Scott and Steve,
Steve's simplified classification of
1) Its not over, short it.
2) Its almost over, buy it.
is an accurate assessment of the general thinking between the two camps. Don't know how long have you been following the SD thread and this thread but let's me first explain where I came from before answering your FGII question.
My general investment philosophy is, to be successful one needs to have OGSM (just like they teach and use it in corporate America):
Objective - this one is obvious - building wealth
Goal - this has a time element, like in 1998 my goal is X% gain.
Strategy - this is why we are all here. One size does not fit all.
Measure - how one measures success - easy - profits over losses.
After trying out many different strategies and gained many years of experience, I have settled into a pretty comfortable zone where I can manage reward and risk pretty well. When I started in the SD thread in early 1997, I was more of a TA guy and was able to demonstrate how TA can help one improve on the odds. Then as I learned more about the oil business, I understood the relationship between oil price and OS company stock price. This one was not obvious at the beginning but I did notice the trend emerged after last Nov's selloff. I think it took the SD thread about 3 months to recognize this. Anyway, there are time for TA and there are time for just oil price and there are time for lousy fundamentals (right now).
Anyway, to make the long story short, my current strategy is to trade actively and milk the volatility until something tells me that this behavior is no longer practical for the OS companies. Although I have gone short three in a roll, I had managed to make gains by going long as well while OSX was dropping. Therefore, I am more of an opportunist who just take dvantage of the short term trading trend which I can spot reasonably well. I seldom choose a buy and hold style now (although this is useful if one is certain the trend is sustainable over a long period like in last summer) after learning many difficult lessons in my early life. In my view buy and hold as practiced by most people is a highly speculative investment style that is totally based on hope and not skill.
Now regarding FGII. Is its business declining? We have no way of knowing. The best way to probe is to ask if their rate of backlog increase has slowed enough to signal a reversal. Well, that is Big Dog's job. He knows much more about fundamental things like this than someone who doesn't even work in the business. However, I'm in touch with the investment sentiment regarding the OS sector. The current sentiment is very bad and FGII happens to have a relatively high PE still (just like DO and RIG). One can argue to death that they are in deepwater and in the fab industry and all that good stuffs but it DOESN'T MATTER. People are just selling at big losses now because of fear. No real buyers. Now, those who think they are really smart will say this is the opportunity to buy and load up the truck. This rationale is fine except they have not considered the time and pain factor. How much time does one have to wait and how much pain does one have to endure before this thing finally reaches the bottom? No one knows. One thing for sure the trend will not reverse overnight and shoot to the moon just like that. A pretty extensive base-building is required. Even a war with Iraq will only help temporarily. I have to agree with Big Dog - "it is oil price, stupid" (not meant to insult anybody here). My assessment is the earliest possible date is in 1999 and not 1998. Therefore, I see a lot of volatility and the general trend still pointing down. Thus, I shorted FGII, covered, and will probably reshort it upon some rebound.
Net, if you can tolerate a lot of pain and don't mind losing potentially 50% first before gaining 100% in one year or maybe two, FGII will be a good long here. However, if you think you are subject to big emotional swing when you see your capital get a good haircut then I suggest you wait a little to see if the dust can settle a little before stepping in. Greed and Fear are investor's worst enemies. It is OK to be more conservative and play safer and profit lesser. In long run, many smaller profits far outweight one or two giant killing.
Good luck and sorry for the long reply. I am a little bored on Friday evening. |
