Best way to invest in OIL

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VAinvestor001
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Best way to invest in OIL

Post by VAinvestor001 »

Hi

I am looking forward to invest in OIL and wanted to see if group has any good suggestions on how to do it. I have vanguard, fidelity, etrade etc. accounts and can buy from them. I am not for futures or options and would rather buy stocks/indexes (i might be wrong here).

I am not trying to time the market but the price seems right to invest so I will invest in 20% increments for next several months till i reach my target levels.

Please let me know if you have any suggestions.

Thanks a bunch.

V
IPer
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Re: Best way to invest in OIL

Post by IPer »

Well if you really want a slice of OIL you need to look at the leading companies and their competitors, figure out which ones you
like (dislike). I would pick the top 3 or 4 of them, something like Chevron, Exon, Phillips or whatever you like, don't forget to
research the top 5-10 of them, BP is paying 18Billion, that might be a bargain for them so if stock's are down it might be considered
a discount, however, NO ONE REALLY KNOWS!. The great thing about these stocks is you pay the small commission up front and
don't pay any expenses after that, until you liquidate them. I would use Vanguard or Etrade (or Fidelity for that matter) for your
purchases/holdings.

ps if you use Yahoo Finance, for example, you can key in something like Chevron and view the competitors and so on and so forth,
like this: http://finance.yahoo.com/q/co?s=CVX+Competitors

Oh yeah, once you identify the companies you want you then need to define your Position Size based on that 20% you mentioned divided
by the companies and consider whether it is worth it to pay the commission to purchase it or wait. A rule of thumb I used to use is if
a half position size is less than $1000 then wait until there is enough cash for a half, full or other position size, etc...And the other thing
I read which I never followed was never put more than 4-5% on a position, my position sizes were always 1% or smaller. 1% of my entire
holdings, that is.
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KyleAAA
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Re: Best way to invest in OIL

Post by KyleAAA »

The best way to invest in oil is to invest in broad market indexes that happen to contain oil companies, although investing in Oil COMPANIES isn't really the same thing as investing in OIL. A few posters here will occasionally advocate investing a small (no more than 10% max) portion of your portfolio in a broad commodities fund/etf (not just oil, but a broad basket of commodities) for diversification purposes. I'm not one of them.

Unfortunately, there really aren't any truly low-cost options here. The two most popular options I know of:

iShares GSCI Commodity-Indexed Trust (GSG)
Expense Ratio: 0.75%

PowerShares DB Commodity Index Tracking Fund (DBC)
Expense Ratio: 0.75%

These ETFs both own commodities futures and not the stocks of oil-producing companies. The Vanguard Energy ETF (VDE) is more energy-focused than the above options, but it also owns stocks in companies that store, refine, and conduct oil exploration so it's by no means a pure oil play. I wouldn't recommend that fund, honestly.

By the way, "I am not trying to time the market" and "but the price seems right to invest" are inherently contradictory statements. You are, in fact, trying to time the market.
Last edited by KyleAAA on Tue Jul 07, 2015 12:00 pm, edited 2 times in total.
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Toons
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Re: Best way to invest in OIL

Post by Toons »

Vanguard Energy ETF (VDE) :happy
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee
traveler90
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Re: Best way to invest in OIL

Post by traveler90 »

VDE, but I personally wouldn't touch it unless you are going very long term. Next few years won't be kind IMO.
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Re: Best way to invest in OIL

Post by Grt2bOutdoors »

traveler90 wrote:VDE, but I personally wouldn't touch it unless you are going very long term. Next few years won't be kind IMO.
What sectors will be? Let us know, so we can ride them up instead.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
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Re: Best way to invest in OIL

Post by Jack FFR1846 »

Grt2bOutdoors wrote:
traveler90 wrote:VDE, but I personally wouldn't touch it unless you are going very long term. Next few years won't be kind IMO.
What sectors will be? Let us know, so we can ride them up instead.
Isn't it basic investing to buy one of these sectors/stocks/funds when they are about to go up and simply sell them when they peak? Pretty simple, really. If the investment is not going to behave that way, then simply don't buy it.
Bogle: Smart Beta is stupid
Grt2bOutdoors
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Re: Best way to invest in OIL

Post by Grt2bOutdoors »

Jack FFR1846 wrote:
Grt2bOutdoors wrote:
traveler90 wrote:VDE, but I personally wouldn't touch it unless you are going very long term. Next few years won't be kind IMO.
What sectors will be? Let us know, so we can ride them up instead.
Isn't it basic investing to buy one of these sectors/stocks/funds when they are about to go up and simply sell them when they peak? Pretty simple, really. If the investment is not going to behave that way, then simply don't buy it.
I'd rather own all of the sectors at the same time, taking what the market returns less a small fee.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
dc81584
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Re: Best way to invest in OIL

Post by dc81584 »

If purchasing individual stocks, then invest in Total SA (TOT). Otherwise, just invest in Vanguard's Energy Fund.
pshonore
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Re: Best way to invest in OIL

Post by pshonore »

KyleAAA wrote:The best way to invest in oil is to invest in broad market indexes that happen to contain oil companies, although investing in Oil COMPANIES isn't really the same thing as investing in OIL. A few posters here will occasionally advocate investing a small (no more than 10% max) portion of your portfolio in a broad commodities fund/etf (not just oil, but a broad basket of commodities) for diversification purposes. I'm not one of them.

