Sigh. IlliniDave = Market Timer (VGENX) [Vanguard Energy Fund]

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IlliniDave
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Sigh. IlliniDave = Market Timer (VGENX) [Vanguard Energy Fund]

Post by IlliniDave »

I completed my backdoor conversion today and couldn't resist VGENX (closed yesterday below 2009 low). I did the same think with VGPMX a couple years ago and proceeded to get pummeled. That's clearly a possibility here as well.

My little Roth is my "play space" where I'm trying to collect moderately (or less) correlated assets just to see what that buys me over time with a periodic (every 4 years) rebalancing plan in place to equal weight the funds.

I try really hard to be the boglehead equivalent of an Eagle Scout. But I'm weak.

Edit: VGENX is Vanguards energy sector specialty fund for those like me that aren't able to memorize volumes of ticker symbols.
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cfs
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Re: Sigh. IlliniDave = Market Timer (VGENX)

Post by cfs »

IlliniDave wrote: . . . My little Roth is my "play space" . . . .
Ahoy, shipmate!

No issues, as long as you are using your play money (better odds than playing the lotto). Good luck with your Vanguard Energy position.

Full Disclaimer: I have not included Vanguard Energy in the [fictitious] "The Lowest Rated Fund."
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Re: Sigh. IlliniDave = Market Timer (VGENX)

Post by nanoanalyzer »

It's easy to veer off course in this climate. Just the other day I was discussing changing our AA by 5% (toward stocks) because of this opportunity. Then, I realized this is basically the same low point as 3 months ago, and I didn't do it then. I probably shouldn't do it now, either. In the end, I decided that when there's an even bigger sale, 20% off or so, then I can reconsider the ol' AA to take advantage of the buying opportunity.

Something down to 2009 lows with good long-term business prospects, like energy, now that looks like a deal. I just don't have enough information and don't believe I'm smart enough to grab some alpha over the total market... My signature applies.
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Re: Sigh. IlliniDave = Market Timer (VGENX)

Post by ray.james »

I am looking at oil too. It slightly surprises me that so far no companies have shown signs of crushing under debt load. I will wait for little more blood before loading up on oil.
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Re: Sigh. IlliniDave = Market Timer (VGENX)

Post by White Coat Investor »

I "play" in taxable with my mortgage payoff fund. At least that way Uncle Sam shares my pain! I think I've harvested close to $10K in losses already on $130K invested in the last few months. Of course, even with those tax losses, so far I would have come out ahead just throwing the money at the mortgage, even at an effective rate of 1.5%. Hopefully that doesn't keep up forever.
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IlliniDave
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Re: Sigh. IlliniDave = Market Timer (VGENX)

Post by IlliniDave »

nanoanalyzer wrote: Something down to 2009 lows with good long-term business prospects, like energy, now that looks like a deal. I just don't have enough information and don't believe I'm smart enough to grab some alpha over the total market... My signature applies.
The main feature in my selection of it was that its eyeball correlation with the total market does not look particularly high. It's sort of an MPT experiment on my part. That it appeared relatively cheap was the straw that broke the camel's back for buying it now versus some other things I was considering. So taking a stab at fortuitously timing a buy was only part of the motivation.
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Re: Sigh. IlliniDave = Market Timer (VGENX)

Post by Dulocracy »

I have had bad luck throwing "play money" around. I bought into FLATX (South America Fund) before becoming a boglehead. I bought because it was down. I would be much better off had I put the money in cash. Or gold. Or baseball cards. It kept going down. My concern with energy funds is that they have natural gas. Because of a fear of what would happen to the funds if fracking was banned, and because a lot of those companies are being targeted to be pushed out of business by OPEC, I am not willing to take that gamble, however attractive the potential gains may be. Of course, I am one of the few people who did not buy the $1 billion lottery ticket, either.

