''Street Survival Tatics'' and Guerrilla Warfare in the Patch...
...''This idiotic mantra about buy and hold for the long term that the establishment has pounded into our heads and that the general public holds dear is going to collapse...''
Hmmm; To hold or not to hold ? To buy or not to buy ? Buy puts or sell puts ? Average down or sell out ? ...all valid questions and all valid options.
The thing we are forgetting here is that each individual investor has a different set of goals, different timeframes, and varying degrees of pain tolerance and patience. The answer is that there is no perfect solution. One man sees opportunity over the long term and another sees losses than he can never envison recovering from. One man sees his retirement funds dwindling, another sees the opportunity to cut 5 years off his working life... The key here is having a gameplan that is both financially sound and emotionally liveable. Personally, I have a longterm perspective. I firmly believe that when the dust settles, we will see some companies emerge that will dramatically outpace the market over the next 3-5 years to a degree that this 20-40% sell off in the oil driller and service sector when factored over a 2-3-5 year investment cycle will still dramatically outperform the S&P.
I no longer fault anyone for selling, going to cash or even going short. Selling puts, for the premium - to offset prior losses; with the downside being able to buy stocks below todays current prices, may be the most conservative near term strategy for someone who is bullish longterm but wants to hedge short term without trying to perfectly time the market. This is a very viable strategy with some nice 15-20% returns via retained premium available. Obviously it is a strategy for someone who wants to own these stocks and this sector longterm, but it is a great hedge.
The day after reading a post by Paulo, was the day I also drew the line... I decided to take the advice of a column that appeared in theStreet.Com, on what to do in the face of a selloff when you are still bullish... The premise was to reanalyze your portfolio, strongly reviewing the fundamentals and reducing it to a ''short list'' of your core holds. Sell off all laggards and only average down into these core holds. For me, it meant first - selling all land drillers, as they were hit first and hardest and I believe they will also be the last to turn upward when we rebound, they also still presented the worst downside in a ''worst case crude oil price scenario''. Then small caps were the next to go - least liquid, more volatile to institutional moves and would not be the breakout leaders on a rebound, also having a smaller financial base to ride out a storm. Next went the higher debt, higher cost companies. A simple fundamental precept here, those with the lowest cost of doing business basis, have an obvious advantage. Lean & mean is the ticket in todays patch... Last, is prioritizing subsectors. Deepwater being the obvious choice. Then deciding between drillers, equipment and service companies. Reviewing fundamentals like Profit margins, ROA, ROE, debt ratios, EPS growth near and long term, PE's - PEG's & GPE's... For me it meant RIG as my primary driller holding, with watch list buys on CDG as the potential breakout leader when things turn and PDE as the ''pure value'' play. I also will average down into EVI as a core hold and I kept 2 niche stocks that have actually shown me a profit year to date - OMNI & HLX. I will average down on these as well, on any 15-20% dips, not 5-10% swings - as I believe we are in a basing mode here, establishing a bottom and we will see lots of 5-7-10% swings over a few trading days. I am disciplining myself to buying only off major 15-20% moves, setting specific, pre-determinded price targets and letting the stocks come to me. As I mentioned earlier; I now have 50% of my Oil funds into small & mid-cap E&P stocks. These stocks are in many cases at 5 and even 10 year lows and are below pure asset value. In my research there, I personally feel more comfortable with a bottom beginning to base here at these levels. Individual stock picking is the key here. For reasons I mentioned earlier, I liked PDE and especially DRQ here. DRQ at todays prices is my number 1 choice. No debt, deepwater oriented in their products, recent expansion in capacity, a backlog similar to HLX or FGII and setting record earnings and revenues. One has to acknowledge Big Dog's comments on the GOM Jackup market and heed DO's warning here as well. IMHO, the equipment and service stocks selectively may be a safer harbor currently. I am in a position in that I was able to access additional funds in which I was able to exceed my investment in the driller and service stocks - in the E&P area which I believe will outperform the driller and service stocks and selectively have less downside overall. I also, because of tax considerations am looking to establish positions in new companies on any near term major sell offs, avoiding any wash sale conflicts. Tax considerations may have a silver lining here as well - depending on the individual.