Unfortunately, there really aren't any truly low-cost options here. The two most popular options I know of:

iShares GSCI Commodity-Indexed Trust (GSG)
Expense Ratio: 0.75%

PowerShares DB Commodity Index Tracking Fund (DBC)
Expense Ratio: 0.75%

These ETFs both own commodities futures and not the stocks of oil-producing companies. The Vanguard Energy ETF (VDE) is more energy-focused than the above options, but it also owns stocks in companies that store, refine, and conduct oil exploration so it's by no means a pure oil play. I wouldn't recommend that fund, honestly.

By the way, "I am not trying to time the market" and "but the price seems right to invest" are inherently contradictory statements. You are, in fact, trying to time the market.
Note that both GSG and DBC are organized as partnerships and therefore report tax info on a K1. They're not terribly complex if you understand them but they will complicate your tax return. It likely will not be all QDs and LTCG. XOP is another ETF that claims they tilt toward exploration and production companies but you'd have to review their holdings to see if its a good fit.
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VAinvestor001
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Re: Best way to invest in OIL

Post by VAinvestor001 »

KyleAAA wrote: By the way, "I am not trying to time the market" and "but the price seems right to invest" are inherently contradictory statements. You are, in fact, trying to time the market.
The reason I said that I am not trying to time the market because I am not really looking for a bottom. I feel OIL at these levels is very attractive...

Thanks for your recommendations... how does everyone feels about OIL.. management fee of .45%...

V
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Toons
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Re: Best way to invest in OIL

Post by Toons »

VAinvestor001 wrote:
KyleAAA wrote: By the way, "I am not trying to time the market" and "but the price seems right to invest" are inherently contradictory statements. You are, in fact, trying to time the market.
The reason I said that I am not trying to time the market because I am not really looking for a bottom. I feel OIL at these levels is very attractive...

Thanks for your recommendations... how does everyone feels about OIL.. management fee of .45%...

V
I feel that the management fee is almost quadruple the management fee of of VDE-.12
I pass :happy
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee
ourbrooks
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Re: Best way to invest in OIL

Post by ourbrooks »

If it is specifically the OIL ETN that the OP is asking about, then here's what the issuer has to say:
The Index is a sub-index of the S&P GSCI® Commodity Index and reflects the returns that are potentially available through an unleveraged investment in the West Texas Intermediate (WTI) crude oil futures contract.
Because of phenomena like contango, it is fairly well understand that the profits from futures contracts don't necessarily track the rise or fall in the futures contracts themselves. Suppose everyone believes that the price of oil will rise so they are willing to pay more for contracts for future delivery than the current spot price. Suppose that what happens is that the spot price stays low or only rises slightly. As it gets closer to the delivery dates of the futures contract, the value of the contract will drop even if the price of oil has risen slightly.

Why does the OP feel that contango won't occur and that the price of OIL is likely to rise? Investing in oil futures contracts is a very different investment than investing directly in the commodity.
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timboktoo
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Re: Best way to invest in OIL

Post by timboktoo »

If you must, then Vanguard Energy is how I would do it.

Is this just some play money you're wanting to use or is retirement money?

- Tim
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Taylor Larimore
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Oxymoron ?

Post by Taylor Larimore »

I am not trying to time the market but the price seems right to invest.
Isn't this an oxymoron ? :wink:

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
Topic Author
VAinvestor001
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Re: Best way to invest in OIL

Post by VAinvestor001 »

timboktoo wrote:If you must, then Vanguard Energy is how I would do it.

Is this just some play money you're wanting to use or is retirement money?

- Tim
This is long term retirement, i don't need this for next 20-30 years... I was thinking maybe putting ~20-40K in energy...

I have been called out for timing in earlier posts... whatever it is... my point of view is.. I wanted some energy in portfolio (it is Real Estate heavy)... and suddenly what i wanted to buy is cheaper now... it might go further cheaper.. or go up.. that is why I will do ~20% for next few months or so...also money sitting in bank accounts is not helping...
sharpjm
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Re: Best way to invest in OIL

Post by sharpjm »

VAinvestor001 wrote:This is long term retirement, i don't need this for next 20-30 years... I was thinking maybe putting ~20-40K in energy...
In 20-30 years oil companies will be bankrupt unless they start investing in renewables soon.
bogle2013
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Re: Best way to invest in OIL

Post by bogle2013 »

sharpjm wrote:
VAinvestor001 wrote:This is long term retirement, i don't need this for next 20-30 years... I was thinking maybe putting ~20-40K in energy...
In 20-30 years oil companies will be bankrupt unless they start investing in renewables soon.
I would imagine the Vanguard Energy Fund will evolve over 20 years and in 2035 the companies in the index will be a lot different than today. Question is when will the transition will occur - will there be better buying opportunities next year, 5 years, 10 years?? Wish I knew the right answer. I'll tell you in 20 years.
dc81584
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Re: Best way to invest in OIL

Post by dc81584 »

sharpjm wrote:
VAinvestor001 wrote:This is long term retirement, i don't need this for next 20-30 years... I was thinking maybe putting ~20-40K in energy...
In 20-30 years oil companies will be bankrupt unless they start investing in renewables soon.
I seriously doubt it. In fact, I'd bet my life that they don't.
ourbrooks
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Re: Best way to invest in OIL