VGPMX is more interesting to me, especially at these rates, but I have sworn off sector investing (with the exception of my Fidelity rewards from a credit card that mostly go to frontier markets (FM). I figure that I can afford to lose my 2% cash back rewards. Still, you are correct in that these funds do look tempting. Just make sure it is not a siren's call. It may be better to pour wax in our ears until we pass the siren's call.
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Re: Sigh. IlliniDave = Market Timer (VGENX)

Post by Snowjob »

I am terrible with market timing, however I did hear one bit of advice that makes sense -- wait until the bottom is in and the turn around is motion! Better to catch half the upside and none of the down, then be in for a whole lot more downside than you wanted by being early. I think this especially makes sense for materials and energy names that have such huge structural issues with overcapacity. I myself am dipping into various names, the most adventurous being some industrials. I maintain no direct energy exposure and wont until we actually see a rebound. Take that for what its worth.
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Maynard F. Speer
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Re: Sigh. IlliniDave = Market Timer (VGENX)

Post by Maynard F. Speer »

IlliniDave wrote:I completed my backdoor conversion today and couldn't resist VGENX (closed yesterday below 2009 low). I did the same think with VGPMX a couple years ago and proceeded to get pummeled. That's clearly a possibility here as well.

My little Roth is my "play space" where I'm trying to collect moderately (or less) correlated assets just to see what that buys me over time with a periodic (every 4 years) rebalancing plan in place to equal weight the funds.

I try really hard to be the boglehead equivalent of an Eagle Scout. But I'm weak.

Edit: VGENX is Vanguards energy sector specialty fund for those like me that aren't able to memorize volumes of ticker symbols.
If you're prepared to buy-and-hold, at worst you're a value investor, or a contrarian - not bad things to be ... The term 'market timing' carries a lot of baggage

I maintain a small holding in Russia - which tends to track energy stocks, and with really on-the-floor valuations

I wouldn't expect oil to recover before 2020, but at some point presumably the supply and demand situation is going to reverse ... When in doubt, I might impose a rule like only buying/topping up when the sector's above the 200 day trend line (reduces the likelihood of falling knives) EDIT: as the poster above mentions ^^
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IlliniDave
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Re: Sigh. IlliniDave = Market Timer (VGENX)

Post by IlliniDave »

Thanks for the thoughts. This is one I intend to ride out. I'm used to the falling knives, caught one of those on VGPMX(precious metals/mining), another occupant of my Roth play space, last year. I won't be calling success or failure on either for at least 10-15 years, and at on the order of 1% of my invested assets, won't make or break me either way. Just a guilty pleasure (and the "market timer" label I gave myself was partly tongue-in-cheek).
Last edited by IlliniDave on Wed Jan 13, 2016 2:01 pm, edited 1 time in total.
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Re: Sigh. IlliniDave = Market Timer (VGENX)

Post by packet »

I'm just not smart (confident?) enough to do these sort'a things...
I'm busy offsetting market losses by investing the difference between this year's and last year's oil (heat) bills ... :sharebeer

:beerCheers,
packet
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IlliniDave
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Re: Sigh. IlliniDave = Market Timer (VGENX)

Post by IlliniDave »

packet wrote:I'm just not smart (confident?) enough to do these sort'a things...
I'm busy offsetting market losses by investing the difference between this year's and last year's oil (heat) bills ... :sharebeer

:beerCheers,
packet
Ha! Where do you think I got my money for this (and gasoline savings). There's nothing "smart" about this from my perspective--it's actually something rather naive on my part. Just something fun to get outside the box. May make the grandkiddies grumpy someday if Grandpa ruined their windfall with lousy decisions, but maybe it will pay off for them when their day comes. :)
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tainted-meat
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Re: Sigh. IlliniDave = Market Timer (VGENX)

Post by tainted-meat »

Not a bad fund for a long play. I've been doing emerging markets myself. They say wealth is created in bear markets :twisted:
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Re: Sigh. IlliniDave = Market Timer (VGENX)

Post by staythecourse »

As long as it is your play great move!!

If your going to throw darts at the wall it makes sense to aim for the "likely" RTM to occur.

I am sure it is pure rationalization on my part, but there is no reason precious metals can't be down forever as they are not a needed material for manufacturing or construction.

Now energy on the other hand is vital to world economy if/ when it ever gets going again.

Again, if your going to bet on black that is as good as one to bet on.

