When They Tell You To Bail On Energy -- Don't -- By Tobin Smith
On Sunday -- and right on schedule -- we got The New York Times' "As Oil Prices Soar, Is It Time to Bail Out?" article.
I count at least THREE versions of this type of article in the Times since late 2003. In fact, I keep them all next to my desk.
Since the beginning of 2003, oil and gas companies (as measured by the AMEX Oil and Gas Index) have outperformed the S&P 500 Index with 153% growth versus about 35% growth -- that's not astonishing.
But the best part of this article is their great timing. In EVERY case where The New York Times runs an "Is it Time to Bail on Energy?" article, my rough calculations show our energy investments move 55% higher between the pieces.
Naturally, me likee!
Of course I am reading this article on a day when many of our subscribers just SOLD another energy investment we held for less than a year (PetroKazakhstan) at an 80%-110% PROFIT from the lows of May 2005 to its close above $54 yesterday. The irony is rich.
This is also a day where one of our favorite oil shippers on our Ballast Income Buy List is up almost 10% from our buy price on news that -- guess what? -- shipping rates hit their bottom in the last three months and this company is ONLY able to pay us a $2 dividend this quarter. (Just as we forecast. Thank you Mr. Cramer for telling less well-informed investors to "SELL-SELL-SELL!" tankers earlier this summer so we could make this buy.)
Please, please, please let the disinformation and misinformation about the energy pricing wave we are riding continue ... I'm begging.
IT'S ALL ABOUT THE S-CURVE, FOLKS
Remember, folks, one of the very fundamental KEY elements of S-curve or transformational changes in the SECULAR (not cyclical) supply/demand nature of anything -- technology, commodity, individual corporations or entire industries -- is the continued DISBELIEF by a very large and vocal majority of industry participants and experts.
By definition, they will remain in control of the majority of thought and opinion making as to the unsustainability of the transformation in their industry or company.
Only when their position has been so clearly and unambiguously trounced by the actual facts will they come around and move from vocal disbeliever to active and repentant believer.
As S-curve ChangeWave investors, we depend on the entrenched existing industry members disbelief to make the really big money we make in these historic, irreversible shifts or transformations.
We had the fervent disbelievers in satellite radio. Thank you for your stubborn insistence that NO ONE would pay for ad-free, CD-quality music, sports and entertainment.
We had (and still have) the fervent disbelievers in the transformation of the Western Canadian and other long-lived energy fields FROM exploration and production model to the energy trust production/conversion potential into proven reserves model.
Thank you for your fervent disbelief in this secular transformation -- please continue to call Canadian energy trusts a "ponzi scheme." If you don't continue your attack on the industry, we may never again get opportunities to buy them at discount prices.
SOME PEOPLE NEVER LEARN
As I developed and refined the concept of transformational trigger events (a.k.a. ChangeQuakes) and how to anticipate and handicap these inflection points of secular high rates of change (i.e., revenue or pricing power growth we call ChangeWaves), I realized something. The only way we could really make a LOT of money off the waves of monster economic change was to make sure we only ride the big, gnarly waves of transformation that have LOADS of disbelievers.
These people are not atheists or agnostics, they are simply late adopters.
They are the entrenched old timers who wouldn't know a secular transformative event if it smashed them in the belly and tweaked both their ears.
Thankfully it's a key part of human nature to disbelieve transformative change and fight it, because to embrace transformative change is risky in a Darwinian sense.
EVERY innovative business idea and EVERY secular transformative technology or discovery has to overcome a thousand walls of entrenched disbelief and doubt.
In fact, I look for the existence of massive numbers of disbelievers and doubters when we are analyzing the potential growth power of a rising ChangeWave.
It's only when EVERYONE acknowledges the inevitability and power of the transformation (Like Jeff Bezos on the cover of Time magazine's as Man of the Year in January 2000) that smart, transformative investors start to get off the investment wave they have been riding so profitably and look for the next ones.
In fact, I guarantee the day we close out ALL our energy industry investments will be the day after Time runs the "$100 Oil Is Here Forever" cover.
Moral of the story: If you understand the innate nature of human beings and how they deal with transformative change, you will grow rich as an investor in the stock market.
Yes, Virginia, you can make a very nice living off the predictability of human behavior during times of transformational change.
In the case of our energy investment strategy, I don't "pray" to the altar or gods of oil or natural gas. I feast at the altar of transformational change while most perfectly sane people innately protect their self-interest and disbelieve the inevitable changes they refuse to acknowledge.