Post by ourbrooks »

Ah hah! It's "energy" the OP wants to invest in, not in particular the OIL ETN. In particular, I'd guess that the OP wants to invest in hydrocarbons, such as oil or natural gas so the question becomes what's the best way to invest in hydrocarbons? If by "best" you mean most closely reflecting the spot price of oil, then I'd suggest the following list:

1. Ownership in mineral rights. The problem is that if you can tell for sure that there are hydrocarbons under the surface, say, because someone has already drilled a successful well on the land, the price will be higher. The nice thing about land is that you don't have to produce the hydrocarbons right away; you can wait for the right price.

2. Ownership in a joint venture on a working interest in a hydrocarbon well. What you actually own is a share in the costs and production from wells. It takes surprisingly little money to buy into a single well but the odds are surprisingly high that that one well is a failure. If you can invest in enough wells, the odds are high that some of them will work out and the returns will be huge when that happens. Although joint ventures are a bit hard to resell, most of the returns are in the form of tax write-offs initially and then royalty checks so you get them right away.

3. Publically traded limited partnerships. These come in a large number of different flavors from ones that drill new wells to ones that just operate pipelines to ones that just collect royalties from existing wells. Right now, many of these are trading at historically low prices.

4. Shares in index funds that focus on hydrocarbon companies. The problem is that most of the largest hydrocarbon producers are integrated companies, meaning that they do refining and distribution in addition to exploration and production. The refining and distribution parts do better when oil prices are low while the exploration and production parts do better when prices are high. I'd recommend VGENX over VDE because it includes the largest oil companies, not just U.S. ones.

I'd stay away from ETFs/ETNs like OIL that invest in futures contracts. The problem is that these contracts go up and down more in response to people's speculations about hydrocarbon prices than they do to the actual changes; the price of oil can go up, up, and away and you can still lose money on futures contracts.
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Re: Best way to invest in OIL

Post by ourbrooks »

Right now, about 84% of U.S. energy comes from fossil fuels. Use of renewables would have to triple to even reach half. The dominant renewables are wind energy, which is actually cheaper than nuclear and competitive with natural gas on life time cost, and solar. The big problem with wind power is that the wind doesn't blow constantly so there's an upper limit to what percentage of a grid you can supply with wind; at some point, you begin running fossil fuel generators just as back up in case the wind drops off. Solar is a bit more predictable but you still have to cope with nighttime.

There's going to have to be a major breakthrough in energy storage technology for renewables to pick up a larger share. Right now, the dominant technology is pumping water up hill at low demand periods and using hydroelectric generators during high demand periods, an approach that's been used for at least a 100 years. Companies like GE already produce large battery units (whose prices are even lower than Tesla) but it's still much cheaper to run generators than to store electricity in batteries.

We can always hope that the breakthrough in storage technology will finally occur but a more likely scenario is the prices of hydrocarbons gradually rises until renewables are competitive. If that happens, oil companies will sell less oil but the price will rise so that their revenues stay constant for a long time.
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Re: Best way to invest in OIL

Post by Ged »

VAinvestor001 wrote:Hi

I am looking forward to invest in OIL and wanted to see if group has any good suggestions on how to do it.

Please let me know if you have any suggestions.
I wouldn't do it. There is likely a long term decline in oil prices relative to manufacturing output. This implies that it is better to invest in activities further up the food chain. Not only that, but prices of basic commodities are notoriously volatile.

https://en.wikipedia.org/wiki/Prebisch% ... hypothesis
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sometimesinvestor
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Re: Oxymoron ?

Post by sometimesinvestor »

Taylor Larimore wrote:
I am not trying to time the market but the price seems right to invest.
Isn't this an oxymoron ? :wink:

Best wishes.
Taylor[/quote

No Taylor, timing the market means you think the time is right. Value investing is when you think the price is right,I believe on this site timing the market is bad but Tilting is good/(or at least ok)

On the original issue I think the oil etf is a bad idea > I don't really understand how it work(since i won't buy it I don't need to know)s but it is based on futures contracts and the current contract is rolled over into a new one every few months. This works out badly for the owner .Experts who know about this stuff use it strictly as a trading vehicle NOT a long term investment
Last edited by sometimesinvestor on Tue Jul 07, 2015 5:41 pm, edited 1 time in total.
leonard
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Re: Best way to invest in OIL

Post by leonard »

VAinvestor001 wrote:I am not trying to time the market but the price seems right...
Huh?
Leonard | | Market Timing: Do you seriously think you can predict the future? What else do the voices tell you? | | If employees weren't taking jobs with bad 401k's, bad 401k's wouldn't exist.
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Re: Best way to invest in OIL

Post by pantsmachine »

dc81584 wrote:
sharpjm wrote:
VAinvestor001 wrote:This is long term retirement, i don't need this for next 20-30 years... I was thinking maybe putting ~20-40K in energy...
In 20-30 years oil companies will be bankrupt unless they start investing in renewables soon.
I seriously doubt it. In fact, I'd bet my life that they don't.
I've been in the industry for 25 years and have seen a few ups and downs, much doomsaying etc i have also heard '20 year and its all done' many many times. You could do a lot worse than invest directly in RDS, BP & Exxon Mobil and re-invest your dividends in whichever is lowest on the day of re-investment (likely BP). Do NOT invest in drilling, survey or shipping companies, stick with true producers as per the three i have quoted or whichever flavour you fancy. I am in RDS & BP at the moment and i am having my arse kicked on the daily price over the past 5 months but the dividends have been nice and i am on a long timeline so it is as they say background noise.

