Opinion on Vanguard Energy (VGENX)

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mdshumaker
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Opinion on Vanguard Energy (VGENX)

Post by mdshumaker » Mon Apr 17, 2017 10:20 pm

My 24 year old son has a portion of his Roth Ira in The Vanguard Energy Fund. (3K) From what I am reading lately it seems that the energy sector is not expected to do as well as once hoped. The majority of his Roth is in the Vanguard Total Stock Market Fund(5.5K) with a small portion in the Vanguard Equity Income Fund (VEIPX) (3K). What would be a better choice for him than the Vanguard Energy Fund?

jebmke
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Re: Opinion on Vanguard Energy (VGENX)

Post by jebmke » Mon Apr 17, 2017 10:21 pm

for that amount, at his age I would just consolidate it all in Total Market Index.
When you discover that you are riding a dead horse, the best strategy is to dismount.

Dominic
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Re: Opinion on Vanguard Energy (VGENX)

Post by Dominic » Mon Apr 17, 2017 10:36 pm

jebmke wrote:for that amount, at his age I would just consolidate it all in Total Market Index.


I'd consolidate but also add an international allocation around 20-40%.

jebmke
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Re: Opinion on Vanguard Energy (VGENX)

Post by jebmke » Mon Apr 17, 2017 10:42 pm

maybe when the balance is high enough to sustain admiral shares in each, yes
When you discover that you are riding a dead horse, the best strategy is to dismount.

aristotelian
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Re: Opinion on Vanguard Energy (VGENX)

Post by aristotelian » Mon Apr 17, 2017 10:46 pm

Buy low. Your son has a very long time horizon to make the money back.

sandramjet
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Re: Opinion on Vanguard Energy (VGENX)

Post by sandramjet » Mon Apr 17, 2017 10:49 pm

Actually, at his age I'd leave it alone...that way he will learn about whether it is better or not to specialize (speculate?) in sector funds. I'd encourage him to read the bogleheads guide, then let him decide if he wants that particular tilt or distribution.
The other thing to think about is what if you tell him to switch, he does, then energy sector takes off? Will he appreciate the advice then?

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nedsaid
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Re: Opinion on Vanguard Energy (VGENX)

Post by nedsaid » Tue Apr 18, 2017 1:02 am

The Vanguard Energy Fund in the past would have been a good bet during the downswings in energy prices. Hard to say if this will continue, I am beginning to think that fracking might have put a permanent ceiling on oil prices. The frackers are able to profit on lower and lower oil and gas prices as techniques improve and such companies become more efficient. I have seen articles that claim that the frackers can profit on $40 a barrel oil, if that is true, Vanguard Energy would not be a good bet. Sometimes the world really does change, sometimes it really is different this time. We might be seeing this in the oil and gas industry.
A fool and his money are good for business.

Valuethinker
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Re: Opinion on Vanguard Energy (VGENX)

Post by Valuethinker » Tue Apr 18, 2017 4:56 pm

nedsaid wrote:The Vanguard Energy Fund in the past would have been a good bet during the downswings in energy prices. Hard to say if this will continue, I am beginning to think that fracking might have put a permanent ceiling on oil prices. The frackers are able to profit on lower and lower oil and gas prices as techniques improve and such companies become more efficient. I have seen articles that claim that the frackers can profit on $40 a barrel oil, if that is true, Vanguard Energy would not be a good bet. Sometimes the world really does change, sometimes it really is different this time. We might be seeing this in the oil and gas industry.


www.bp.com/content/dam/bp/pdf/speeches/ ... r-dale.pdf

BP Chief Economist.

It supports what you say. Supply of oil, having been highly price inelastic (takes $10bn fixed costs to open up a new field, then you produce as long as it covers cash costs) is now much more closely mapped to price.

Frackers have cut operating costs by as much as 50-60% since the oil price slump. And of course oil fracking is basically a US industry-- there's a whole world out there in which to roll out the technology.

A new world.

There's another thing. If you recognize that you may not be able to produce all your reserves, or that demand will begin to drop as electric vehicles come in, that top oil demand is actually in sight (albeit decades out), the optimum strategy is not to hoard oil, but to produce it *now*.

