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Author: Knifecatcher1 Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 665  
Subject: Re: Why I bought Date: 5/20/2008 8:48 PM
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Something's gotta give. And what will that do to the prices of oil stocks?

In the recent past, declines in crude oil slammed the price of oil stocks. No surprise there.

There have been periods in the past few years that I've been "stuck" holding up to 37% oil related shares in my portfolio when crude prices (or natural gas) tanked. Fortunately, oil is an area that you can be pretty sure will come back up if you choose to wait.

This is my personal take on energy investing in general: increasing global petroleum consumption and declines in the easy-to-recover oil fields will tend to provide price support for all facets of the industry. It's a mega-trend, meaning a multi-year global trend, that's easy to identify. As long as the trend is in place, investing profits are easy and very low risk.

Seems obvious, right? The trick is to understand that the trend is in place even when the price of crude is tanking and the world tells you the days of high oil are over. Your mind wants to believe what it sees.

Most of the time that I've owned Noble it's been under water (no pun!). I bought my ConocoPhillips (and Burlington Resources, which was acquired by COP) in 2005 and 2006, and each purchase price was cheaper than the last. Doubling down seems like a no-brainer now, but it was hard to do when they were in the red for a year or more.

I think the oil industry in general is the easiest, most risk-free investment that can be had, as long as (1) the individual companies are carefully selected, (2) you pay a reasonable price for the shares, and (3) the investor has the patience to let the trend work.

Sorry for the long answer to you question, "And what will that do to the prices of oil stocks?". The short answer is, "Falling oil will hurt oil stock prices", and "it doesn't matter that much in the long run."

Best,
kc
(ex-knifecatcher)
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