I am not smart enough to second guess Saudi Arabia's ongoing flooding of the market or when it will end but there have been plenty of the unfit already went to the wall, those still standing and operating successfully at $58 PBB are worth a look IMHO, best of luck.

P.S For those who's grail is renewables (must say i fancy them a bit myself but they are dreadfully expensive, predominantely inefficient and mostly in the early stages of development and hence bug & issue ridden) and see the death of oil i would and always say, 'what's going to lubricate the worlds bearings 20 to 30 from now'? There will always be an oil industry in one form or other although i see it more as Issac A did and wait for the day when its ExxonH2O or ChevronOxy up on the big board!
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Re: Best way to invest in OIL

Post by itstoomuch »

I use a proxy to "oil".
I have a group of regionally diverse electric utilities for oil/gas/mlp, with qualified dividends. Hopefully this could be my "Bond" portfoilio.
(disclaimer, 2015 I am down -10% with DCA. Good up movement July 7. I haven't added back any divs. )
I got killed in solar stocks as an energy play.
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Topic Author
VAinvestor001
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Re: Best way to invest in OIL

Post by VAinvestor001 »

Thanks for the excellent suggestions and debate. I will go with RDS, BP and XOM...

Thanks "sometimeinvestor" for posting on the timing debate... this is exactly what was in my mind... value investing... i see value at this price point and hence I am putting money in this sector... and will continue to do so for next 6 months or so to average out... the way i see it is.. i have always like energy (Especially oil.. and i don't see it replaced for next several years... )... now this is something i like, which is now selling for cheap... why should i not buy it? I would have anyway invested in this sector even if the prices had stayed to earlier levels but just speedboating the whole thing... this is similar to when you like something goes on sale, what do you do?

Thanks for the excellent suggestions and guiding me through it.

V
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Re: Oxymoron ?

Post by KyleAAA »

sometimesinvestor wrote: No Taylor, timing the market means you think the time is right. Value investing is when you think the price is right
What's the difference?
pantsmachine
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Re: Best way to invest in OIL

Post by pantsmachine »

As an aside and from the inside, i have worked for all three of the aforementioned companies and can say that for professionalism & Safety i would rate them as 1. XOM 2. RDS 3. BP, there should be a co-realtion between this and the profit margins they experience due to decisions made at the coal face.

XOM are so massive i can't get my head round it and they were great to work with in Africa.

The word i was hearing on the BP Gulf fiasco is that the blame should have been laid on Transocean for a poorly maintained BOP stack and running underweight mud (truly cutting their own throats for pennies) but they were 3rd party contracting to BP so BP take the hit. On the upside, the final price for the DH incident is now locked in so time for BP to move on.

Stay away from South American oil companies, they turn traitor in an instant and its not worth the risk and TBH, you are talking serious money to operate in deep waters with no promise of returns.

The upside at $58 PBB is that drilling rigs can be hired for buttons at the moment so exploration costs are way way down, i am sure there will be a few fields investigated at todays low xpro prices for down the road. Right now there are many many projects on the shelf as they are not finacially viable to pursue at current prices and with shale oil growing in popularity, they will still be there to be developed later when there is a real need. Its just an underground portfolio and as such it will wax and wane.

Here i leave my PC hat aside, the oil game is still a pre-dominantly Alpha male OCD type industry which operates largely in 3rd world countries most of which are highly eager to do business and get the petrodollars flowing to Swiss type 3rd world Generalisimo accounts with the odd hospital thrown in to appease the masses, this works well and transfers directly to the dividend in your pocket when you buy in. I wouldn't buy tobacco or weapons shares but i will tread a moral wire and say + for oil. :D
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timboktoo
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Re: Best way to invest in OIL

Post by timboktoo »

VAinvestor001 wrote:
timboktoo wrote:If you must, then Vanguard Energy is how I would do it.

Is this just some play money you're wanting to use or is retirement money?

- Tim
This is long term retirement, i don't need this for next 20-30 years... I was thinking maybe putting ~20-40K in energy...

I have been called out for timing in earlier posts... whatever it is... my point of view is.. I wanted some energy in portfolio (it is Real Estate heavy)... and suddenly what i wanted to buy is cheaper now... it might go further cheaper.. or go up.. that is why I will do ~20% for next few months or so...also money sitting in bank accounts is not helping...
If the purpose is retirement, I'd suggest you stay away from buying individual stocks. Play money is one thing, but a retirement fund has a purpose. The best way to fulfill that purpose is, in my opinion, by following the investment philosophy outlined here:

https://www.bogleheads.org/wiki/Boglehe ... philosophy

It's why I'm here, because I really think it's the best overall way for everyone. There's a lot of evidence to support it. You can't say that about a lot of other things in life, that they can be so generally applied and well-documented. This is.