Oil company people are smart people, with science and engineering training, and advised by the top consultants and economists. If anyone in business can see the way the world is going, they can.

That's going to make all the oil majors (to varying degrees) produce more, sooner, because the future value of reserves is likely to be less.

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nedsaid
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Re: Opinion on Vanguard Energy (VGENX)

Post by nedsaid » Tue Apr 18, 2017 9:03 pm

It is good that our right honorable gentleman from the U.K. has agreed with my assessment of the effects of fracking upon future oil prices. This is why I am not piling into energy stocks now, I think the world has changed.
A fool and his money are good for business.

Valuethinker
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Re: Opinion on Vanguard Energy (VGENX)

Post by Valuethinker » Wed Apr 19, 2017 2:47 am

nedsaid wrote:It is good that our right honorable gentleman from the U.K. has agreed with my assessment of the effects of fracking upon future oil prices. This is why I am not piling into energy stocks now, I think the world has changed.


Right Honourable refers to a Member of Parliament ;-).

BP and Shell are among the most "intellectual" of oil firms (they all have big brains, BP and Shell are more willing to let them be seen in public).

BP publishes the authoritative World Energy Statistics, which everyone uses in their analysis. Shell invented Scenario Planning (Peter Schwarz The Art and Science of The Long View) as a way of envisioning different scenarios about the world. One of those scenarios (in the early 1970s) imagined that oil became much more expensive, which of course then happened.

If Spencer Dale is saying this in public, that's a big shift. It does not follow automatically that BP will change its strategy, but he will be talking daily with the top people in the energy industry who will be informing and interrogating his views.

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nedsaid
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Re: Opinion on Vanguard Energy (VGENX)

Post by nedsaid » Wed Apr 19, 2017 7:59 am

Valuethinker wrote:
nedsaid wrote:It is good that our right honorable gentleman from the U.K. has agreed with my assessment of the effects of fracking upon future oil prices. This is why I am not piling into energy stocks now, I think the world has changed.


Right Honourable refers to a Member of Parliament ;-).

BP and Shell are among the most "intellectual" of oil firms (they all have big brains, BP and Shell are more willing to let them be seen in public).

BP publishes the authoritative World Energy Statistics, which everyone uses in their analysis. Shell invented Scenario Planning (Peter Schwarz The Art and Science of The Long View) as a way of envisioning different scenarios about the world. One of those scenarios (in the early 1970s) imagined that oil became much more expensive, which of course then happened.

If Spencer Dale is saying this in public, that's a big shift. It does not follow automatically that BP will change its strategy, but he will be talking daily with the top people in the energy industry who will be informing and interrogating his views.


Here in the United States, we have C-Span channels 1 and 2, which is put on by the cable companies and covers politics in the United States, mostly Congress. There is coverage of the Prime Minister's question time and I have watched it back from the days of Margaret Thatcher. As far as "Right Honorable", for all I know you could be an MP.

As far as oil, the world does seem to have changed. Indeed, I am starting to read that "Peak Oil" might not mean peak supply but peak demand. It could be that we could be seeing an era of relatively cheap gasoline, which we saw here from the early 1980's into the 2000's. In my area, gasoline hovered around $1.35 a gallon for many years. It got as cheap as maybe 99 cents a gallon or as expensive as maybe $1.75 or $1.80 but it always seemed to go back to that $1.35. It could mean the return of the great American road trip which personally I haven't taken one in a long time. I think of Nat King Cole singing "Get Your Kicks on Route 66." I hope also it means the end of ridiculous ethanol or the policy of putting our food in our gas tank, the holy grail of cellulosic ethanol has not been reached yet. If we can economically get ethanol from such things as wood fiber, that would be a better solution. Natural Gas is another good substitute.
A fool and his money are good for business.

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backpacker
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Re: Opinion on Vanguard Energy (VGENX)

Post by backpacker » Wed Apr 19, 2017 1:13 pm

nedsaid wrote: As far as oil, the world does seem to have changed. Indeed, I am starting to read that "Peak Oil" might not mean peak supply but peak demand. It could be that we could be seeing an era of relatively cheap gasoline, which we saw here from the early 1980's into the 2000's.


