by Dr. Steve Sjuggerud, with Matt Badiali T. Boone Pickens made $1.4 billion dollars in income in 2005 from managing money, according to the Wall Street Journal last week.
It is "the largest one year sum ever earned… larger even than Michael Milken's legendary $550 million haul of 1986…" according to Trader Monthly.
In case you don't know, T. Boone Pickens is an oil investor… and a good one at that…
For the year 2005, folks who invested in Pickens' stock fund made over 100 percent. And those who invested in his much riskier commodities pool made over 700 percent (that's not a misprint).
Pickens appeared on CNBC last week. He predicted higher oil prices. And he says that natural gas is a cheap and credible alternative. He also predicted that gas stations serving natural gas is something we might see in the not-so distant future.
Pickens made his money last year in oil stocks and commodities trading. If he can make over a billion doing this stuff, then we need to know what our options are to invest in this area…
Here are the major ways to play it:
1) Buying oil in your brokerage account.
The simplest and most direct way for most people to make a bet on the price of oil is to buy shares of USO. USO is not a company, it's simply an asset created to track the price of oil. It trades like a stock.
Your return with USO is simply whatever the price of oil does, minus a tiny fee. If you want to make a bet on oil this the easiest way to do it.
2) Buying oil stocks.
You can make or lose a lot of money in oil stocks, depending on how much risk you're willing to take…
You can buy the "Big Oil" stocks… like ExxonMobil (XOM) and ConocoPhillips (COP), which are safe and diversified. Or you can really take a risk with a small stock specializing in exploration or operating in a risky locale. You could lose it all, or make many times your money.
You've got a lot of choices when it comes to buying oil stocks… and we'll cover these choices in the coming weeks.
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3) Buying the whole oil sector with just one stock.
There are a handful of exchange-traded funds relating to oil. These hold a handful of the major oil and energy companies. The major ETFs here are: OIH, IXC, IYE, XLE, and VDE. The easiest place to find more information about all of them is at www.etfconnect.com.
There are hundreds of mutual funds as well. But we prefer exchange-traded funds, like the ones above. The cost of ownership is lower and you can buy and sell them any time through the day.
4) Gambling the T. Boone Pickens way: through derivatives
Trading oil futures, in general, is extremely risky. You can't make 700 percent returns without taking on a heck of a lot of risk.
I really don't recommend this world for most individual investors. One firm that has done a nice job in the past for newer investors is Lind-Waldock www.lind-waldock.com.
Spend a while educating yourself before you do anything here. Sue Rutsen is incredibly nice and patient, and specializes in commodities options. You can find more about her and her firm at: www.rmbgroup.com.
5) Oil and gas limited partnerships
We know many legitimate folks out there (like our friend Cactus Schroeder) that have been creating these types of investments and making money for investors for many years. However, we're particularly skeptical of these, and really don't recommend them for most people.
In general, unless you REALLY KNOW what you're doing, then you probably don't belong in these.
Well, we've just scratched the surface today on the options available for investing in oil. This is by no means a comprehensive list. At DailyWealth, we promise we won't take too much of your day, so we're going to stop here.
In the weeks to come, we'll fill in the gaps, and give specific investment ideas. Before we got that far, we wanted to give you a quick overview of what's out there.
While we can't promise T. Boone Pickens-like returns, we do think we can steer you in the direction of the safest, smartest ways to play oil in the coming weeks.
Good investing,
Steve & Matt