The road you're heading down isn't going to lead to some pit. But it's a road best reserved for either play money or for those who pursue investing as a full-time job. It's not a good route for retirement money. You increase your risk and stake claim, in essence, that you know something that the smartest money on the planet doesn't know. If you'd like to scratch an itch for speculation, or make use of a strength of character by identifying value, then I'd suggest you do so with money that you don't need in order to eat when you're old.

- Tim
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Re: Best way to invest in OIL

Post by TradingPlaces »

KyleAAA wrote:The best way to invest in oil is to invest in broad market indexes that happen to contain oil companies, although investing in Oil COMPANIES isn't really the same thing as investing in OIL. A few posters here will occasionally advocate investing a small (no more than 10% max) portion of your portfolio in a broad commodities fund/etf (not just oil, but a broad basket of commodities) for diversification purposes. I'm not one of them.

Unfortunately, there really aren't any truly low-cost options here. The two most popular options I know of:

iShares GSCI Commodity-Indexed Trust (GSG)
Expense Ratio: 0.75%

PowerShares DB Commodity Index Tracking Fund (DBC)
Expense Ratio: 0.75%

These ETFs both own commodities futures and not the stocks of oil-producing companies. The Vanguard Energy ETF (VDE) is more energy-focused than the above options, but it also owns stocks in companies that store, refine, and conduct oil exploration so it's by no means a pure oil play. I wouldn't recommend that fund, honestly.

By the way, "I am not trying to time the market" and "but the price seems right to invest" are inherently contradictory statements. You are, in fact, trying to time the market.
Well, if we are offering exchange traded products, we may as well consider XLE:

- it is the most widely followed energy commodity "etf",
- it's a SPDR,
- ER is 0.15%,
- it is heavy with oil companies:

Exxon Mobil Corporation Common XOM 15.77
Chevron Corporation Common Stoc CVX 12.44
Schlumberger N.V. Common Stock SLB 7.67
Kinder Morgan, Inc. Common Stoc KMI 4.47
EOG Resources, Inc. Common Stoc EOG 3.94
ConocoPhillips Common Stock COP 3.76
Williams Companies, Inc. (The) WMB 3.67
Occidental Petroleum Corporatio OXY 3.50
Pioneer Natural Resources Compa PXD 3.15
Anadarko Petroleum Corporation APC 3.10
YellowJoe
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Re: Best way to invest in OIL

Post by YellowJoe »

VAinvestor001 wrote:
KyleAAA wrote: By the way, "I am not trying to time the market" and "but the price seems right to invest" are inherently contradictory statements. You are, in fact, trying to time the market.
The reason I said that I am not trying to time the market because I am not really looking for a bottom. I feel OIL at these levels is very attractive...

Thanks for your recommendations... how does everyone feels about OIL.. management fee of .45%...

V
If you want to invest in OIL companies to try to capture a market beating return and take this "contrarian" investing strategy, it would be best to choose a few of the strongest Oil companies in the world and not index this...

Look at this logically, if you index, you will only do as well as the INDEX. Then why even bother going into OIL focus?

The only way to try to BEAT the index, is the take a bit of gamble / risk and pick individual stocks and HOLD FOR THE LONG TERM.

For example, you do a equal weight portfolio of: Exxon, Chevon, BP, Royal Dutch, Total, Petrochina, CNOOC....if oil prices per barrel all of a sudden spike upwards (Saudi and Opec decide to CUT production and global supply goes down), then it a GOOD BET that these bit oil players will go up in value much more than any index. Your indexing will continue to do 7% annualized (per Jack Bogle).

What are the risks here? The risk is OPPORTUNITY cost....lets say the oil prices per barrel stay low for years to come....these oil companies could be flat or not achieve index 7% annualized...

to me, if you are only betting 10% or so of your total portfolio...its a PRETTY GOOD BET to play.

good luck!
normaldude
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Re: Best way to invest in OIL

Post by normaldude »

As I posted before..

1) Stay Away From ETNs (like the OIL ETN). They are unsecured debt securities, with counterparty risk. During normal time periods, ETNs perform like ETFs. But if the issuer goes bankrupt, the ETNs become nearly worthless (like what happened to Lehman Opta ETNs in 2008).


"..For most investors, the credit risk inherent in an ETN isn't worth it, in our view. Lehman Brothers had issued three ETNs at the time of its bankruptcy in September 2008, and investors who owned shares of these ETNs at the time lost a substantial part, if not all, of their investments; the risk is real.

http://www.schwab.com/public/schwab/nn/ ... -the-Risks

"..Most ETN issuers are large financial institutions with investment-grade credit ratings, so the risk of default is normally negligible. But during the credit crisis of 2008, the risk became quite elevated. In fact, the worst-case scenario unfolded when Lehman Brothers collapsed and its line of Opta ETNs was delisted from the stock exchange. Investors may receive only pennies on the dollar once bankruptcy trustees disburse the dealer's assets.

http://www.investopedia.com/articles/bo ... d-note.asp



2) Oil ETFs/ETNs/Funds Do NOT Hold Physical Oil, and Do NOT Track Oil Prices. They trade in derivatives, in a weak attempt to somewhat track oil prices. But in reality, they do NOT track oil prices.