Super interesting. Yet another good reminder that the future is super hard to predict! And that making money on future predictions is even harder. :happy

Valuethinker
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Re: Opinion on Vanguard Energy (VGENX)

Post by Valuethinker » Wed Apr 19, 2017 4:08 pm

nedsaid wrote:
Valuethinker wrote:
nedsaid wrote:It is good that our right honorable gentleman from the U.K. has agreed with my assessment of the effects of fracking upon future oil prices. This is why I am not piling into energy stocks now, I think the world has changed.


Right Honourable refers to a Member of Parliament ;-).

BP and Shell are among the most "intellectual" of oil firms (they all have big brains, BP and Shell are more willing to let them be seen in public).

BP publishes the authoritative World Energy Statistics, which everyone uses in their analysis. Shell invented Scenario Planning (Peter Schwarz The Art and Science of The Long View) as a way of envisioning different scenarios about the world. One of those scenarios (in the early 1970s) imagined that oil became much more expensive, which of course then happened.

If Spencer Dale is saying this in public, that's a big shift. It does not follow automatically that BP will change its strategy, but he will be talking daily with the top people in the energy industry who will be informing and interrogating his views.


Here in the United States, we have C-Span channels 1 and 2, which is put on by the cable companies and covers politics in the United States, mostly Congress. There is coverage of the Prime Minister's question time and I have watched it back from the days of Margaret Thatcher. As far as "Right Honorable", for all I know you could be an MP.


I'd be a bit busy then ;-). Mrs May called an election yesterday for June 8th. Today, she received the vote from 60 per cent. of MPs to allow that to happen-- not sure if she has been to see the Queen yet.

I was thinking, in fact, you meant Rt. Honourable Spencer Dale-- that would be a mistake ;-). Maybe he will be Sir Spencer Dale one of these days ;-).

As far as oil, the world does seem to have changed. Indeed, I am starting to read that "Peak Oil" might not mean peak supply but peak demand.


More and more it seems that way. Tesla has done better than I expected, to the point where I think we can fairly say that even if it fails, something has started.

Forecasting is hard, especially of the future ;-).

It could be that we could be seeing an era of relatively cheap gasoline, which we saw here from the early 1980's into the 2000's. In my area, gasoline hovered around $1.35 a gallon for many years. It got as cheap as maybe 99 cents a gallon or as expensive as maybe $1.75 or $1.80 but it always seemed to go back to that $1.35. It could mean the return of the great American road trip which personally I haven't taken one in a long time. I think of Nat King Cole singing "Get Your Kicks on Route 66." I hope also it means the end of ridiculous ethanol or the policy of putting our food in our gas tank, the holy grail of cellulosic ethanol has not been reached yet. If we can economically get ethanol from such things as wood fiber,


Wood fibre would be methanol. Cellulosic ethanol is a holy grail, but it is proving to be as elusive as same.

that would be a better solution. Natural Gas is another good substitute.


The economics of Gas To Liquids (which can make diesel fuel) have not, so far, been great. I don't think Qatar etc. will be in a hurry to build further plants. NG vehicles directly-- big in Pakistan (but NG shortages mean people are switching away) and in Argentina. It has its challenges (energy density) for sure. And it doesn't solve the pollution problem.

We are on a page about the absurdity of human edible plants to ethanol. Just a grotesque waste of energy. Biodiesel tends to suck in palm oil, which leads to tropical deforestation, which is a *far* worse blow to the environment. cf European biodiesel standard. Worse, far worse, than doing nothing.

European auto lobbyists will do anything to protect the huge investment in diesel cars. A well meaning policy, but another environmental disaster. Fortunate the US never really went for them.

