Oil Slump ---- VGENX/FSENX? [Vanguard / Fidelity Energy Fund]

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goodlife828
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Oil Slump ---- VGENX/FSENX? [Vanguard / Fidelity Energy Fund]

Post by goodlife828 »

I have been following the latest slump in oil. WIth oil currently at $26.76 a barrel, I am considering taking a position in oil/energy.

No one knows how low oil will go, perhaps $20 (or maybe even the high teens). While I do not agree with speculative investments (such as going after individual stocks), I believe that the Vanguard Energy Fund (VGENX) could be a good approach to the current oil slump.

Does anyone have a holding in VGENX? Or Fidelity's version -- FSENX

Is anyone considering jumping in on VGENX currently?

What are your thoughts. I know that Bogle has stated that people do not necessarily need sector funds.

The ten largest holdings in VGENX are as follows:

Exxon Mobil Corp.
Chevron Corp.
Royal Dutch Shell plc
Pioneer Natural Resources Co.
Schlumberger Ltd.
EOG Resources Inc.
TOTAL SA
BP plc
Halliburton Co.
Phillips 66



Is anyone else in my situation? Is anyone considering other similar options?

Thank You.
OatmealAddict
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Re: OIL SLUMP ---- VGENX/FSENX?

Post by OatmealAddict »

A little too speculative for my taste, but you might have a heartier appetite for risk than me, so whatever floats your boat.

If you've done your research and are convinced that there's more room for upside than down and we are in fact at or very close to a bottom in oil...AND have some fun money to essentially gamble, go for it and report back to us.

Personally, I'm cool with the energy investments I already have and continue to purchase in VTSAX.
Valuethinker
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Re: OIL SLUMP ---- VGENX/FSENX?

Post by Valuethinker »

goodlife828 wrote:I have been following the latest slump in oil. WIth oil currently at $26.76 a barrel, I am considering taking a position in oil/energy.

No one knows how low oil will go, perhaps $20 (or maybe even the high teens). While I do not agree with speculative investments (such as going after individual stocks), I believe that the Vanguard Energy Fund (VGENX) could be a good approach to the current oil slump.

Does anyone have a holding in VGENX? Or Fidelity's version -- FSENX

Is anyone considering jumping in on VGENX currently?

What are your thoughts. I know that Bogle has stated that people do not necessarily need sector funds.

The ten largest holdings in VGENX are as follows:

Exxon Mobil Corp.
Chevron Corp.
Royal Dutch Shell plc
Pioneer Natural Resources Co.
Schlumberger Ltd.
EOG Resources Inc.
TOTAL SA
BP plc
Halliburton Co.
Phillips 66



Is anyone else in my situation? Is anyone considering other similar options?

Thank You.
There are at least 2 long threads ongoing about this one.

It's "oversold" vs. "catch a falling knife". You pays your money-- and you takes your chance.
ActionJackson
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Re: OIL SLUMP ---- VGENX/FSENX?

Post by ActionJackson »

I bought 3k of VGENX earlier this week.

I'm hoping it will payoff in 5 or 10 years but if it doesn't then no biggie. I just have to be mentally prepared to handle a bigger drop than it has already taken.

I wouldn't put too big a stake in energy. Too much sector risk to bank my retirement on.
Dimitri
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Re: OIL SLUMP ---- VGENX/FSENX?

Post by Dimitri »

I have VGENX. Bought it at $51.13 early last year. Watched it go up, got greedy, now am stuck pretty good. At this point the way I see it I've got three options. Do nothing. Double down. Or sell it and lick my wounds. At this point I'm pretty much inclined to double down on it. Why not? My Vanguard Roth IRA isn't looking too healthy at this point - roughly 40% VGENX, 20% VGPMX (Vanguard Precious Metals and Mining Fund) which I bought at $9.87 to average down from $12.00 that I paid in my IRA, and 40% Prime Money Market.
Let's never come here again because it would never be as much fun.
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dziuniek
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Re: OIL SLUMP ---- VGENX/FSENX?

Post by dziuniek »

JimmyD wrote:A little too speculative for my taste, but you might have a heartier appetite for risk than me, so whatever floats your boat.

If you've done your research and are convinced that there's more room for upside than down and we are in fact at or very close to a bottom in oil...AND have some fun money to essentially gamble, go for it and report back to us.

