Sorry for the short hiatus. I went on a vacation where I thought I’d have some time to write. It was one of those vacations that was supposed to be relaxing. Unfortunately, every little thing went wrong and just seemed to cause more stress. Even if I had the time, the hotel’s wifi didn’t reach my room.
I’m chalking the experience up to learning an important travel lesson, but that’s an article for tomorrow.
When I got back, I decided to check in on my stocks. I noticed that my oil ETF (NYSE: USO) was hitting a new 52-week low of $9.24. I have been buying USO for awhile. In fact, I have dollar cost averaged it down from an initial purchase a little under 20 in December 2014 (if memory serves).
TD Ameritrade now lists my cost-basis (i.e. my break-even price) at $13.82. I need USO to rise 33% just to break-even. That’s bad… very bad.
I made a fundamental mistake of investing. I didn’t know what I didn’t know.
I knew that oil markets trade very differently than stocks. It’s a supply and demand commodity. I had figured that demand for oil would keep rising in the short term. What I didn’t know is that the U.S. was producing so much shale oil that there’s more oil than people need. There almost seems to be no limit to how much supply we can produce. OPEC can’t control prices if the US can supply so much of its own oil.
As I was going through my mail, I found a related article in my inbox: This is How Big Oil Will Die. (It’s a few weeks old now, so it wasn’t a trigger for this collapse.)
The article is a great read. It essentially makes the same case I did last year with my Uber gPod article. Autonomous, on-demand, electric cars are coming and they’ll be so efficient that oil may not power cars as soon as 2025. (I was predicting 2030 in my article.) I took it a step further and suggested that the electric cars would charge from solar panels. While oil will still be necessary for other things, the economics seem to dictate that the demand for oil is going to drop significantly. That’s not going to do my investment in oil any favors.
The only question seems to be when this “oilmageddon” will happen. Of course, those estimates are nearly 10 to 15 years away. Many people consider those estimates extremely aggressive.
I’m considering dollar cost averaging some more at these low $9.20-ish prices. I’m fighting some psychological investing issues:
- They say never fall in love with a stock. Since oil is a commodity, I don’t whether this applies.
- The other thing I’m wondering is “Where else does a value investor put his/her money nowadays?” As I recently wrote, stocks are really expensive now. This is perhaps the only thing that seems “cheap.”
What do you think? Anyone know where oil is going? Let me know in the comments.