Good luck.
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Re: Sigh. IlliniDave = Market Timer (VGENX)

Post by tainted-meat »

Wow, just checked the chart. It's lower than it was on March 6th of 2009. This is a great long-term holding IMO.
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Re: Sigh. IlliniDave = Market Timer (VGENX)

Post by countmein »

I like it except for the rebalancing. When you commit to rebalancing, you are potentially opening up a black hole that sucks in more of your cash than you ever intended. I say just buy it and decide not to think about it again for 20+ years.
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Re: Sigh. IlliniDave = Market Timer (VGENX)

Post by BW1985 »

Just curious how much of your portfolio did you commit to Energy? Guessing since you said play money it's rather small.
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Re: Sigh. IlliniDave = Market Timer (VGENX)

Post by IlliniDave »

BW1985 wrote:Just curious how much of your portfolio did you commit to Energy? Guessing since you said play money it's rather small.
Around 1.0%-1.2%, something like that. My Roth (total play space) comes in around 6.0%. So yes, not much in the grand scheme of things. I violate the fungibility of money prime directive and treat that account as it's own universe and "keep score".
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Re: Sigh. IlliniDave = Market Timer (VGENX)

Post by RenoJay »

I've been buying Vanguard's Energy ETF, so you're in good company, but the amount in there represents less than 1.5% of investable assets. The rest of the equity portion is mostly in total market (US and Intl) indexes.
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Re: Sigh. IlliniDave = Market Timer (VGENX)

Post by whatistiaa »

IlliniDave wrote:
BW1985 wrote:Just curious how much of your portfolio did you commit to Energy? Guessing since you said play money it's rather small.
Around 1.0%-1.2%, something like that. My Roth (total play space) comes in around 6.0%. So yes, not much in the grand scheme of things. I violate the fungibility of money prime directive and treat that account as it's own universe and "keep score".
Curious why VGENX and not VDE (Vanguard's index ETF). VGENX has been underperforming the index ETF (VDE) and the index mutual fund (though that is only available in admirals shares and min 100k).
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Re: Sigh. IlliniDave = Market Timer (VGENX) [Vanguard Energy Fund]

Post by BW1985 »

Wondering if anyone has a significant position in Energy, say 10% or more?
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Re: Sigh. IlliniDave = Market Timer (VGENX)

Post by IlliniDave »

whatistiaa wrote:
IlliniDave wrote:
BW1985 wrote:Just curious how much of your portfolio did you commit to Energy? Guessing since you said play money it's rather small.
Around 1.0%-1.2%, something like that. My Roth (total play space) comes in around 6.0%. So yes, not much in the grand scheme of things. I violate the fungibility of money prime directive and treat that account as it's own universe and "keep score".
Curious why VGENX and not VDE (Vanguard's index ETF). VGENX has been underperforming the index ETF (VDE) and the index mutual fund (though that is only available in admirals shares and min 100k).
Vgenx is US + international which is probably why it's lagging some, it actually comes out a little ahead of its own benchmark.I also don't have a brokerage account and everything with one exception (which I intend to change) in my Roth is a non-index fund (part of the strategy/experiment).
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IlliniDave
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Re: Sigh. IlliniDave = Market Timer (VGENX)

Post by IlliniDave »

staythecourse wrote: I am sure it is pure rationalization on my part, but there is no reason precious metals can't be down forever as they are not a needed material for manufacturing or construction.
Unless they've changed in the last year or so, VGPMX really isn't a pure "gold fund" (or precious metals), it's spread across all sorts of things dug out of the ground, some of which are consumed in the economy (that was my "rationale" at the time).
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Re: Sigh. IlliniDave = Market Timer (VGENX) [Vanguard Energy Fund]

Post by nanoanalyzer »

Behold, the IlliniDave Effect. Nice little 3% bump over the top of VTI today for VDE 8-)

What's your exit strategy on this one? I wish we didn't have to be right twice to collect on a good timing play.
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Re: Sigh. IlliniDave = Market Timer (VGENX) [Vanguard Energy Fund]

Post by Valuethinker »

BW1985 wrote:Wondering if anyone has a significant position in Energy, say 10% or more?
Not by choice. The UK stock market index, FTSE All-Share, is weighted more than 10% in oil & gas due to the presence of 2 of the supermajors: BP and Shell. And Shell is taking over the 3rd largest stock, BG Group. For various reasons, I have a fair number of UK index funds.

