Twin Butte Energy Ltd TBTEF

Be prepared for the worst & you will be fine

[PUNJABI]

Be very objective. Do not ignore the warnings. Stock market is full of surprises, anything can happen. Consider the worst possible scenario and stress test your investing strategy with that outcome. 

Preservation of capital should be the number one consideration in times of crisis. If you lose most of your capital then you are done & out of investment game. Dumping more capital in a bottom less pit or losing trade can wipe out an investor.  If you average down then do it very slowly & at huge price gaps. Do no add to your mistakes. If you want to stay with sector then rebalance your portfolio with better companies as the entire sector has been cut down


Learn from your mistakes. It is much better & less costly to learn from others mistakes. Catching a fall knife can cut though. During the tech bubble anybody who owned any tech stock made massive amount of money.  Five to ten baggers was nothing. When Nasdaq hit 5000 I knew that it was over done & valuation of some companies that were garbage were ridiculous & so were that of blue chips.  I exited the stock market & kept away. It went up further. I stayed out.

I waited till the Nas corrected over 25 % from the top & put my money in. It did not stop there it kept on going down.  After incurring losses took out the money & waited for a further drop & did the same few times & lost money. It took me a while to get the right message & switched the sector and changed my investment style.  It cost me most of the money that I had made in the sector.  I failed in preserving my profits.

I learned few valuable lessons.  I am no longer your typical buy & hold investor.  Use tech analysis to get in & out of stocks. Cut losses on a bad trade. Protect my profits. I have learned that trend cycles can be long & painful. Rotating in & out of the sector at the right time can save and or make a fortune.  Because of my lesson learned from the tech bubble I survived the 2008, gold   & uranium sector collapse. I plan to survive this oil collapse. 2008 & uranium collapses were easy to identify because they were event based. Oil is bit more complex as it involves too many factors.

It is so temping to pump in the money in the oil stocks. So companies look very attractive & their dividend yields have doubled because they have lost over 50 % of share price.  The recent trend has been that bargains are getting better.  You will get some dead cat bounces in oil & stocks.  Or the oil sector may bottom out here or soon. But what if the oil hits $30 even for a few days as Murray Edwards is predicting. He is Chairman of a huge company. He is not a short seller trying to bash the sector. $35 may or may not happen. There are others who are talking about $50 for a while. This idea of much lower price swing has been planted in the minds of investors.  Markets have a tendency of over swinging & the chart shows that $50 is a possible & even a double bottom at $40.

Oil prices at $50 & under are not sustainable & would eventually bounce, but they will add to the carnage of oil stocks. Money will continue to flow out of the sector. EFT & M Fund redemptions will increase because of the panic.  HFT are accelerating the trend as they make money pushing the stocks lower.

There is time to be aggressive & time to show patience & till the dust settle a clear picture emerges. Preservation of capital should be number one objective.  The choices are to catch the falling knife or chase the sector on the rebound back. Or have all the options open. That is to nibble some & have lot of dry powder for the appropriate time. Oil prices are more complex & are prone to weather & geo political developments.  Then you also have Saudi Arabia the biggest wild card. It seems that there is no OPEC meeting till June 2015 & Saudi want to wait till then at least.

Oil is a very important useful depleting commodity & will remain so in our life time.  It is not like gold which has little use & its quantity keeps on accumulating.  Oil companies have real assets not like tech companies.   If you are stuck in a bad situation with a good quality company & have lot of time to wait out then the chances are you will be alright.

If the prices of oil stay depressed for a while. Then high leveraged companies may have more issues. Companies with debenture / bonds with fixed maturity date will not have a problem because no one reduced their limits because the companies have already taken in all the money. But bank lines of credits will come under attack & will be reduced.  Banks can & will reduce the unused line of credits because of debt covenants. If there is a violation they can all in the debt. It is important to learn about the debt conditions of the company.