Grt2bOutdoors
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Re: Opinion on Vanguard Energy (VGENX)

Post by Grt2bOutdoors » Wed Apr 19, 2017 7:07 pm

Meh.....no one can predict the future, but I would not write off any particular company or industry. I heard the problem with fracking is the fields that are tracked aren't long-lived. Even when costs come down, the real question is efficiency. There is no shortage of oil, the GOM is one big oil patch, the Permian has been producing forever and with fracking they are talking about pumping even more with multiple stacks of oil being found and newer technology with long lateral (much longer) forcing out oil that was previously thought unrecoverable. The most efficient company is going to be the biggest winner in all cycles. So, when thinking about investing in any equity fund, whether it was Energy or Total Stock Market it will be earnings that drive price appreciation. The ones with earnings will win.
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TheJoker
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Re: Opinion on Vanguard Energy (VGENX)

Post by TheJoker » Wed Apr 19, 2017 7:46 pm

At his age, sit on it. Every ETF reverts to the mean. There is no loss until he sells. Sit on it. I'm sitting on mine with a greater investment.

Valuethinker
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Re: Opinion on Vanguard Energy (VGENX)

Post by Valuethinker » Thu Apr 20, 2017 6:02 am

Grt2bOutdoors wrote:Meh.....no one can predict the future, but I would not write off any particular company or industry. I heard the problem with fracking is the fields that are tracked aren't long-lived. Even when costs come down, the real question is efficiency. There is no shortage of oil, the GOM is one big oil patch, the Permian has been producing forever and with fracking they are talking about pumping even more with multiple stacks of oil being found and newer technology with long lateral (much longer) forcing out oil that was previously thought unrecoverable. The most efficient company is going to be the biggest winner in all cycles. So, when thinking about investing in any equity fund, whether it was Energy or Total Stock Market it will be earnings that drive price appreciation. The ones with earnings will win.


Absolutely the case with fracking, as you know ;-).

The argument (which is a good one) is that historically supply was price inelastic-- took years and many billions to bring in substantial new supply.

Now? With the efficiency and responsiveness of the fracking industry, new supply comes in quite quickly. Price spikes will be less, perhaps, and maybe troughs as well.

Oil price volatility is not going to go away. Existing fields (conventional) suffer 4-8% pa falls in output post peak. Much of the world's oil reserves are in ugly messy places where politics and war impede production and investment - Venezuela, Libya, Iraq etc. So the risk of supply disruption is always present.

There are longer term threats to the energy industry. Oil will be the last to go, because it is such a valuable fuel (as reflected in its premium price, c 6x coal per unit energy) and its high energy density. But the fundamental nature of the industry is going to change in the next 30 years, more perhaps than it has in the last 60.

Valuethinker
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Re: Opinion on Vanguard Energy (VGENX)

Post by Valuethinker » Thu Apr 20, 2017 6:03 am

mdshumaker wrote:My 24 year old son has a portion of his Roth Ira in The Vanguard Energy Fund. (3K) From what I am reading lately it seems that the energy sector is not expected to do as well as once hoped. The majority of his Roth is in the Vanguard Total Stock Market Fund(5.5K) with a small portion in the Vanguard Equity Income Fund (VEIPX) (3K). What would be a better choice for him than the Vanguard Energy Fund?


Yes I would flip it to the broader index. Too much risk energy just underperforms, like the 1980s. It's impossible to call which will be the best performing sectors of the next 10 years, let alone the next 40.

TBillT
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Re: Opinion on Vanguard Energy (VGENX)

Post by TBillT » Thu Apr 20, 2017 10:43 am

I am not familiar with VGENX, but I am a bit of bear (selling myself) on fossil fuel energy as falling prices have been prescription for "losing shirts" in the energy area. Hope I am wrong but that's my sentiment. Of course I was over-subscribed, so I had a need to reduce exposure.

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nedsaid
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Re: Opinion on Vanguard Energy (VGENX)

Post by nedsaid » Sat Apr 22, 2017 11:36 am

backpacker wrote:
nedsaid wrote: As far as oil, the world does seem to have changed. Indeed, I am starting to read that "Peak Oil" might not mean peak supply but peak demand. It could be that we could be seeing an era of relatively cheap gasoline, which we saw here from the early 1980's into the 2000's.


Super interesting. Yet another good reminder that the future is super hard to predict! And that making money on future predictions is even harder. :happy


For disclosure purposes, I have been a shareholder in Exxon/Mobil for a long time. It has been a great investment and I have no plans to sell.
A fool and his money are good for business.

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