Other stock indices like that include Canada, Brazil (Petrobras), Russia (of course). CNOOC (China) and Petrochina are pretty big too but not sure w/o checking what percentage of index.
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IlliniDave
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Re: Sigh. IlliniDave = Market Timer (VGENX) [Vanguard Energy Fund]

Post by IlliniDave »

nanoanalyzer wrote:Behold, the IlliniDave Effect. Nice little 3% bump over the top of VTI today for VDE 8-)

What's your exit strategy on this one? I wish we didn't have to be right twice to collect on a good timing play.
I don't have one, it wasn't a timing play in the classic sense. I'll revisit in a few years, maybe do some rebalancing within the Roth account, or not. Oil is below $30 again this morning so possible most of yesterday's gains will evaporate today.
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Re: Sigh. IlliniDave = Market Timer (VGENX) [Vanguard Energy Fund]

Post by dbltrbl »

Wait till summer driving season. Heck, spring break. Oil will be higher. $ 50.00 or $ 60.00 no idea but will be higher. With all SUVs flying off dealer's lot It will be higher.
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Re: Sigh. IlliniDave = Market Timer (VGENX) [Vanguard Energy Fund]

Post by Valuethinker »

dbltrbl wrote:Wait till summer driving season. Heck, spring break. Oil will be higher. $ 50.00 or $ 60.00 no idea but will be higher. With all SUVs flying off dealer's lot It will be higher.
I agree that Americans' renewed enthusiasm for big vehicles is helpful. "Let them drive tanks" as Marie Antoinette did not say. And Vehicle Miles Travelled is up for the first time in 7-8 years (that might be per capita, ie the total has been rising but not as fast as inflation- -would have to check).

Nonetheless my crystal ball says you are too early. China is a *lot* weaker than its official numbers. The signs of panic in the Gulf States (Qatar I think has raised retail gasoline prices by 30%) suggest that they are digging in for the long haul. Iran is about to come back on line.

Lots of supply, and weak world demand. As yet, little sign that the frackers are cutting back. Will take 2-3 years at least for the oil co capex cutbacks to be really felt.

But my crystal ball is cloudy ;-).
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Re: Sigh. IlliniDave = Market Timer (VGENX) [Vanguard Energy Fund]

Post by just frank »

dbltrbl wrote:Wait till summer driving season. Heck, spring break. Oil will be higher. $ 50.00 or $ 60.00 no idea but will be higher. With all SUVs flying off dealer's lot It will be higher.
The US car fleet is old...11.5 years. A lot of those new SUVs are now built on car chassis, have record high gas mileage (in class) for MY2016 due to better engine engineering, and are replacing a lower mileage SUV! Gasoline consumption is growing more slowly than miles travelled, and that is not growing as fast as the population.
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Re: Sigh. IlliniDave = Market Timer (VGENX) [Vanguard Energy Fund]

Post by slick_dealer_05 »

I would wait for a couple of bankruptcies before buying VGENX.
I think Apache, Chesapeake, Devon, Marathon, etc. are just weeks away from going under.
YTD (2016) - Chesapeake down 33%, Devon down 24%, Marathon down 35% ...
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Re: Sigh. IlliniDave = Market Timer (VGENX) [Vanguard Energy Fund]

Post by Investment101 »

dbltrbl wrote:Wait till summer driving season. Heck, spring break. Oil will be higher. $ 50.00 or $ 60.00 no idea but will be higher. With all SUVs flying off dealer's lot It will be higher.
summer oil will be higher, when does it go down? autumn? then winter up again right?
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Re: Sigh. IlliniDave = Market Timer (VGENX) [Vanguard Energy Fund]

Post by zaboomafoozarg »

Nice, it looks like it's outperformed the total US index by 10% in the past month and a half.

