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Energy Investing
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Re: Copper... How I Made And Lost My First FortuneThis is a long story from long ago where some of you will recall some of it. I bumped into some energy investing board (after getting a lucky double on CHK after following Aubrey McClendon who bought a bunch of CHK stock right before Hurricane Katrina, 2015). One of the big dog experts was a guy named BigEnergyBull. One day, BigEnergyBull posted something to the effect of: Forget these energy stocks and look at base metal miners. They are selling at a 2 to 1 price to operating cash flow ratio. So, I followed him and look up some of the names and looked at their financials. I wasn't and still am not very good with financial statement analysis, but even I can recognize a 2x price to operating cash flow ratio. I bought into a bunch of Junior producers and enjoyed a price rise that yielded something like a 5 bagger. Copper, zinc and Nickel, especially Nickel. Nickel is especially interesting because its essential to stainless steel and it is actually quite rare. Moly plays also had quite a buzz. At that point, I'm was wondering what to do with my life given that I could easily retire. I'm thinking about ditching my high-tech job doing some college teaching as an adjunct and doing bible study outreaches to the students... By this time I had my own blog (remember when blogs were big?) WorldOfWallstreet. By now it was spring of 2007 and I was feeling flush. Well, the GFC hit and most of those stocks collapsed and went completely to zero. I got out with barely more than I started with losing more half because I was thinking the price of the commodities couldn't stay down there, but they did long enough to zero a bunch of what I was holding. That's how I made and lost my first fortune. I could tell you another story about how I made and lost most of my second fortune shortly thereafter, but I'd have to post that on the precious metals board. The big takeaway from these experiences is: You can make a lot of money in mining and commodities, but you have to realize that its cyclical and you have to know when to fold em (get out). I presume the same thing goes for oil, but I haven't really ridden an oil cycle yet. Another takeaway is: Forget about mine re-openers. If a mine was shutdown due to low commodity prices but now can make money if gets re-opened then you are going to lose your shirt and the commodity price is too high. Actually, I'd now say that if folks are talking about reopening formerly closed mines that's a clear indication that the commodity price is nearing or at its peak. Another takeaway is: High-cost producers (who were going out of business when the commodity price was down) are where the biggest money can be made if the commodity price rises enough. BUT... they will go to zero if it doesn't. We saw that this year with DNR. BTE and CPG investors take note. RIG investors take note. So, the big question now is which commodities (and their stocks) are ready to run? Gold seems to have had its run (although that could resume for a final burst if the money printing re-accelerates). Copper has had a good run, but copper stocks especially could run further if the price holds up or rises further. Looks like oil could have a good run up to the mid-fifties. That's where I'm positioned mostly now. Naamkat, thanks for bringing back some memories. Perhaps I'll take a look at some of your miners. You are right that they can make some real money at > 3$ copper. Many on this board think you can't predict the price of oil. I think that if you are going to make big money that you have to (or have to get a lucky entry) but be ready to admit you are wrong when you are. I think that you have to swallow a tonne of volatility (feels like losing your shirt) and stick with low-cost producers if you aren't going to try to predict the price of oil. I ended up deciding to stick with my engineering day-job (even though after making the second fortune I was completely flush with money) because I was good at it and because it was making the world a better place in a minor way. I don't think I have the time to be a stock picker, but I think I do have to be able to pick out the major commodity trends. You've noticed that I tend to focus on overall macro, sentiment, demand/supply, technical analysis because that's what I want to get right. I try to stay away from high-cost producers and I mainly want to pick stocks (like CVE, WCP, IMO, SU...) that won't go to zero if I'm wrong about the commodity price direction. That guy Rick Rule who is pretty respected guy in the precious metals world thinks you can predict the big price moves based just on following the big cycles. MontyHigh |
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Msg # | Subject | Author | Recs | Date Posted |
298906 | Re: Copper... How I Made And Lost My First Fortune | doomonyou | 2 | 11/29/2020 9:26:27 AM |
298910 | Re: Copper... How I Made And Lost My First Fortune | dol90 | 6 | 11/29/2020 10:27:18 AM |
299062 | Re: Copper... How I Made And Lost My First Fortune | certiatori | 5 | 11/30/2020 11:58:16 AM |