Saturday, 4 April 2015

Oil Crisis – Did You See it Coming?

Last month, I was having a chat with a business associate in the O&G industry. Let’s call him Mr. M. M showed me a picture of him having dinner with the Chairman & CEO of a first tier oil contracting company with annual more than 10BEUR revenue. The Chairman of this big company told Mr. M in their dinner, that not even anyone at the very tip of the hierarchy of oil companies have had the slightest anticipation of the slump in oil price. One week before the crisis last Nov, all the CEOs & VPs still presented in a conference their plans to increase Capex in a bullish oil and gas environment foreseen.

How Ironic?

So don’t blame yourself too much if you suffered losses in the oil counters! Nobody except the people responsible for it, ACTUALLY see it coming. 


Am I comforting myself? You may ask. Haha! Frankly, I was not feeling extremely depressed even though I owned oil counters that tumbles after the crisis. Stop lying, you may say! But Hey, it’s the truth! Haha…

Be Mentally Prepared

Primarily, my earlier winnings did normalize the latter losses, hence this explains why I am still ok. Another reason is because I always remind myself of the unprecedented risk of cyclic stocks. As a consequence, I am better prepared mentally. In most of my previous articles on oil and gas topics, I always mentioned and reminded myself on the high risk, high return and yet high pitfall nature of the industry. Once we are more mentally ready and accepting, then when harsh reality hit, we will still be able to swallow and digest.

Play Within Your Means

If you want to have more adrenaline pumping excitement from cyclic stocks, make sure it is not your entire fortune. Keep % of overall portfolio to a level you can afford to lose if unpredicted crunch occurs. For me, I am comfortable with 15-20% of cyclic stocks before this oil crisis. After this lesson, I had reduced to 5-10%.

React Fast to Winnings & Losses

One other reason why I am so lucky not to be scathed by the oil crisis is because I am not over-greedy when stock charts surge! For cyclic stocks, I am more than happy to collect winnings after a substantial rise. See my earlier articles "Sold Nam Cheong at 0.48 & Swissco 0.99 (split-adjusted) in July" & "Sold Vallianz at 0.15 in MayWhat is substantial rise justify for a sell? Different individual varies. For me, 30% maybe….?

For cyclic stocks, knowing when to sell to collect winnings is not good enough. Knowing when to sell to cut losses is even more important. Short-term pain do heals better than long-term pain. It will perhaps the best if I sell it immediately after the macro oil crisis hit. Nevertheless, I cannot really predict. I am already happy that I had sold it few months later, although it still include losses. 

Stop Messing with Cyclic Stocks

If you want a more peaceful life and NOT like “Austin Powers” who love to live his life dangerously, then maybe it’s even better not to meddle with cyclic stocks entirely. Slow and steady stocks with strong fundamentals still can win the race. Be patient. Of course we know that sometimes the stock fundamentals is not all that matters. The jockey can be even more important than the horse!

Rolf’s Thoughts

For every event, there are lessons to be learnt. What is critical is our willingness to accept, move on and improve. Say "I am Wrong" in the mirror in the morning. It is not pathetic. The most pathetic thing in fact is to keep reminding ourself how good we are! 

Face the hurdle more intelligently, the next time.  

As someone in the industry, the path ahead is going to be really tough. I had heard and seen enough of gloominess lately. A friend of mine got his salary delayed due to company cash flow issues. It may be just the beginning of a storm. In reality, cancellations of projects may be already known or looming, but just that bad news were contained momentary.

Having said that, and on the contrary, the oil situation may also recover as fast as how it slump. Any changes in macro conditions will affect cyclic stocks more in general.

For now, I am so contended that my company is still financially healthy to pay my salary. So much so, that I start to have greater appreciation of companies with a healthy balance sheet nowadays!


Related Posts:

10 comments:

  1. Build our own pillow stocks so we can avoid having nightmares of feeling sorry for our losses across future market cycles.

    ReplyDelete
    Replies
    1. Hi CW,

      Pillow stocks sounds good. Can sleep peacefully. 1-2 year ago, I had more time and I really do not want pillow stock. I want action, you know look at screen and buy n sell, analyst new co and buy and sell again. Somehow it is a form of reliance when you cannot find work appreciation. Frankly even not so much about the money, but more about the satisfaction of winning.. human beings .. haiz...

      Now I am back to work "battle" again, and need to divert energy there since I start to find passion and appreciation there again. so I need to find more pillow stocks now.

      Thanks "Golden Pillow!" my target.. haha

      Delete
  2. Insider from Rolf!!! :)

    If the insider can't see it coming let alone the common folks like myself. Maybe its a noise after all, we just all need it for information purpose ;)

    ReplyDelete
    Replies
    1. Hi B,

      I believe in randomness at times! insider or outsider, it's the joy of competition. in this oil crisis people lost, but for me I competed in games we like.

      If you love playing "risk board" game, even if you loose you still enjoy playing. It's better than playing "monopoly board" game that makes you sleep. Just like I played mahjong never with the thrill of wining. The main priority is just to mingle with friends. winning is bonus.

      most important we must 玩得起!meaning can afford to play.

      I have to agree that Insider is of no use. The more you know the more you over procrastinate when it comes to stocks.. so don't analyse too much... haha

      Delete
  3. Be nimble and not worrying so much over seller's remorse. If l see it coming then great! If l did not see it coming then l can only blame myself for not being nimble enough; but then it's not the end as there will be another day - wiser by then, hopefully.

    ReplyDelete
    Replies
    1. Hi Money Honey,

      Thanks for the comments. Yes be "nimble!" I like this word.
      I am already feeling wiser now than a minute ago.. thanks. :-)

      Delete
  4. I'm still holding onto Nam Cheong haha!

    Yes, after this oil crisis, I start to appreciate non-cyclical stocks more. Even if you have the stomach for it, what for subject your portfolio to the whims and cycles of macroeconomics ?

    ReplyDelete
  5. Hi BfGf,

    It's like why are people taking roller coaster rides at theme park? There will always be lovers of such rides.

    Why still keeping Nam Cheong? any reasons?

    ReplyDelete
  6. hi Rolf,
    i have PEC, semb marine and probably semb corp( mother share of semb marine) and marco polo will be affected too.

    now then i realise my oil related shares consists quite a big portion of my portfolio.

    ReplyDelete
    Replies
    1. Hi Yeh,

      Risk is essential as long as manageable. PEC is different, it is in the downstream Oil and Gas. While new capex for exploration and drilling is reduced, production and downstream should not be affected that much.

      SCI and SMM are big players, let's put them as long term stocks.

      MPM is the most vulnerable due to the two speculative rigs and they absolutely have no experience in Rigs. Just trading of rigs basically. Of course there r opposing opinions and situations may change. I am just stating base on technical aspects and current environmental reasons.

      Delete