Next thing we know, Dave will be starting the ILDVX mutual fund. Do it and I'll give you a percent of my AA! :D

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Re: Sigh. IlliniDave = Market Timer (VGENX) [Vanguard Energy Fund]

Post by NYCwriter »

I purchased XLE when oil dropped below $27. I had been mulling the purchase for a while, and watching things, so it wasn't an impulse buy. But definitely opportunistic for someone who is fairly conservative.

I could have gone with the Vanguard where my core funds are, but I still have some holdings at Fidelity and a lot of free commissions. These are holdings I follow more closely, while with VG I just ignore it until I have to balance.

I don't plan to add significantly, and it's a tiny percentage of the whole.

Yes, it's been doing well. that doesn't mean it won't plummet again.
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Re: Sigh. IlliniDave = Market Timer (VGENX) [Vanguard Energy Fund]

Post by whodidntante »

slick_dealer_05 wrote:I would wait for a couple of bankruptcies before buying VGENX.
I think Apache, Chesapeake, Devon, Marathon, etc. are just weeks away from going under.
YTD (2016) - Chesapeake down 33%, Devon down 24%, Marathon down 35% ...
Marathon just recently had a successful stock issuance. I think Devon did too. Jim Cramer commented that Marathon is an attractive takeover target.

I don't think they are "weeks away" from going under. We'll see.
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Re: Sigh. IlliniDave = Market Timer (VGENX) [Vanguard Energy Fund]

Post by hoops777 »

Look at it this way,your downside is very low and your upside is very high.The world cannot function without energy.I would not be losing any sleep over it,unless you think the big oils are going under and we are all going to be riding bikes.
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Re: Sigh. IlliniDave = Market Timer (VGENX) [Vanguard Energy Fund]

Post by JonnyDVM »

I used my wife's Roth space to buy some oil EFT (UBN) in January. As I told her this week- it's going great because it's sort of almost back to even :twisted:. I consider Roth space a good place to play so to speak. I just wish I was better at the game.
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Re: Sigh. IlliniDave = Market Timer (VGENX) [Vanguard Energy Fund]

Post by Snowjob »

hoops777 wrote:Look at it this way,your downside is very low and your upside is very high.The world cannot function without energy.I would not be losing any sleep over it,unless you think the big oils are going under and we are all going to be riding bikes.
If all the oils go under and the company is transferred to the bond holders (who are converted to equity) and then re-emerge still owning all the energy assets but none of the debt, the world still goes on -- and the prior equity is extinguished. don't confuse the importance of a industry with the value of the equity.
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Re: Sigh. IlliniDave = Market Timer (VGENX) [Vanguard Energy Fund]

Post by hoops777 »

Snowjob...I am not confusing anything.I just have a more realistic outlook.Microsoft,Apple,Johnson and Johnson and Walmart could all go under too.Anything is possible.That is why it is called risk and you make a judgement on how much risk you want to take.
He did not buy a a couple obscure companies.He bought a fund with all the largest and best companies.
K.I.S.S........so easy to say so difficult to do.
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Re: Sigh. IlliniDave = Market Timer (VGENX) [Vanguard Energy Fund]

Post by Valuethinker »

hoops777 wrote:Snowjob...I am not confusing anything.I just have a more realistic outlook.Microsoft,Apple,Johnson and Johnson and Walmart could all go under too.Anything is possible.That is why it is called risk and you make a judgement on how much risk you want to take.
He did not buy a a couple obscure companies.He bought a fund with all the largest and best companies.
None of those companies has much corporate debt, I don't believe, though.

Apple has $150bn + of net cash.

Walmart arguably has big debt in its operating leases. Conversely it owns a lot of its stores.

By contrast, a lot of the energy sector is highly leveraged.

Note also that if the average sales price of *every* product MSFT AAPL JJ WMT sold fell by 70% in 15 months, they, too, would be in financial distress. But that's a lot less likely.
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Re: Sigh. IlliniDave = Market Timer (VGENX) [Vanguard Energy Fund]

Post by NYCwriter »

The largest companies have stability. This doesn't mean the market is stable. It's inevitable that oil will eventually go up. It's also inevitable that at some point we will no longer be able to rely on fossil fuels at all so we should keeping our bikes (but that's a while off :)

XLE is all major companies, and has gone from $53/share cost basis to $61 since the end of Jan. I'm not seeing too much downside from $53; this may happen with multiple bankruptcies or debt issues down the line. I think the effect may be felt as much on banks.