Image

http://www.businessweek.com/magazine/co ... 970461.htm
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just frank
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Re: Best way to invest in OIL

Post by just frank »

Keep in mind that many of the index funds are already 6-10% energy, mostly oil majors. The OP wants to tilt to more energy, based on the assumption(s) that

(i) oil prices will rebound
(ii) all energy prices will continue to increase (in real terms)
(iii) both

While these might be possible, it is far from a sure bet. The folks I've talked to at the oil major cos over the last several years seem convinced we are lined up for a replay of 1984, when the price collapsed for a generation, along with their profits, capex, etc. While oil will not get to $10 a barrel, I don't see why it can't bump along at marginal profitability (for US suppliers) for the next 5-10 years. Compared to the ~$100 price since 2004, that is a huge haircut for profits and stock valuations, persisting for many years.

Longer term, oil is lined up to be the next coal, which looked like a great investment 10 years ago, but which is now dying a slow death (outside of asia, and peaking in asia). Industrial PV solar is putting a falling ceiling over electricity costs, abetted by ever cheaper grid battery solutions, leading to a widespread profit-panic among electric utilities. Fossil energy divestment movements are gaining steam, along with green energy markets, EVs, heat pumps, appliance and housing energy efficiency, CAFE standards, etc.

Personally, I have been tiliting away from energy since last summer. I would love to have a broad index fund that excluded energy (and utilities), but have not found anything appropriate. Instead, I have been tilting slightly toward growth, which are generally low in energy and high in tech/bio/health.

Anyone have any suggestions for the opposite of the OP tilt?
Last edited by just frank on Wed Jul 08, 2015 5:47 am, edited 3 times in total.
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Re: Best way to invest in OIL

Post by IPer »

I am awake now. M* just told I have OIL...in my VTSAX shares...good enough for me!
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Taylor Larimore
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A suggestion.

Post by Taylor Larimore »

Anyone have any suggestions for the opposite of the OP tilt?
Yes. The Three Fund Portfolio which includes the market weight in oil stocks.

Best wishes.
Taylor
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just frank
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Re: A suggestion.

Post by just frank »

Taylor Larimore wrote:
Anyone have any suggestions for the opposite of the OP tilt?
Yes. The Three Fund Portfolio which includes the market weight in oil stocks.

Best wishes.
Taylor
Thanks, and point well taken Taylor, but I was asking if anyone had any ideas how to tilt away from Energy.
Grt2bOutdoors
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Re: Best way to invest in OIL

Post by Grt2bOutdoors »

sharpjm wrote:
VAinvestor001 wrote:This is long term retirement, i don't need this for next 20-30 years... I was thinking maybe putting ~20-40K in energy...
In 20-30 years oil companies will be bankrupt unless they start investing in renewables soon.
Take away the tax credits and suddenly your viable renewables go right out the window. Let's start with the removal of a very lucrative 10 year production tax credit for solar and wind power projects. Ooops.......I'd rather use that money to benefit some of the less fortunate folks who reside here in the U.S. But those greedy "renewable power companies" just want to line their pockets with my cash. :twisted:
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Re: Best way to invest in OIL

Post by Grt2bOutdoors »

pantsmachine wrote:
dc81584 wrote:
sharpjm wrote:
VAinvestor001 wrote:This is long term retirement, i don't need this for next 20-30 years... I was thinking maybe putting ~20-40K in energy...
In 20-30 years oil companies will be bankrupt unless they start investing in renewables soon.
I seriously doubt it. In fact, I'd bet my life that they don't.
I've been in the industry for 25 years and have seen a few ups and downs, much doomsaying etc i have also heard '20 year and its all done' many many times. You could do a lot worse than invest directly in RDS, BP & Exxon Mobil and re-invest your dividends in whichever is lowest on the day of re-investment (likely BP). Do NOT invest in drilling, survey or shipping companies, stick with true producers as per the three i have quoted or whichever flavour you fancy. I am in RDS & BP at the moment and i am having my arse kicked on the daily price over the past 5 months but the dividends have been nice and i am on a long timeline so it is as they say background noise.

I am not smart enough to second guess Saudi Arabia's ongoing flooding of the market or when it will end but there have been plenty of the unfit already went to the wall, those still standing and operating successfully at $58 PBB are worth a look IMHO, best of luck.

P.S For those who's grail is renewables (must say i fancy them a bit myself but they are dreadfully expensive, predominantely inefficient and mostly in the early stages of development and hence bug & issue ridden) and see the death of oil i would and always say, 'what's going to lubricate the worlds bearings 20 to 30 from now'? There will always be an oil industry in one form or other although i see it more as Issac A did and wait for the day when its ExxonH2O or ChevronOxy up on the big board!
Front page of today's WSJ - Royal Dutch Shell sinking the BIG BUCKs on drilling a wildcat well in the Artic. Price tag?: $7 Billion and counting......that includes the loss of a drilling rig that ran aground on ice last December. Ouch! What's the difference between a RDS and most independent e&p's? Big Big Pockets.........if the well stops producing in North America, the well in Africa puts out 4x as much.....

For those who say renewables are the way to go - let me know when the first inaugural launch of a solar powered trans-atlantic flight is, the same goes for solar powered cargo ships, freight trains, commuter trains, etc. lol
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Re: A suggestion.

