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.
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 May" What 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!
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!