Personally, I'm cool with the energy investments I already have and continue to purchase in VTSAX.
Agree with JimmyD here.

I did buy USO (United States Oil Fund LP) today @8.17 in the 'just for fun' account.
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surfstar
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Re: OIL SLUMP ---- VGENX/FSENX?

Post by surfstar »

Bought some VDE (Vanguard energy ETF) and quickly lost money. :D Only a small, barely even a "tilt" of my portfolio, but a nice reminder on investing with hunches/feelings.

Its a hedge, oil goes down, my gas costs stay lower, oil goes up, my investment goes up ;)
Of course they sometimes mange to make gas prices go way up in CA, while oil has gone down :annoyed
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FelixTheCat
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Re: OIL SLUMP ---- VGENX/FSENX?

Post by FelixTheCat »

My Oil & Gas is 6.5% of my domestic holdings. It's in Total Stock Market Index.
Felix is a wonderful, wonderful cat.
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Peter Foley
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Re: OIL SLUMP ---- VGENX/FSENX?

Post by Peter Foley »

The same though has crossed my mind. I think it is just as justifiable to have some assets in a natural resources fund as it is to have them in REITS.

If one were buying to hold for the long term, the 2.5% dividend would be a nice bonus. I would be tempted to do this in a Roth account rather than taxable or TIRA.
Elbowman
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Re: OIL SLUMP ---- VGENX/FSENX?

Post by Elbowman »

"The horse-drawn carriage market is in a slump! Should I jump in? I'm a long term investor, so I can easily wait for it to recover..."

Oil prices COULD recover, but I see no reason why they MUST recover.
bogle2015
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Re: OIL SLUMP ---- VGENX/FSENX?

Post by bogle2015 »

VDE/ FENY ETFs have lower expense ratios.

We have maybe 0.7% of our portfolio in that. Of course I thought I was getting a great deal in early 2015 (since it was at that point already going down for 6 months), and I've been watching it with morbid fascination ever since (similar to my Roth in 2007-2008). % decline impressive, amount relatively small.

At one point I thought to increase VDE/FENY to 2% and leave it for about 10 years. Now I'm thinking maybe to even it out to 1%. This is still under the 5% of the portfolio that's allowed to be tinkered with, to keep my hands out of the other 95%. Well, other than TLHing the taxable, of course.

If one is going to speculate, they at least should do it with a lower ER investments - that's what I tell myself. isn't that the boglehead thing to do? :?
mariusx1
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Re: OIL SLUMP ---- VGENX/FSENX?

Post by mariusx1 »

I'm in the process of doing a reallocation and put 5% of into VGENX last Friday. I was looking to put 5% in something a little more risky and a little more 'fun'. It was down to VGENX or VGHCX. The health care sector fund has performed very well in the past, but it seemed like I *could* be buying energy on a nice dip. Only time will tell.
Dimitri
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Re: OIL SLUMP ---- VGENX/FSENX?

Post by Dimitri »

Elbowman wrote:"The horse-drawn carriage market is in a slump! Should I jump in? I'm a long term investor, so I can easily wait for it to recover..."

Oil prices COULD recover, but I see no reason why they MUST recover.
Couldn't the same be said about stock markets in general when they decline? I think Japanese investors know this all too well.

The average hit its all-time high on December 29, 1989, during the peak of the Japanese asset price bubble, when it reached an intra-day high of 38,957.44 before closing at 38,915.87, having grown sixfold during the decade. Subsequently, it lost nearly all these gains, closing at 7,054.98 on March 10, 2009—81.9% below its peak twenty years earlier.
https://en.wikipedia.org/wiki/Nikkei_225
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awval999
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Re: OIL SLUMP ---- VGENX/FSENX?

Post by awval999 »

I've been waiting for a thread like this. I'm considering taking a position in VDE.

Before blah blah index funds I'm 100% in index funds for retirement I'm talking like a $1000 fun position so no whiny mcwhinersons here.
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whodidntante
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Re: OIL SLUMP ---- VGENX/FSENX?

Post by whodidntante »

This is basically gambling. Not that I discourage it. It's a gamble that I will probably make myself. My approach will be to buy one or two companies that are not likely to go bankrupt in the face of low oil prices, but can see some good upside on an oil price upswing. I wouldn't buy an energy sector fund. OPEC is trying to drive producers out of business. If prices stay this low, they will get their wish.
Valuethinker
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Re: OIL SLUMP ---- VGENX/FSENX?

