Money Making Scheme #2- (Energy) Stock Investing

Generic nodding donkey image.

I

Stock picking has mushroomed in popularity during the lockdown. Many of the major trading platforms have reported a spike in signups.

My own journey with active investing began in 2010 when I inherited 50 Rolls-Royce shared.  The beleagued company faced bankruptcy back in ’73 and as recently as 2015 saw its share price beaten down.

In November of that year I took the opportunity to sink £1000 into 200 or so shares. With Captain Warren East newly installed at the helm I was confident in a turnaround.

Over the ensuing years I watched the share price tick up to the heady heights of £10. Heinsight is always 20-20 and this is where I should have bailed out of the engine maker. I held- in part due to nostalgia and being clouded by the passive investing philosophy of buy and hold forever.

Nevertheless, when the pandemic hit Rolls-Royce has remained by only stock holding. The others Apache, Rockhopper, BAE systems had all fallen by the wayside in the intervening yeas as I refocused on the passive approach.

II

”You never go broke taking a profit”

Work in oil and gas? Here’s why you should avoid taking a punt on industry shares.

I’ve been trying to figure out why investing in oil stocks is so attractive to DIY investors. I have three theories-

1)They see the industry as sexy. Popular portrayals in Dallas and more recently the BBC adaption of the giant Ekofisk discovery have caused this admiration in our collective psyche.

2) Exploration companies tell a compelling narrative. We can all understand a big oil strike if not on a technical level then on an emotional one. The well life cycle from shooting seismic to spudding the well. All can be put in plain language and makes great reading in the Sunday Papers.

3) This one holds a grain of truth. Oilers are more likely than Amazon, DuPont and IBM to be a ten bagger. Explorers are often minnows in comparison and a big well coming in can been explosions in prices leading to a tidy profit. e.g Gulf Keystone, Premier Oil and Faroe Petroleum to name a few…

What is your edge?

Often life and in investing the truth is close to the source. Hurricane Energy contractors had an edge when they watched production flow from the fractured basement.

No doubt some made off like bandits. The chaps who put £30k into Premier Oil on a mates trip. Not so much.

Looking back

When I started in Aberdeen as a still wet behind the ears mudlogger. I pumped all my employer pension contributions into JPMorgan’s Natural Resources fund…. The performance was for want of a better word….Shit.

Thankfully I eventually saw the passive investing light. By stumbling across Barney the escape artist. JLCollins and Mr Mm. I was able to course correct

In retrospect my thinking was off from the get go. Although it often makes sense to follow the adage invest in what you know. This was a case of not shitting where you eat.

Final rules:

1) Don’t believe the hype from the explorers. They often give themselves sexy names (remember the cigarette companies.)

2) Always run the numbers. Why not talk to your friendly neighbourhood hood geologist. 👇

3) Use 1% of your portfolio for these moon shot speculative bets. As Rico Ferri says ‘when the fun money is gone- stop’

The reality is your pension is already weighted to oil and gas majors -BP and Shell. Why take extra risk?

Did you ride any oil stocks to the moon? Or any deepwater disaster stories? Let us know your thoughts in the comments below.

Published by BLMWoodWork

Bipolar British artist of Jewish descent. New to woodworking so be nice ! ;)

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