I also own Gold trust ETF (GLD) since Jan. Both are interesting gauges of optimism/pessimism, which is the primary market driver.
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Re: Sigh. IlliniDave = Market Timer (VGENX) [Vanguard Energy Fund]

Post by IlliniDave »

zaboomafoozarg wrote:Nice, it looks like it's outperformed the total US index by 10% in the past month and a half.

Next thing we know, Dave will be starting the ILDVX mutual fund. Do it and I'll give you a percent of my AA! :D
LOL! I didn't realize it had done quite so well. If it keeps that up for 5-10 years ... 8-)
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Re: Sigh. IlliniDave = Market Timer (VGENX)

Post by jrbdmb »

Snowjob wrote:I did hear one bit of advice that makes sense -- wait until the bottom is in and the turn around is motion!
Easy to say, but oh so difficult to do. How do you know that the bottom is really in and it is a turnaround, and not just a bounce that will be followed by another downturn?
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Re: Sigh. IlliniDave = Market Timer (VGENX)

Post by Valuethinker »

jrbdmb wrote:
Snowjob wrote:I did hear one bit of advice that makes sense -- wait until the bottom is in and the turn around is motion!
Easy to say, but oh so difficult to do. How do you know that the bottom is really in and it is a turnaround, and not just a bounce that will be followed by another downturn?

;-).

You'll only know the bottom in retrospect, and there can be lots of false dawns on the way. Look at the stock market in the 1930s or the 1970s.
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Re: Sigh. IlliniDave = Market Timer (VGENX) [Vanguard Energy Fund]

Post by Grt2bOutdoors »

slick_dealer_05 wrote:I would wait for a couple of bankruptcies before buying VGENX.
I think Apache, Chesapeake, Devon, Marathon, etc. are just weeks away from going under.
YTD (2016) - Chesapeake down 33%, Devon down 24%, Marathon down 35% ...
Yes, Devon (dvn) and Marathon (MRO) are weeks away from selling new equity in their company at the time of your prediction. Not only did they sell the equity they wanted, they were oversubscribed.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
Investment101
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Re: Sigh. IlliniDave = Market Timer (VGENX) [Vanguard Energy Fund]

Post by Investment101 »

question: I purchased VGENX back in May 20th and it was $47.49 and oil was at around 48. now oil is at 41 but VGENX went up 49.23. why is it like that? oil went down but vgenx went up?


Oil is kinda low so I want to buy some VGENX, but it went up to 49.23 currently what's up with that?

I dont' understand please explain
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nedsaid
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Re: Sigh. IlliniDave = Market Timer (VGENX) [Vanguard Energy Fund]

Post by nedsaid »

Investment101 wrote:question: I purchased VGENX back in May 20th and it was $47.49 and oil was at around 48. now oil is at 41 but VGENX went up 49.23. why is it like that? oil went down but vgenx went up?


Oil is kinda low so I want to buy some VGENX, but it went up to 49.23 currently what's up with that?

I dont' understand please explain
Markets look ahead. It could be that the markets believe that the dip in oil prices are temporary. The thing is, it is hard to know for sure. In the short run, markets do all kinds of crazy things for apparently no reason.
A fool and his money are good for business.
Investment101
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Re: Sigh. IlliniDave = Market Timer (VGENX) [Vanguard Energy Fund]

Post by Investment101 »

thanks so.....oil went to 41 but ain't a good time to buy huh? coz vgenx is still high wth.....odd

so can't take advantage of the low 41.....maybe some other funds I guess
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just frank
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Re: Sigh. IlliniDave = Market Timer (VGENX) [Vanguard Energy Fund]

Post by just frank »

You energy speculator Bogleheads are all a blast. For energy we only look at historical price (technical analysis), decide its gotta double when oil prices double, and never look at PE. For the rest of the portfolio, say SP500, we only look at PE, wring our hands and decide that we'll be lucky to get 3% CAGR for the next 30 years. :wink:

If we try to be consistent, we should look at PE of the oil majors:

