Sell Tech to Buy Energy - Thoughts?

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ETFJeph
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Sell Tech to Buy Energy - Thoughts?

Post by ETFJeph » Wed Mar 25, 2020 4:23 pm

In a tax advantaged account I've got a some shares of Vanguard tech. fund (VTI), over the last year it has gained 12%, and has an advertised dividend yield of 1.45%.

Vanguard energy fund (VDE) is, well, it's taken a few hits lately, -60% over the last year, but, it's dividend yield is 8%, and it's pretty cheap.

I'm thinking about whether it's a good idea to sell my VTI (Sell high, right), and buy VDE (Buy low, right). Energy has to come back up, eventually, esp. when the world goes back to work. And, it's got a much higher dividend yield, which is what I'd like in a tax advantaged account.

Am I thinking about this the correct way?

TIA

milktoast
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Re: Sell Tech to Buy Energy - Thoughts?

Post by milktoast » Wed Mar 25, 2020 4:35 pm

VTI is total US market by market cap. Yes, it's currently weighted strongly towards tech because that's where the market cap is.

Beyond that, I'd best keep my comments to myself.

annu
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Re: Sell Tech to Buy Energy - Thoughts?

Post by annu » Wed Mar 25, 2020 4:37 pm

Well, you can buy even better deal, 70+% off, and yield is almost 8%
https://finance.yahoo.com/quote/NGE/ :beer

livesoft
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Re: Sell Tech to Buy Energy - Thoughts?

Post by livesoft » Wed Mar 25, 2020 4:38 pm

You are thinking boldly, but with a death wish to lose more money than mere normals.
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ETFJeph
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Re: Sell Tech to Buy Energy - Thoughts?

Post by ETFJeph » Wed Mar 25, 2020 5:43 pm

It's VGT that I've got, sorry about the confusion. If the previous responses were based on the ticker typed, please reconsider.

Now, with that clarified, please do tell me what you think, i.e., don't keep your comments to yourself.

And, since the ticker symbol has been cleared up, do you still think it's too bold, or a death wish...?

livesoft
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Re: Sell Tech to Buy Energy - Thoughts?

Post by livesoft » Wed Mar 25, 2020 5:46 pm

Ticker doesn't change my opinion.
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ETFJeph
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Re: Sell Tech to Buy Energy - Thoughts?

Post by ETFJeph » Wed Mar 25, 2020 5:55 pm

And why?

I'm not looking for free advise, I'm interested in actually learning something, here.

livesoft
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Re: Sell Tech to Buy Energy - Thoughts?

Post by livesoft » Wed Mar 25, 2020 5:56 pm

Energy still has a long way down to go in my opinion. I am sticking to broad market passively-managed index funds.
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retire2022
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Re: Sell Tech to Buy Energy - Thoughts?

Post by retire2022 » Wed Mar 25, 2020 6:06 pm

Energy has been over leveraged

They are currently out of favor

VGT held up better than VTI

I had 15.6% of VGT now 16% because of pullback

Do a portfolio visualizer of all three including energy you shall see

TropikThunder
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Re: Sell Tech to Buy Energy - Thoughts?

Post by TropikThunder » Wed Mar 25, 2020 6:10 pm

ETFJeph wrote:
Wed Mar 25, 2020 5:55 pm
And why?

I'm not looking for free advise, I'm interested in actually learning something, here.
First I would ask that you explain why the yield on VDE matters (CAGR from Feb 2019 per Portfolio Visualizer; yields from Vanguard site as of 02-29-2020).
1. VTI (total stock): 1-year CAGR +9.83%; current yield 1.95%
2. VGT (tech): 1-year CAGR +29.61%; current yield 1.15%
3. VDE (energy): 1-year CAGR -24.86%; current yield 5.01%

First, I'm not sure where you got the 8% yield on VDE. Second, it seems to me like the higher the yield, the lower the total return (exaggerating to make a point).

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ETFJeph
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Re: Sell Tech to Buy Energy - Thoughts?

Post by ETFJeph » Wed Mar 25, 2020 6:35 pm

Hmm, this CAGR you speak of is very interesting (I just searched for the def.).
Sounds like a far better comparison tool. Can I get this information freely at PortfolioVisualizer.com? I'll have to crawl around.

I was using ETRADE's ticker profile to get details, Yield: 7.40%. Oddly, VGT Yeild: 1.45%
How is these yield values being determined, or are they provided by the stock?

retire2022
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Re: Sell Tech to Buy Energy - Thoughts?

Post by retire2022 » Wed Mar 25, 2020 6:37 pm

Plus Russian oil and OPEC dumping oil globally there is an oil commodity war

They are losing money

Currently USA is also global producers

Not sure why you are seeking dividends when they are over leveraged

MoneyMarathon
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Re: Sell Tech to Buy Energy - Thoughts?

Post by MoneyMarathon » Wed Mar 25, 2020 11:37 pm

ETFJeph wrote:
Wed Mar 25, 2020 4:23 pm
Am I thinking about this the correct way?
You might take a gamble on two mega caps, CVX (Chevron) and XOM (Exxon). Basically you'd be praying they don't cut the dividend and that the prices are low enough long enough to shake out some weaker and smaller companies, then oil prices recover enough to reward the stock holders of CVX and XOM (hopefully before the broader stock market appreciates more). You'd also be praying that your idiosyncratic risk doesn't bite you.

This is a "play money" idea. You don't really get a 10% dividend if the price goes down 10% too.

Valuethinker
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Re: Sell Tech to Buy Energy - Thoughts?