Post by Grt2bOutdoors »

just frank wrote:
Taylor Larimore wrote:
Anyone have any suggestions for the opposite of the OP tilt?
Yes. The Three Fund Portfolio which includes the market weight in oil stocks.

Best wishes.
Taylor
Thanks, and point well taken Taylor, but I was asking if anyone had any ideas how to tilt away from Energy.
You could buy ETN's that short the price of the commodity (double short oil and gas, there is no etn that shorts solar yet) to complement your all inclusive index fund holdings. It will raise the cost of your portfolio somewhat and leave you exposed if the market moves the other way for commodities. If you strip out the earnings contributions of the energy industry, I think we'll find that your growth expectations will need to come down along with dividend income expectations.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
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just frank
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Re: A suggestion.

Post by just frank »

Grt2bOutdoors wrote:You could buy ETN's that short the price of the commodity (double short oil and gas, there is no etn that shorts solar yet) to complement your all inclusive index fund holdings. It will raise the cost of your portfolio somewhat and leave you exposed if the market moves the other way for commodities. If you strip out the earnings contributions of the energy industry, I think we'll find that your growth expectations will need to come down along with dividend income expectations.
Merci.
Valuethinker
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Re: Best way to invest in OIL

Post by Valuethinker »

ourbrooks wrote:Right now, about 84% of U.S. energy comes from fossil fuels. Use of renewables would have to triple to even reach half. The dominant renewables are wind energy, which is actually cheaper than nuclear and competitive with natural gas on life time cost, and solar. The big problem with wind power is that the wind doesn't blow constantly so there's an upper limit to what percentage of a grid you can supply with wind; at some point, you begin running fossil fuel generators just as back up in case the wind drops off. Solar is a bit more predictable but you still have to cope with nighttime.

There's going to have to be a major breakthrough in energy storage technology for renewables to pick up a larger share. Right now, the dominant technology is pumping water up hill at low demand periods and using hydroelectric generators during high demand periods, an approach that's been used for at least a 100 years. Companies like GE already produce large battery units (whose prices are even lower than Tesla) but it's still much cheaper to run generators than to store electricity in batteries.

We can always hope that the breakthrough in storage technology will finally occur but a more likely scenario is the prices of hydrocarbons gradually rises until renewables are competitive. If that happens, oil companies will sell less oil but the price will rise so that their revenues stay constant for a long time.
I think you are missing a few things:


- the wind blows more regularly offshore than onshore, therefore offshore wind complements onshore

- electric power can be moved thousands of miles by High Voltage DC transmission, as is little done in the USA but is done in Russia, Brasil, Quebec etc. Again given the wind blows in some places (and not others) a bigger grid is less vulnerable to periods of low wind

- pumped storage works. Granted there are big environmental issues in developed countries. But North America has hardly run out of floodable mountain valleys. We have done this in the UK where there is a very high population density and the highest mountain in England and Wales is Mt. Snowdon which is less than 2000 feet (not convenient at the moment to google to check that height) but look up Dinorwic

- solar often complements wind. Because solar's output is relatively predictable (particularly in places like the US Southwest where weather is not a big factor)

- one useful way to store electricity is as hot water. A number of countries already do this

- demand side management has not yet been fully exploited. There is a lot that can be done with a 'smart grid' in terms of load shifting, and cutting off peak demand periods

- you wind up with relatively short periods during the year when the sun isn't shining and the wind isn't blowing, and for that you have gas, and in particular gas-fired cogen (thermal efficiencies of 60% and up), and North America has plenty of cheap gas

Therefore the technical feasibility of very high penetration levels of renewables is already there. There are institutional barriers and building the infrastructure would cost, but these are not fundamentally technical issues. They are political and social as much as anything (economic in my view tends to become a moot point when you are talking about long term global changes which will take place).

And as you allude, technology is hardly a sitting target. Things are improving at the rate of knots in any number of energy subfields. For example, although hydrogen generation by electrolysis is inefficient, in principle there's no problem with doing it as a way of 'storing' electrical energy.
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Re: Best way to invest in OIL

Post by Valuethinker »

Grt2bOutdoors wrote: for those who say renewables are the way to go - let me know when the first inaugural launch of a solar powered trans-atlantic flight is, the same goes for solar powered cargo ships, freight trains, commuter trains, etc. lol
OK national electrification of railways is already a reality in a number of countries.

Commuter trains? Most commuter lines in most countries are already electric. Ditto the High Speed intercity trains (TGV in France, Germany, China, Japan etc.).

It would be feasible (if expensive) to wire up highways to supply power to trucks journeying on them.

Ships are already powered by wind, and that's solar energy. Electrically powered ships is at least feasible conceptually, although it would take big jumps in storage technology. However natural gas powered ships are already becoming a reality due to the air pollution problems around dense shipping lanes (NW Europe). That is a start.

Eventually our ground transport (land and sea) will be addressed by some combination of hydrogen, fuel cells and batteries.

Air transport no easy answers. It doesn't look like hydrogen powered aircraft are feasible. Biofuels maybe-- although current Generation One biofuels are at best environmentally neutral if not negative. However air transport is only a small percentage of total oil consumption (5%?) albeit growing rapidly.