Exxon, XOM is currently at 28, versus 18 when this thread started. They have been writing new bonds just to cover their dividend.

https://ycharts.com/companies/XOM/pe_ratio

Chevron, CVX is losing money, so its PE was 38 when the thread started, now its 158. :shock:

https://ycharts.com/companies/CVX/pe_ratio

Schlumerger, SLB was 38 when the thread started, now its 61.

https://ycharts.com/companies/SLB/pe_ratio

Bargains. We should all go long. :D

Of course, those numbers will improve if/when the price of oil rebounds, but how much company value will be destroyed first? Keep in mind that oil is a globally traded commodity, and the Oil majors listed in VGENX are holding all the most expensive to produce (conventional) oil assets in the world, and are in the middle of a price war with OPEC AND Russia. The major oil service companies (Schlumberger in the index) have gotten fat selling to the frackers (like Pioneer, PXD in the index), whose unconventional assets are even MORE expensive to produce, developed using $300B in junk bonds ($50/barrel produced to date!) that they are gradually defaulting on, and are now paying the service companies for work at or below their cost....no profits.

And now EIA, etc say the 'glut' might last well into 2017, versus end of 2015 when this all started.

Bonus: People like to talk about the downstream business (e.g. refining) saving the majors....but there is a 'gasoline glut' due to lower than expected US gasoline demand (higher mpg SUVs flying off the lots?) and Chinese refiners dumping cheap (refiners margin) gasoline into the US market. CNOOC's downstream needs to eat too, and will work cheaper than XOMs. So much for the 'summer surge' in oil prices.

Summary: all the holdings in VGENX are losing or close to losing money and have lousy positions relative to their competition...so are seriously bad investments from a 'value' perspective. You are all speculating that a future oil-price surge will bring back the 'good old days' and restore these guys to their former profitability. Good luck with that. We are now 20 months into this price war. When high oil prices collapsed in 1984, they didn't recover for 20 years. Maybe this time is different.
Valuethinker
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Re: Sigh. IlliniDave = Market Timer (VGENX) [Vanguard Energy Fund]

Post by Valuethinker »

just frank wrote:You energy speculator Bogleheads are all a blast. For energy we only look at historical price (technical analysis), decide its gotta double when oil prices double, and never look at PE. For the rest of the portfolio, say SP500, we only look at PE, wring our hands and decide that we'll be lucky to get 3% CAGR for the next 30 years. :wink:

If we try to be consistent, we should look at PE of the oil majors:

Exxon, XOM is currently at 28, versus 18 when this thread started. They have been writing new bonds just to cover their dividend.

https://ycharts.com/companies/XOM/pe_ratio

Chevron, CVX is losing money, so its PE was 38 when the thread started, now its 158. :shock:

https://ycharts.com/companies/CVX/pe_ratio

Schlumerger, SLB was 38 when the thread started, now its 61.

https://ycharts.com/companies/SLB/pe_ratio

Bargains. We should all go long. :D
The conventional wisdom with oil stocks was that because of depletion allowances, writeoffs etc. PE was a poor guide to value. You need to look at Price to Cash Flow, also market value per barrel of oil equivalent (proved and probable under SEC definitions)-- there is a formula for adjusting gas reserves to equal BOE *but* the price of natural gas in North America is now structurally lower than it used to be, and likely to be so for a very extended period. (remembering if it is say $5.00 per mm BTU that's still 2x some recent prices, and c. 1/3rd of its highs in the early 2000s).

XOM is about dividend yield. The company has not cut its dividend since the 1930s and something like 30% of stock is held by individual investors (vs. LT 10% for US public cos generally)-- perhaps partly Rockefeller family descendants, but also a phenomenal loyalty from people who have handed the stock down, generation upon generation.

That pins the stock price up there, although as you say, they are cash flow negative post dividend.

Chevron you can't calculate a meaningful PE on a loss making/ low profit business.

