Sunday, April 22, 2012

Nibble, don’t buy at once!.... Oh Yeaaaah!... Nibble, nibble, nibble!

Retail investors cower in the shadows of their cash piles afraid of risk. However, those who take ‘least risk’ tend to follow the herd and often get hurt when the herd stampedes. This is often true for many aspects of life; it is the calculated risk takers that get rewarded while those who avoid risk at all costs get hurt. Live is about taking risk, the car driver takes a risk and so does the bicyclist; even the pedestrian is exposed to risk. However, the ‘lowest risk taker’ the guy or gal who never leaves the house runs most risk – stagnation; becoming a living dead, getting in poor physical shape; and rotting teeth since he or she doesn’t even visit the dentist!  J, you get my drift.

Right now everyone is so afraid of taking risk that oil and gas stocks are incredibly cheap. They are trading at valuations comparable with the depth of the recession. Dividend paying stocks and right now financial stocks are popular herd instruments and I don’t predict their demise, but I do predict moderate or mediocre performance.  Eric Nuttal of Sprott Asset Management foresees a very poor summer for gas prices and a capitulation phase for gas stocks followed by a 'buying opportunity of the decade'. I don’t disagree with the idea of a rough summer for gas producers, nor do I disagree with the possibility of market capitulation but I do disagree with market timing and trying to aim your investment purchase at the perfect market bottom. Oh, and I have seen over the last five years so many 'buying opportunities of a decade' that it makes me sick.
Like stated in last week’s post, nibble don’t buy everything at once! Can we make that into our team song? “Nibble, don’t buy at once!.... Oh Yeaaaah!... Nibble, nibble, nibble!”

Investors don’t like the petroleum industry because of all the real and perceived issues: Obamah, Keystone, Gateway, landlocked, political risk premium, cost overrun, shortage of skilled labour, high rail transportation costs, the weak U.S. dollar, the strong U.S. dollar, the high oil prices that can’t last, the low gas prices, the environmentalists, the chance that governments raise royalties, legislaton, eh…eh….. the financial crises, the lack of investor enthusiasm….

It is so easy to find a reason not to take action. But the petroleum industry is basically booming in the oil sector and their corporate evaluations show numerous economic viable projects… so many they can’t find the staff to execute the work! And yet the industry is limping on one leg… No! it is crawling on one broken leg with one arm tied behind its back! And still it is making big money!

What if Europe gets through its debt crises… and it will!  What if Europe gets out of recession … and its main economies are not even in recession! What if there is no double dip recession in the U.S. and there won’t be one…. In fact, we are not far from a healthy 3% growth rate in GDP and so what if China 'slows' to 7.5% GDP growth?  After the U.S. elections somehow Keystone will be build, and so does Gateway and Kitimat!

Asian investors are stampeding into our oil patch eager to participate in any project. The Chinese, the Koreans and lately Malays! Oh… yeah this is such a risky investment!

Yes it is risky to trade oil and gas stocks, yes it is risky to hold on to your cash, stuff it under the mattress or worse, lock it in for 5 years at rock bottom interest rates that go negative if you add in inflation and taxes!  But investing in the oil and gas industry; buying a little nibble each time with a time horizon of 5 years or beyond, that is not gambling, that is taking a calculated risk that likely will pay you profits by the spade full!
Nibble, don’t buy at once!.... Oh Yeaaaah!... Nibble, nibble, nibble!” Nibble, don’t buy at once!.... Oh Yeaaaah!... Nibble, nibble, nibble!” ” Nibble, don’t buy at once!.... Oh Yeaaaah!... Nibble, nibble, nibble!”....

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