STRENGTH - NOT WEAKNESS
- and must anticipate and not react to Big Money's Exit - because:
* THEY ALWAYS SELL AND EXIT INTO STRENGTH - NOT WEAKNESS *
Amazingly (well not really, as it's a highly predictable & tradeable human behavior...ie: popular delusions & the madness of crowds) after seeing individual stocks double, triple, quadruple etc... greed sets in and chasing that last potential 15-20-30%% remaining upside ALWAYS results into riding the sector off the cyclical top cliff...usually buying that dip; because the fundamentals of earnings, dayrates, commodity prices are still positive (whodathunkit?) and they get hit with yet another downdraft...and now face the sad reality of cyclicals - of how fast they rollover and how easy it is to give much, if not all of the profits back.
For 95% of Oilpatch Investors... targeting the "BIG & EASY MONEY - MOVE" is all they should ever stay around for and with Bad MACRO that always trumps good MICRO looming on the Horizon...that time may have just passed, or will soon; depending on the sector.
Concerning E&P's vs. OSX Driller/Service stocks:
E&P's obviously have ramping costs here...Rig Dayrates just one of many costs that are rising rapidly.
E&P COSTS are ramping for everything - G&A/Drilling Dayrates and the very thesis of the overall Bullish Arguement of Peak Oil and especially for Natural Gas... is that more and more drilling (EXPENSE) is failing to increase production (INCOME and reserve replacement/reserve life).
That is all occuring against a backdrop of historically high valuation metrics & cfps multiples.
E&P Permabulls can't have it both ways...(at least not for long).
At some point falling production - reserve life/reserve replacment + ramping costs will result in cyclical gravity taking effect....and historically high valuation multiples will revert to the mean.
- that means falling shareprices.
Short 'em after every rally....don't get greedy; take what the market gives you (10-15%), cover and then patiently wait for the next breakout rally and/or that waterfall cyclical rollover ride to the downside that is ultimately coming to the the dark side, the right side, the cyclical side.
PS: ...not getting too political; but in the spirit of admiting when one is wrong... in addition to the following Bumper Stickers:
* PEAK OIL IS - OUT OF GAS *
* MATT WHO ? *
...It appears since we can't quit expanding Government and spending money (does "W" know what a Veto is ?) and are letting the twin deficits run wild and are now trying to "off load" Social Security onto the Working Poor & Middle Classes; in an effort to Finance Wall Streets EXIT with Social Security Money's ENTRANCE - I may have to add the following Bumper Sticker to my offerings:
* Okay, Blame me - I voted for Bush *
newflash: new member of the pOILitics team & potential 2008 GOP Prez Candidate exposed:
lankamatha.com |