Post by Valuethinker » Thu Mar 26, 2020 4:54 am

MoneyMarathon wrote:
Wed Mar 25, 2020 11:37 pm
ETFJeph wrote:
Wed Mar 25, 2020 4:23 pm
Am I thinking about this the correct way?
You might take a gamble on two mega caps, CVX (Chevron) and XOM (Exxon). Basically you'd be praying they don't cut the dividend and that the prices are low enough long enough to shake out some weaker and smaller companies, then oil prices recover enough to reward the stock holders of CVX and XOM (hopefully before the broader stock market appreciates more). You'd also be praying that your idiosyncratic risk doesn't bite you.

This is a "play money" idea. You don't really get a 10% dividend if the price goes down 10% too.
The companies are signalling that they will cut capex to pay the dividend.

If I were advising them, I would tell them to slash the dividend. They can always rebuild the level when the market is more settled. It's reasonable to think the CORVID-19 crisis will last until next year at least (thinking on a global basis). The timing of the oil price war between Russia and Saudi Arabia is less certain - but I expect it to end eventually.

The question is whether they will also borrow more to pay the dividend and to buy back shares. I can see reasons why they might not do that. Chiefly that debt, even for Investment Grade oil companies, is going to command a higher risk premium = higher borrowing cost.

At the current prices for oil I doubt any of the world's listed oil companies, except perhaps Exxon, are profitable? Price has dropped below their net cost of production. Maybe I am too pessimistic and to some extent this is accounting related, because the price per barrel is below the cash cost of lifting for frackers and oil sands and offshore, but not for conventional oil wells?

The Saudis are basically saying they will take infinite pain to drive out other competitors. Hurting Russia and its ally, Iran, can't be a bad side effect. I expect eventually the Russians will cry "uncle".

What's interesting is the scale of the CORVID-19 problem in the 3 countries. They both have a lot at stake. My perception is the Saudi medical system is likely to be better. Russia is finally admitting (Putin, yesterday) that it has a real problem. In contrast to some others, Putin is a realist who will listen to his advisors. Iran we know is in an awful mess - the handling of this crisis has hurt the legitimacy of the ruling apparatus even more - it might be a Chernobyl moment even if the mechanism for change is unclear.

When you get to Spain, and Italy, and the desperately ill start piling up in the hospital corridors, then you have a crisis of legitimacy for the people in power.

Having oil at $20/ bl in the middle of this crisis, for 3 countries dependent on oil production, cannot be pleasant.

onourway
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Re: Sell Tech to Buy Energy - Thoughts?

Post by onourway » Thu Mar 26, 2020 5:14 am

I read in the WSJ earlier this week that Exxon is taking on debt and selling assets in order to “protect their dividend”. :oops:

I work in the industry and I would not touch this sinking ship. The majors will weather this, but there is going to be a lot of pain.

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tvubpwcisla
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Re: Sell Tech to Buy Energy - Thoughts?

Post by tvubpwcisla » Thu Mar 26, 2020 5:23 am

Sounds like it could work out for you and your portfolio. Decide on the right amount / portion and pull the trigger today. One thing I am curious of is when will you later sell the Energy to buy back into the Tech?

:?
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Re: Sell Tech to Buy Energy - Thoughts?

Post by nisiprius » Thu Mar 26, 2020 7:00 am

ETFJeph wrote:
Wed Mar 25, 2020 5:55 pm
And why?

I'm not looking for free advise, I'm interested in actually learning something, here.
As a starting point, do you know who Jack Bogle was and what he advocated? And have you read the Bogleheads investment philosophy? If you know what the philosophy actually is, then we can discuss various aspects of it. You don't need to believe in or agree with any of it, but knowing what the philosophy is, even if you reject it, is "actually learning something."

I would also call attention to Larry Swedroe's, "Rules of Prudent Investing." He gives a "why."
In 'The Quest for Alpha,' p. 156, Larry Swedroe wrote:#17: Owning individual stocks and sector funds is more akin to speculating, not investing. The market compensates investors for risks that cannot be diversified away, like the risk of investing in stocks versus bonds. Investors shouldn't expect compensation for diversifiable risk--the unique risks related to owning one stock or sector or country fund. Prudent investors only accept risk for which they will be compensated with higher expected returns.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

Topic Author
ETFJeph
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Re: Sell Tech to Buy Energy - Thoughts?

Post by ETFJeph » Thu Mar 26, 2020 1:20 pm

Simplicity, I regularly adhere to the KISS methodology. Our primary investment accounts are (mostly) two or three fund portfolios.

This smaller group of shares is more a speculation than investing, and, it's the technical aspects that I'm unfamiliar with or unaware of, which is why I'm here. And apparently, there is MUCH to be learned; and thank you to everyone here for your patience and suggestions, lessons, and view points.

I just couldn't see oil going too much lower than it has, this current situation of the oil markets seems a bit crazy enough, already.
And the whole issue of dividends, well..., deeper than I expected.

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TomatoTomahto
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Re: Sell Tech to Buy Energy - Thoughts?

Post by TomatoTomahto » Thu Mar 26, 2020 2:10 pm

If you’re using play money, you might Luck out.

However, it’s counter-intuitive to me that, out of the haystack, you’d sell the future (tech) to buy the past (fossil fuels). Just keep buying the haystack.
Okay, I get it; I won't be political or controversial. The Earth is flat.

asif408
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Re: Sell Tech to Buy Energy - Thoughts?

Post by asif408 » Thu Mar 26, 2020 2:28 pm

Lot of negative posts here. I'll take the other side and say personally, I don't see a problem with it. You're looking to buy low and sell high and you not betting the farm on it, and you've found a cheap way to implement it; those seem like good bogleheads principles. I say go for it, it might work out, it might not, but it will be a good educational exercise however it plays out. I personally own the ETF FILL (which is a global version of VDE). Had to top it up recently (pardon the pun) because of the large fall in energy.

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