I was sitting with a client and friend the other night and this question came up. I think this question is on the mind of many investors as oil has dropped from over $100 a barrel to below $40 a barrel as of today. If you have followed any of my previously published articles you would know that we sold all of our oil positions in February of 2014 when oil was around $100 a barrel.
This article can be found on my blog at www.fogelcapital.com titled “Invest Based on Research not Emotions”. As a research driven investment firm, it’s our job to do our due diligence on each and every investment. We owned oil for many years for our clients and had tremendous gains, but we felt that the bull market in oil was ending and we sold all of our positions. All bull markets come to an end at some point and our research told us that supply was becoming too much for the market to absorb and there needed to be some price contraction.
The other factor in our decision was that oil investments were becoming too popular amongst the investment public. This goes back to the old saying “Don’t follow the herd”, unfortunately for many investors they did just that and they paid a steep price. Sometimes a trade can just be too crowded and it usually causes a bubble. So now oil has dropped below $40 a barrel and many professionals are telling the investment public that now is the time to buy. I can tell you this, it’s time to really do some research on the industry and break down all the different groups and create a list of the ones that might be getting close to a buying opportunity. I also think that oil has NOT bottomed as of today.
With that being said, it could bottom in the near future and when it does it will be a great trading opportunity. I also think oil could fall below $30 a barrel or even $20 before it really reaches a true bottom. Look, in 1998 oil was trading at $10 a barrel and I couldn’t beg a client to buy an oil stock. Everyone wanted to own technology. This was shortly before the tech bubble. Oil became a bubble. It became too big a part of the average investment portfolio and the bubble popped. The time to buy oil will be when there is blood in the streets, which means when we start seeing bankruptcies within the industry.
This may be one of the best investment opportunities we have seen in a lifetime, but you won’t be able to just throw a dart and be right. There is going to have to be a ton of due diligence on the investor’s part to get it right. As always, the opinions in this article are that of the authors and should not be considered investment advice. Everyone has a unique financial situation and you should always consult a qualified Financial Advisor before making investment decisions. If you have any questions on this article feel free to call Jay Chapman, CFP® at Fogel Capital Management, 772-266-3431.