Post by Valuethinker »

awval999 wrote:I've been waiting for a thread like this. I'm considering taking a position in VDE.

Before blah blah index funds I'm 100% in index funds for retirement I'm talking like a $1000 fun position so no whiny mcwhinersons here.
This is at least the 4th thread in the last 2-3 weeks. Search on "oil prices". There are some people who really know their way around the industry posting on this board.
Valuethinker
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Re: OIL SLUMP ---- VGENX/FSENX?

Post by Valuethinker »

Elbowman wrote:"The horse-drawn carriage market is in a slump! Should I jump in? I'm a long term investor, so I can easily wait for it to recover..."

Oil prices COULD recover, but I see no reason why they MUST recover.
Unless you postulate a long term decline in consumption for oil (which I think will happen, but not YET -- there's 1.2 billion cars on this planet, and we are going to have over 2 billion; let alone the explosive growth in air travel) then oil consumption will continue. Oil gets used up-- it's not as if we can make more than the planet gives us (see below).

Oil is an exhaustible resource. Therefore, over time, to incentivize new exploration and production at higher costs (fracking at $50/bl say vs. Saudi oil production cost of less than $10/bl) prices will tend to rise. The world's largest proven oil reserves are in Canadian tar sands, and the minimum cost for lifting out of there is say $60/ bl (for new projects). Brazilian deep offshore is something similar.

Yes the incredible pace of technology (fracking) means that there no signs of short term oil supply shortages. Or rather in the short term you have the "perfect storm" of a weak China + Iran coming onstream + fracking etc. In the medium term the sharp cutbacks in high cost oil exp & prodn eg Canadian tar sands capex means that when demand catches up again, supply and demand will move back into balance.

You have to postulate a radical technological change (say really cheap Gas To Liquids - natural gas to petroleum liquids) to beat that issue.

History says that these slumps last longer than anyone expects at the beginning. It also says that the booms will come again.
ge1
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Re: OIL SLUMP ---- VGENX/FSENX?

Post by ge1 »

I bought VGENX 2 days ago. It's only 2.5% of my portfolio but not immaterial in $ terms. I read William Bernsteins Rational Expectations again (one of my favorites), where he recommends (or at least is not opposed to) having a small allocation to precious metals and energy companies.

Also anecdotally the recent comments that oil will go below $20 reminded me of the Goldman Sachs's call at the height of the commodities boom how oil will reach $200, we all know how that call turned out :shock:
Valuethinker
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Re: OIL SLUMP ---- VGENX/FSENX?

Post by Valuethinker »

ge1 wrote:I bought VGENX 2 days ago. It's only 2.5% of my portfolio but not immaterial in $ terms. I read William Bernsteins Rational Expectations again (one of my favorites), where he recommends (or at least is not opposed to) having a small allocation to precious metals and energy companies.

Also anecdotally the recent comments that oil will go below $20 reminded me of the Goldman Sachs's call at the height of the commodities boom how oil will reach $200, we all know how that call turned out :shock:
The reason people think oil can go below $20 is we remember it at $10 in 1998- -very similar circumstances and adjusted for inflation probably pretty similar prices. End of a long economic expansion, boom in SE Asia turns to bust, an outbreak of peace means more oil comes onto the market. Main difference is fracking-- this time, that's really changed the supply picture.

It's true that brokers make their name by making big calls and getting them right, so there is an incentive to "go long" or "go short" by making out there forecasts.

Note that with the fairly extreme price inelasticity of both supply and demand for oil (nearly vertical supply curve in the short run, and very flat near horizontal demand curve in the short turn) both $10 and $200 are perfectly possible. Take or add probably 4m b/d (ie about 4% of supply) to the market and you would get there, particularly if the cause is a "Black Swan" (financial crash, or a major disruption of oil supply due to political events etc.).

There is perhaps 1-2 m b/d oversupply in the market right now, and look what it is doing to prices.

The thing to understand is that c.80- 90% of the costs of producing oil (in the short term) are fixed-- the drilling and production kit and pipelines etc. With fracking there's more variability, with tar sands less.

