Choosing a fund or stocks
Discussion
Being of farming stock, I have always been told to be into everything everyone else isn't, so not being in the farming game & being the 2nd son and all that, I am happy to make the prediction that at the moment oil prices are higher than I think they will be in 2 to 3 years, quite a bit higher.
My reasoning being that all the taps were switched off on even the juiciest development projects in 1999 and 2000 when oil was on the floor and when it was costing more to extract the oil than the price the producers where getting on the open market. Now everyone and their granny has turned the taps back on the oil development projects and a large slug of new oil is going to start hitting the market within the next 3 years and continue to do so for some time after that.
I'm even starting to consider buying a gas guzzler on the back of my hunch and while the prices of all sorts of exotica are on the floor.
So wanting to exploit my theory, how do I choose a fund or stock that ain't going to go tits up before they have the time and money to exploit this huge reduction in oil prices and make lots of money for me?
I'm obviously not going to bet the house on it, just the money I can afford to leave for 5 to 6 years and hopefully make a good return on, but I know that I am not knowledgeable enough to avoid all the potential basketcases that will inevitably have a cashflow crisis before being able to exploit the new world order of lower oil prices, so I'd appreciate your thoughts on what you would do if my theory was right.
My reasoning being that all the taps were switched off on even the juiciest development projects in 1999 and 2000 when oil was on the floor and when it was costing more to extract the oil than the price the producers where getting on the open market. Now everyone and their granny has turned the taps back on the oil development projects and a large slug of new oil is going to start hitting the market within the next 3 years and continue to do so for some time after that.
I'm even starting to consider buying a gas guzzler on the back of my hunch and while the prices of all sorts of exotica are on the floor.
So wanting to exploit my theory, how do I choose a fund or stock that ain't going to go tits up before they have the time and money to exploit this huge reduction in oil prices and make lots of money for me?
I'm obviously not going to bet the house on it, just the money I can afford to leave for 5 to 6 years and hopefully make a good return on, but I know that I am not knowledgeable enough to avoid all the potential basketcases that will inevitably have a cashflow crisis before being able to exploit the new world order of lower oil prices, so I'd appreciate your thoughts on what you would do if my theory was right.
Just posting something here to be polite - I don't think i'll be of too much use.
So in summary, you want to bet oil prices are going to fall. There's the obvious of going short on Oil stocks and on the price of Oil - although this has the risks that you don't know how high it'll go before prices possibly fall.
An alternative is to buy some puts (these are options) on Crude Oil and on some Oil shares (if you're not content with just doing oil.) I'm afraid someone else will have to help you out with greater details as the only options i've seen are on IG and they're not exactly the proper ones. You'd probably have to go through the official exchanges I imagine. An advantage of this over the first option is the aspect of limited liability and you know how much you stand to lose.
As for the funds - I know almost nothing about funds, but an obvious thing would be to go short on oil funds - but then you have the problem as mentioned in my first paragraph.
Sorry I couldn't be of more help, just thought i'd pop in and be polite after such a recommendation
So in summary, you want to bet oil prices are going to fall. There's the obvious of going short on Oil stocks and on the price of Oil - although this has the risks that you don't know how high it'll go before prices possibly fall.
An alternative is to buy some puts (these are options) on Crude Oil and on some Oil shares (if you're not content with just doing oil.) I'm afraid someone else will have to help you out with greater details as the only options i've seen are on IG and they're not exactly the proper ones. You'd probably have to go through the official exchanges I imagine. An advantage of this over the first option is the aspect of limited liability and you know how much you stand to lose.
As for the funds - I know almost nothing about funds, but an obvious thing would be to go short on oil funds - but then you have the problem as mentioned in my first paragraph.
Sorry I couldn't be of more help, just thought i'd pop in and be polite after such a recommendation
Edited by g4ry13 on Thursday 24th July 22:40
this is an interesting one considering the price of oil has come off quite heavily over the past week or so.
There are oil bear funds out there e.g. Profunds short oil and gas fund http://www.profunds.com/ProFundsProfiles/FundID_42... but I think you would need to do further reading to see if they meet exactly what you want to do.
You could go the other way and invest in companies that will do better if the oil price drops - airlines spring to mind e.g. British AIrways; EasyJet; Ryan Air on this side of the pond.
And the other avenue, which of course I have to mention as someone who works for a spread betting company - with all the usual caveats - is to go short the oil price. With oil currently trading at $126 ish, if you went short £1 per point, your total position is £12,600. If oil dropped, for example, to $86 per barrel you would be up £4,000. Of course, if oil goes to $166 you are down £4,000...
But it is an interesting investment question in the light of the recent performance of the oil price. Good luck whatever you decide.
Editted to add some performance figs from that fund
Returns include the reinvestment of dividends and capital gains.
YTD (as of 7/23/2008) 3.17%
Average Annual One Year -22.14%
Average Annual Since Inception -17.89%
Time to throw in a few cliches.
It is great to be right - but it can be expensive to be right too early.
The market can remain irrational longer than you can remain solvent.
There are oil bear funds out there e.g. Profunds short oil and gas fund http://www.profunds.com/ProFundsProfiles/FundID_42... but I think you would need to do further reading to see if they meet exactly what you want to do.
You could go the other way and invest in companies that will do better if the oil price drops - airlines spring to mind e.g. British AIrways; EasyJet; Ryan Air on this side of the pond.
And the other avenue, which of course I have to mention as someone who works for a spread betting company - with all the usual caveats - is to go short the oil price. With oil currently trading at $126 ish, if you went short £1 per point, your total position is £12,600. If oil dropped, for example, to $86 per barrel you would be up £4,000. Of course, if oil goes to $166 you are down £4,000...
But it is an interesting investment question in the light of the recent performance of the oil price. Good luck whatever you decide.
Editted to add some performance figs from that fund
Returns include the reinvestment of dividends and capital gains.
YTD (as of 7/23/2008) 3.17%
Average Annual One Year -22.14%
Average Annual Since Inception -17.89%
Time to throw in a few cliches.
It is great to be right - but it can be expensive to be right too early.
The market can remain irrational longer than you can remain solvent.
Edited by limpsfield on Thursday 24th July 23:20
shadowninja said:
limpsfield said:
The market can remain irrational longer than you can remain solvent.
I like that one.here are some more:
Only buy something that you'd be perfectly happy to hold if the market shut down for 10 years.
Warren Buffett
Wall Street people learn nothing and forget everything.
Benjamin Graham
The market does not beat them. They beat themselves, because though they have brains they cannot sit tight.
Jesse Livermore
The financial markets generally are unpredictable. So that one has to have different scenarios.. The idea that you can actually predict what's going to happen contradicts my way of looking at the market.
George Soros
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