Oil up or down who knows, but not at the top of cycle. I’ve always loved The Price is Right game show, especially during my youth when Bob Barker was at the top of his game. For those not familiar with the show, it involves one’s ability to correctly guess the price of a particular item such as a small car or large toaster oven.
With oil prices dropping below US$40 a barrel on Friday, pundits are all lining up with their guesses as to where they think prices are headed next. For the most part, the safest and most common bet at the moment is that the price is going lower, and much lower according to some.
Of course, it doesn’t take a lot of cojones to tuck in near the consensus and say prices will be going lower in a bear market, just as it doesn’t to say prices will go higher in a bull market — it wasn’t that long ago many were calling for oil to be higher than US$100 a barrel.
This is because anyone sticking their neck out with a contrarian call recognizes the serious risk to their career if they are wrong.
There is plenty of research out there that shows forecasting near-term moves in anything, especially volatile commodities such as oil, is a futile exercise. It’s essentially the same as going to the casino and betting on red or black.
Regarding those pundits getting a lot of recent attention for making the right call on lower oil prices, remember that if the ball falls on black three or four times in a row, it doesn’t change the odds of it falling on red on the next spin.
Markets are a collection of investors’ opinions about the forward outlook and these opinions are subject to influence and human emotion. Consequently, there is often an overreaction on both the down and up cycles, creating excellent opportunities for those brave enough to take that contrarian approach.
That said, it is extremely hard not to be very fearful in today’s energy market, which is currently in a full-fledged crisis and facing what happened to the broader equity markets during the 2008 meltdown.
Investors are bombarded daily with extreme pessimism. There is no shortage of stories about all the carnage in the sector and the consensus view is that things are going to get a lot worse before they get better.
But I believe markets like these are a once-in-a-decade opportunity and the price is just about right for those few willing to come on down.
Sure, the oil and gas sector will likely have more volatility ahead, but looking out one to two years from now, I believe investors will be kicking themselves for missing out on today’s fire sale prices.
If true, this is great news for investors underweight the sector. But what about those with portfolios primarily comprised of oil and gas companies?
For them, now is a very important time to meet with their investment managers and ask what they are specifically doing with their portfolios in this market.
I have spoken several times to investors about focusing in these times on company's that have strong cashflow, debt to equity ratios in line, and high torque. I am a believer in buying in category. Majority of my investments are in best of class assets and that includes Tourmaline.
I also own a few high torque companies.
I only include this on the blog to give some sensibility to the market place and not be one of those perpetual promoters or negative posters with alternative motives.
My focus is to identify opportunities and also to indentify companies that are just promotes.
I really like this management team, and yes, I like Mike Rose. He of course does not have influence on general market conditions, but he does have a great team and they will make the right decisions at the right time.
By example of a bad decision, look at Crescent Point. I challenge the management on buying Legacy and bringing all that debt to the balance sheet. The stock has not performed since that acquisition. Yes, oil prices are down but the weight of that debt is really hurting Crescent Point.
The Tourmaline Team is a group that I am investing in. Oh by the way, 250,000 BOEPD with a further 100,000 BOEPD behind pipe and easily accessible 35,000 BOEPD is another reason.
Just my thoughts. More to come.
Please note, I am neither an employee or paid consultant. Just an investor. Call your broker/adviser to have them look at this quality company.