I agree with you the world's demand for oil is not going away in a hurry-- it's too useful a source of energy at high density. However oil is only a portion of the total picture, it's coal that is the low hanging fruit on this one, and electric power generation in particular. In only a relatively small number of places is oil a significant factor in electricity generation.
Last edited by Valuethinker on Wed Jul 08, 2015 10:13 am, edited 1 time in total.
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Re: Best way to invest in OIL

Post by Valuethinker »

VAinvestor001 wrote:Hi

I am looking forward to invest in OIL and wanted to see if group has any good suggestions on how to do it. I have vanguard, fidelity, etrade etc. accounts and can buy from them. I am not for futures or options and would rather buy stocks/indexes (i might be wrong here).

I am not trying to time the market but the price seems right to invest so I will invest in 20% increments for next several months till i reach my target levels.

Please let me know if you have any suggestions.

Thanks a bunch.

V

You are on a hiding to nothing trying to forecast the future price of oil. Oil companies and governments spend hundreds of millions of dollars a year buying in the best experts to do that, and they fail. The drop from $100 to $60 caught almost everyone by surprise.

The best you can say is that around $60 per barrel the high cost producers have dropped towards 0 profit, yet the US frackers keep fracking. At $40 the pain would be quite real. But the upward curve on oil prices remains totally uncertain.
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Re: Best way to invest in OIL

Post by abuss368 »

VAinvestor001 wrote:Hi

I am looking forward to invest in OIL and wanted to see if group has any good suggestions on how to do it. I have vanguard, fidelity, etrade etc. accounts and can buy from them. I am not for futures or options and would rather buy stocks/indexes (i might be wrong here).

I am not trying to time the market but the price seems right to invest so I will invest in 20% increments for next several months till i reach my target levels.

Please let me know if you have any suggestions.

Thanks a bunch.

V
Hi VAinvestor001,

I would caution about a tilt to oil as the can introduce additional risks to an investment portfolio that the investor may not be compensated for. I would prefer the simple and effective Three Fund Portfolio or the Vanguard Four Fund Portfolio. Another excellent choice is the Core Four from Rick Ferri.

Best.
John C. Bogle: “Simplicity is the master key to financial success."
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just frank
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Re: Best way to invest in OIL

Post by just frank »

ourbrooks wrote:Right now, about 84% of U.S. energy comes from fossil fuels. Use of renewables would have to triple to even reach half. The dominant renewables are wind energy, which is actually cheaper than nuclear and competitive with natural gas on life time cost, and solar. The big problem with wind power is that the wind doesn't blow constantly so there's an upper limit to what percentage of a grid you can supply with wind; at some point, you begin running fossil fuel generators just as back up in case the wind drops off. Solar is a bit more predictable but you still have to cope with nighttime.

There's going to have to be a major breakthrough in energy storage technology for renewables to pick up a larger share. Right now, the dominant technology is pumping water up hill at low demand periods and using hydroelectric generators during high demand periods, an approach that's been used for at least a 100 years. Companies like GE already produce large battery units (whose prices are even lower than Tesla) but it's still much cheaper to run generators than to store electricity in batteries.

We can always hope that the breakthrough in storage technology will finally occur but a more likely scenario is the prices of hydrocarbons gradually rises until renewables are competitive. If that happens, oil companies will sell less oil but the price will rise so that their revenues stay constant for a long time.
Pumped hydro storage was mostly built using nuclear industry subsidy money....its expensive to build from scratch, and there are few suitable locations compared to the amount required. Cycle efficiency is also poor.

Much better is grid battery storage....which is being fielded in both Cali and France at the (large) pilot scale. Without the weight limitations of other battery applications, such as EVs, there are a number of different technologies/startups competing for this niche (Tesla is one of the less likely contenders), and prices per watt and per watt-hour per cycle are starting to look quite favorable.

For fossil energy prices, a more likely outcome is that by the time wind-solar penetration has reached the ~30% grid limit (e.g. in 10-15 years for most of the US), there will be multiple cost effective solutions for grid storage in place, and penetration growth will continue without a hiccup. Thus the price ceiling set by RE for fossil fuels will continue to decline---cutting into fossil energy profitability.
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Re: Best way to invest in OIL

Post by staybalanced »

Oil is not an investment, it has no IRR. The best way to speculate in oil, because that is what you are talking about is speculation is to use derivatives. BTW there is like a 99.9% chance you will blow your account up in a few months so just do a little to get your feet wet. If you are successful at it, I would probably go trade for a big wire house like goldman or start a hedge fund because you are either special or lucky.
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Re: Best way to invest in OIL

Post by LadyGeek »

Please stay on-topic, which is the investing perspective of oil.

Climate policy, economic policy, political, environmental policy, etc. is off-topic.
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Re: Best way to invest in OIL

Post by BogleInvestorLondon »

VAinvestor001 wrote:I am looking forward to invest in OIL
I am by no means an expert at investing and I simply index. However, I think it is worth mentioning to not forget that you would be speculating. If you want to speculate then that is completely fine. Investing means laying out money now in order to get back more in the future at an appropriate rate. What you are doing is speculating that the price will go higher and hopefully it will do so at a rate that will make you fortunate.
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Re: Best way to invest in OIL

Post by HurdyGurdy »

Fuel efficient cars may be on sale.
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