Sunday, January 1, 2017

2016 the year with a cup that is half full

If you believe the news media, 2016 was annulus horribulus or was it anus horribilis? You see, you don’t have to be Queen E to use such a phrase? But looking back on 2016 it was for me an excellent year and 2017 will hopefully be even better. This is what you may want to do as well: reviewing all the good stuff you achieved in 2016 and maybe review your life and realize that there is so much good to be grateful for

For me, 2016 started as a downer, but really an accelerated oil price down turn only led a to an excellent buying opportunity. And I learned, maybe a bit slowly, that in commodities you have to take profits. Commodities are NOT buy-and-hold,that is for banks and blue-chips. Look at ExonMobil during the oil price downturn!
From  the absolute peak in July 2014 until today it never fell much more than 25% and that while oil prices dropped from over $100 to $26! The stock has been in an uptrend from August 2015 up to now and will likely continue.  But XOM is the exception to the rule. Energy stocks tend to be very volatile. I had sold most of mine by 2015 and they represented a tiny portion of my portfolio 5-7% and that included the savings plan at my employer. So January 2016 was the bottom for oil and what followed was a great buying opportunity.
Gold came out of a multi-year bear market, especially when viewed in terms of US dollars. I bought between February to March but I forgot the lesson of taking profits (I am truly a slow learner). By June, I thought I was a genius and bought MORE. Well, that was not smart. I should have taken some profits, after-all, we’re in nearly the longest U.S. stock bull market in history and one should be prepared for a major downturn, i.e. another buying opportunity, not long from now. And I have done so most of the year but  not with commodities – so I gave a fair bit of my gold profits back in the 2nd half of 2016. Hmmm… so we have to wait a bit longer. Oh… patience… one of the most difficult virtues to  master.
The oil patch with it’s layoffs were grim… I wanted out my of employment which provided less and less fun.  I wanted to start, or better revive, my old consulting company Eucalyptus Consulting inc. Sorry we’re not public. In May there was the proper opportunity and together with some colleagues, Eucalyptus was re-opened. By September we had software, microscopes, computers and a renovated office in place.  The oil industry was grimmer than ever around us… there was truly blood in the streets of Calgary with so many companies teetering on the edge of bankruptcy. Try to get work as a consultant in such an environment… you can stand on your head and still nothing will happen. So we started a regional evaluation of no other play than the Montney and since we have nearly every tool I can think of, we are making great progress. By the time the downturn is over, we are experts in the Montney, a play by some referred to as Alberta’s Eagleford. Personally, I think the play differs significantly and that is where Eucalyptus may have a competitive edge (Eucalyptusconsulting.ca).
Really, starting a company in a downturn is not that different than buying shares at the bottom of a bear market. One is private equity, the other is public. So that is how I see all this. Eucalyptus is just part of my investment portfolio. So we made great headway. Real Estate in Alberta is down but there seems to be a silver lining, those same investors that were part of the booming Toronto and Vancouver real estate boom, start to realize how cheap Calgary real estate is. Yes, rents are depressed but real estate prices, except for the upper price ranges are not down a lot. My portfolio is not just in residential but as shown in the blog sidebar, includes part ownership in a Canmore hotel operation. Canmore real estate was hard hit by 2008-2010 but now it is benefiting from the low dollar and stay-at-home tourism. Many locals take the sensational landscapes of Alberta for granted. Now, with Hawaii and even Mexico becoming so expensive, they discover what an awesome area we live in. So Canmore has had one of it’s best years in a decade. I also own real estate in retirement housing and there the waiting lists haven’t declined. The only set back is that the NDP government feels that they can cut back on healthcare and let others carry the costs. A bit counter-intuitive. So are their ideas of imposing rent controls – a sure fire way to promote ghettoes. Calgary has not known ghettoes like those in many other North American cities but now government policies may cause this nastiness to come to our town. It seems as if Notley really wants to try every socialist policy that has failed in Ontario. But overall the diversification helped to have an OK real estate year.
The stock market in Canada was the best in years. Curiously, it were the market index ETFs that performed best while active managed portions of the portfolio under performed. This was in part due to the relative high cash levels and the set back, as discussed earlier, in Gold. I think that Gold will recover especially because of inflationary policies by Boy-wonder in Ottawa and Trump in the U.S.
 I see oil recover just like natural gas has. A normal winter with below average gas production has done wonders.  OPEC finally realizes their blunder – starting the oil-price war -  combined with the poor economics of developing oil plays in the rest of the world, this is resulting in a re-balancing of the oil markets. I think $60 oil is a given for 2017 and $70 is possible. That would result in an Alberta energy industry that is finally developing a healthy pair of legs: Oil AND Gas.
I think 2016 was the year of new opportunities, both privately and investment wise. I hope that 2017 will be even better for all of us. What did we learn? We learned to see the cup as half full rather than half empty!

2 comments:

  1. Dear Sir,
    Since you are a geologist, what do you think about Timmins Gold (TGD). Angry geologist likes tha ana paula project and company itself is undervalued in my opinion. I think this company lack visibility due to lack of promotions and analyst following. I am a shareholder and would greatly appreciate your thoughts on it

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  2. Hi admin,
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