The Real Reason Saudis Didn't Cut Oil Production | Seeking Alpha
Here is an outstanding article about why the Saudis are allowing the price of oil to fall. As the author mentioned, there are probably short term and long term reasons. The biggest long term reason is to slow down alternative energy adoption through solar power and electric cars. The price of oil will not rise again anytime soon either. So, oil stocks should be avoided for several months minimum.
Monday, December 1, 2014
Sunday, November 30, 2014
Avoid Oil Stocks
The price of oil fell off a cliff on Thanksgiving Friday. According to monthly CME futures, the price is not coming back for several months, and it will only inch up after that. Rex Energy (REXX) lost almost 18% in a day-long slide. Another oil stock, ROYT, had already lost a lot on Wednesday before Thanksgiving. These losses have come after the prices were already depressed, too.
The bottom line is that you should not invest in any oil stocks now or in the near future. Tech stocks like AAPL and SWKS (Skyworks) are still good along with certain Chinese stocks like ASHR and CBON. So, if we have a December rally, it will primarily happen in select stocks. Then, when January rolls around, conditions will be even worse for stocks. We need to be nimble and defensive in our changing stock market.
The bottom line is that you should not invest in any oil stocks now or in the near future. Tech stocks like AAPL and SWKS (Skyworks) are still good along with certain Chinese stocks like ASHR and CBON. So, if we have a December rally, it will primarily happen in select stocks. Then, when January rolls around, conditions will be even worse for stocks. We need to be nimble and defensive in our changing stock market.
Sunday, November 16, 2014
Bad Stocks
When we talk about bad stocks, many stocks can actually be good, but you can own them at the wrong time. It depends on how long you have to wait to cash out while you have a profit. If you are about ready to retire, you don't want to lose 50% of your money due to stocks that are in a bear market. So, my reference to bad stocks will often be related to owning them at a bad time.
Secondly, an investor needs to have a controlled allocation system so that only a small amount of money will be invested in risky stocks. Bonds should be a part of everyone's portfolio. A 60/40 stocks/bonds plan is often mentioned by financial advisors, and I think a 50/50 stocks/bonds plan is also good. A 50/50 ratio will show you how important bonds are during a bear market, and you will become sold on the idea of always owning quality bonds.
Thirdly, concerning owning risky stocks such as penny stocks, I recommend a $100 rule. Do not purchase more than $100 worth of any penny stock until you are very familiar with how the stock trades and what its long term potential really is. Some stories can sound really sensational and urgent, but you must think about the many things that could go wrong.
For example, a gold mining exploration company may have made a high quality gold discovery. First, you need to think about the price of gold in general. Gold's price has dropped from around $1800 per ounce in 2011 to $1140 per ounce in 2014. Can the company mine gold for $1100 per ounce and still make a profit? If so, how much will it cost to build a mine and how long will it take? You must consider all of these negatives before you buy a penny stock because it will most likely be years before you ever make a significant profit, and the stock price will likely decline more than 50% while you wait. How much time and patience do you have even if you have picked a good stock?
Secondly, an investor needs to have a controlled allocation system so that only a small amount of money will be invested in risky stocks. Bonds should be a part of everyone's portfolio. A 60/40 stocks/bonds plan is often mentioned by financial advisors, and I think a 50/50 stocks/bonds plan is also good. A 50/50 ratio will show you how important bonds are during a bear market, and you will become sold on the idea of always owning quality bonds.
Thirdly, concerning owning risky stocks such as penny stocks, I recommend a $100 rule. Do not purchase more than $100 worth of any penny stock until you are very familiar with how the stock trades and what its long term potential really is. Some stories can sound really sensational and urgent, but you must think about the many things that could go wrong.
For example, a gold mining exploration company may have made a high quality gold discovery. First, you need to think about the price of gold in general. Gold's price has dropped from around $1800 per ounce in 2011 to $1140 per ounce in 2014. Can the company mine gold for $1100 per ounce and still make a profit? If so, how much will it cost to build a mine and how long will it take? You must consider all of these negatives before you buy a penny stock because it will most likely be years before you ever make a significant profit, and the stock price will likely decline more than 50% while you wait. How much time and patience do you have even if you have picked a good stock?
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