Schlumberger is the King/ Queen of the oil services sector. It *always* has a premium PE. As the National Oil Companies (NOCs) have expanded, the way to get access is not via the majors (who don't get the sweet royalty deals that Shell secured in Nigeria, say) but via the Services sector. And SLB invented and patented many of the key technologies. It's an interesting company, because it makes the Franco-American-International culture *work* which is very rare in my experience (think of any number of investment banks, where the NY office hates the Euro/ Japanese head office).
Of course, those numbers will improve if/when the price of oil rebounds, but how much company value will be destroyed first? Keep in mind that oil is a globally traded commodity, and the Oil majors listed in VGENX are holding all the most expensive to produce (conventional) oil assets in the world, and are in the middle of a price war with OPEC AND Russia.
Canadian tar sands and deep offshore Brasil are the highest marginal cost resources-- $60/bl and up for new production. Worse than the North American frackers.
The major oil service companies (Schlumberger in the index) have gotten fat selling to the frackers (like Pioneer, PXD in the index), whose unconventional assets are even MORE expensive to produce, developed using $300B in junk bonds ($50/barrel produced to date!) that they are gradually defaulting on, and are now paying the service companies for work at or below their cost....no profits.

And now EIA, etc say the 'glut' might last well into 2017, versus end of 2015 when this all started.
And the "end" of the age of oil has appeared on the horizon-- the mass produced electric car. It's a bit like looking at the Altair or SWTP computers (or that earlier IBM APL machine, that cost $25k?) and saying "here is the end of the mainframe". But this time, it really is looking like it may happen.

One thing about US bankruptcy law, the company can keep running in Chapter 11, so that production does not rapidly disappear.
Bonus: People like to talk about the downstream business (e.g. refining) saving the majors....but there is a 'gasoline glut' due to lower than expected US gasoline demand (higher mpg SUVs flying off the lots?) and Chinese refiners dumping cheap (refiners margin) gasoline into the US market. CNOOC's downstream needs to eat too, and will work cheaper than XOMs. So much for the 'summer surge' in oil prices.
Vehicle Miles Travelled is rising again, and average fuel economy of new sales shrinking (more SUVs and light trucks). But as you say, I guess what is happening is that these new, more fuel efficient Light vehicles are replacing old, very fuel inefficient ones.

Much of the summer price surge in USA is about different formulations that are legal in different markets-- it prevents a flow of say cheap gasoline from the Midwest into California during a price spike (summer driving season). It's really a complete mess.
Summary: all the holdings in VGENX are losing or close to losing money and have lousy positions relative to their competition...so are seriously bad investments from a 'value' perspective. You are all speculating that a future oil-price surge will bring back the 'good old days' and restore these guys to their former profitability. Good luck with that. We are now 20 months into this price war. When high oil prices collapsed in 1984, they didn't recover for 20 years. Maybe this time is different.
It doesn't look like the glut is anything as bad as the excess capacity available in the 1980s BUT

- fracking is much more closely linked to price than conventional oil production, so price rises may be met by supply increases, very quickly

- electric cars have appeared. Right now they are a rounding error on total demand. For now.

- India is adopting cars very fast, but in terms of infrastructure India cannot keep up in building roads etc. -- and motorbikes are growing far faster

- many countries that hitherto highly subsidised gasoline prices (Saudi Arabia, Argentina, Nigeria, Indonesia, Iran, India etc.) are starting to cut those subsidies significantly. Fossil fuel subsidies are a "free win" of the various international commitments to reduce emissions-- cut those, make the economy better off *and* reduce consumption

My own view, which is perhaps aligned with yours? is that whilst oil can easily get to $60/bl, it's hard to see any reason (other than geopolitical events) why it would be sustained above that for any length of time-- because that's about the marginal cost of expensive new production.
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just frank
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Re: Sigh. IlliniDave = Market Timer (VGENX) [Vanguard Energy Fund]

Post by just frank »

@Valuethinker we do agree about 99% of the above, as usual.

But my major point is that the value proposition for the companies listed in VGENX has been transformed radically since November 2014. Much media coverage (at least in the US) appears to imply that low oil prices are a short term phenomenon that will pass, and the business will then return to a pre-2014 'normal' state. And that opinion seems to underpin the voices upthread happy to snap up VGENX long as a bargain that is likely to provide a satisfying 'pop' when 'normal' resumes.
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