As far as being in cash, hey it's an individual sport here folks - not a teamsport at all... One man's trash is anothers treasure. The weakness in the overall market and the recent talk of finding value via sector rotation will be our salvation. Timing is everything and I believe we just may get real lucky; and it's allways better to be lucky than good... We just might be seeing a major market correction at about the exact same time crude bases over $15. If dayrates firm in the gulf off of this news, and with coming off the strong earnings performances we just had, with the current PE's and facing targets of dramatically lowered analyst earnings estimates going forward; the Patch will be a prime destination of investors bailing from the S&P stocks. With the strong cash that is still pouring into the market, the dynamics of the baby boomers - who are NOT going to sit in cash, CD's or Bonds; we will be near the top of a ''short list'' of the undervalued and the analysts are starting to bang this drum all ready.
On crude prices; Oil ''AX'' Fidel Gheit says we have bottomed and that $15 oil will be sufficient for the sector to return to business as usual. Gheit is one of the premiere Oil analysts and his premise of us not needing $18 crude for the oil sector to fly, bodes well for a near term upturn. With the DOE and API having conflicting - ''it's up - no it's down'' supply number reports and the recent US Government move of buying a substantial amount of crude oil tells us that not only is there a degree of ''interpretation'' of how severe the glut actually is, but more importantly that both OPEC, the US Government and the World have stood up and taken notice of how important stable crude prices are... OPEC is not too far from being brought to it's knees in an ''ultimate fighting-style'' tap out & surrender... We have a history here that dictates that strange things may happen in the middle east due to the ramifications of falling crude. It is in everyone's best interest to maintain stability. Anyone notice the degree to which we are trying to ''make-over'' IRAN - how about the news clip on the former American hostage and his Iranian captor shaking hands on todays news ??? In my opinion - we will not see $8 oil, but if we ever would... we would also see $30 oil.
Anyway, lots of positives for the longterm oriented, Fidel Gheit's calling of the bottom and the numerous analysts who are NOT oil sector guys, that have been mentioning Oil driller and service stocks in their ''mixed bag'' of overall market picks is promising. These non-patch guys touting the oil sector is a fresh change. We just need a major market correction to stimulate sector rotation at about the same time crude stabilizes over $15... Good Luck to all; no simple answers or perfect solutions here folks. But remember - you can't win, if you're not in the game when it does turn !
PS; for Diamond and any other gloom & doomers who brush aside the power and fundamental track record of historic success of a buy and hold philosophy; do your damn homework ! Have you went back and looked at some of the Driller, service, equipment and/or E&P stocks charts over a 3-4-10 year term, let alone some of the blue chips ? Guys there were so many 20-40% correction periods that were overcome that went on to outperform the overall market that historically this is just another bump (all though a bigun') on the long road...
Here is a 10 year chart on Tidewater Marine.
quote.yahoo.com
Look at the 50% correction in late 1990 when TDW got cut in half, dropping from $20 to $10; only to turn on a dime and double to $20 and then begin a dramatic run from $4 to $70 in 9 years ! How many people puked and bailed out of TDW in late 1990 ? This is just one example of what a simple buy and hold philosophy in a fundamentally sound stock can do. I don't care what anyone says - it IS well documented historically that such a small percentage of individual investors, let alone professional money managers or mutual funds ever outperform the overall market by ''actively trading'' that market timing and active trading just simply does not work for 95% of investors. We more often read of the mom & pop next door who retired with $25 Million in their account buy buying and holding fundamentally strong companies & stocks over long periods of time, than reading of their historic market timing or trading prowess. There are a lot more Billionaires of the Warren Buffet ilk; who bottom fished for fundamentally sound companies at market bottoms and simply held them for long periods of time versus actively trading and timing the market; that this is NOT even open for discussion... One last word, remember the Bank and S&L stocks of 1990-1 and the historic parallel to the Oil Patch today ... those that can and do buy here; will be richly rewarded over time !
Good Luck & use lots of gas this weekend ! |