Therefore even if you are reporting a loss at the accounting level for production, you are still cash flow positive at quite low oil prices. So you keep producing.

It's not the profit that Aramco makes in an accounting sense, it's the cash flow into Saudi Arabia's national treasury. And, similarly, if you are a fracking company, you can go bankrupt, but to recover their loans the creditors may still keep you running (or you are in Chapter 11, which lets management stay in place). So you will keep going, finding and producing oil as long as the cash costs of that are lower than the cash revenues. Profit & Loss statement bedamned!

This is true of most basic materials industry and helps to explain the price swings. A fall into P&L loss doesn't make the producers stop producing if the cash flow is there. It's only in the long term, with the drop in capex, that you see capacity coming out of the industry.

I should add that, historically, semiconductors have run on the same cycle.
ge1
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Re: OIL SLUMP ---- VGENX/FSENX?

Post by ge1 »

Interesting point Valuethinker.

And Oil may well go down to $10, but what are the chances that 5 years or 10 years from now, oil won't be considerably higher and with that share prices of energy companies? I think those chances are very high.
Valuethinker
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Re: OIL SLUMP ---- VGENX/FSENX?

Post by Valuethinker »

ge1 wrote:Interesting point Valuethinker.

And Oil may well go down to $10, but what are the chances that 5 years or 10 years from now, oil won't be considerably higher and with that share prices of energy companies? I think those chances are very high.
The question that is germane is how far the current share prices of the major oil cos have discounted the possibility of a long and very dark valley.

*that* is a question upon which my crystal ball is very cloudy. You'd have to look what money they made at various oil prices, and estimate what money they are going to make/ lose at the bottom and then what happens if that bottom is 3 years, or 5, not 3 months?

My own thought *was* that oil has to be 50-60 dollars a barrel to bring new high cost sources of supply onstream (tar sands, deep offshore, fracking). But the fracking industry has just gone and significantly reenegineered cost structures, and who knows what fracking will look like when the Chinese adopt it?
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Re: OIL SLUMP ---- VGENX/FSENX? [Vanguard / Fidelity Energy Fund]

Post by LadyGeek »

This thread is now in the Investing - Theory, News & General forum (energy funds). I retitled the thread to help with the ticker symbols.

Also see: It sure looks like a good time to invest in oil
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halfnine
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Re: OIL SLUMP ---- VGENX/FSENX?

Post by halfnine »

dziuniek wrote:
JimmyD wrote:A little too speculative for my taste, but you might have a heartier appetite for risk than me, so whatever floats your boat.

If you've done your research and are convinced that there's more room for upside than down and we are in fact at or very close to a bottom in oil...AND have some fun money to essentially gamble, go for it and report back to us.

Personally, I'm cool with the energy investments I already have and continue to purchase in VTSAX.
Agree with JimmyD here.

I did buy USO (United States Oil Fund LP) today @8.17 in the 'just for fun' account.
USO won't track spot oil due to contango which will bleed out losses every monthly roll. You'll also get the joy of adding a Schedule K-1 to your taxes.
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dziuniek
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Re: OIL SLUMP ---- VGENX/FSENX? [Vanguard / Fidelity Energy Fund]

Post by dziuniek »

YAY!

K-1s are non-issue here.

I'm in for a wild ride then! :)
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ge1
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Re: OIL SLUMP ---- VGENX/FSENX? [Vanguard / Fidelity Energy Fund]

Post by ge1 »

Just wanted to mention that VGELX is up around 9% since I bought on the 19th based on the increase in the ETF today :D , maybe January 20 really was the bottom. Time will tell...
Investment101
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Re: Oil Slump ---- VGENX/FSENX? [Vanguard / Fidelity Energy Fund]

Post by Investment101 »

other than VGENX any other oil fund for vanguard?

So how's VGENX decent?
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Re: Oil Slump ---- VGENX/FSENX? [Vanguard / Fidelity Energy Fund]

Post by 2beachcombers »

Small gamble--purchased FENY in Jan
rustymutt
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Re: Oil Slump ---- VGENX/FSENX? [Vanguard / Fidelity Energy Fund]

Post by rustymutt »

So you want to bet on sector investing? Way out of my knowledge base, and I've tried in the past, only to be somewhat distressed when the future didn't turnout like I expected. I've learned the hard way to be patient and just own the market.
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