My November Plan

Water Cooler Investing
#1

Just leaving this in here. Feel free to criticize so I see any flaws in my reasoning/expectations. It’d be good to hear about your own thoughts. It’s always interesting to see people commenting on others’ investment strategies without ever disclosing their own (exceptions like Purealpha- may the bear roar forever).

What I’m expecting to happen: Crude oil has been trading in the $40-$50 range for a while now. I expect oil to rebound back towards $50 as OPEC reaches a deal in Austria. They’ll have to proc prices up ahead of the 2017 Aramco IPO. This gives me confidence about my oil holdings, that yield about 7% on top of any capital appreciation.

I bought some airlines a while ago (UAL at $42, LUV at $39). They’ve both gone up and are priced for better performance next year. And now Berkshire announced a new position in airlines. I’m going to take profits at some point though because of the volatile nature of airlines. With higher oil, these stocks will probably not fare too well.

http://www.wsj.com/articles/warren-buffetts-berkshire-hathaway-discloses-new-investments-in-airlines-1479159641

So the short term plan: hold oil stocks. take profits on airlines, and hold the cash for another opportunity.

#2

Are you concerned about the price of crude oil, now that Trump wants to drill all the US oil sites and approve more pipelines? I’m not following energy too closely, but it seems like there would be some potential for speculative volatility.

#3

most likely airlines will hedge at these prices for 1-2 years so i wouldnt worry about high oil reducing profits

#4

curious about approving additional drilling, if the price of oil stays low will these projects move forward or will they be on hold as most us production centers are higher cost (i thought, but again I am not the most privy on oil)

#5

I hope those 7% dividends are coming in a qualified account… otherwise you’re probably realizing closer to 4%

#6

that said I am raising cash as well, had a huge run up recently in a bunch of names and locking in some profits in FCX & NVDA. Going to reevaluate how I want my portfolio to look going into 2017 but I havent had the time and cant thing of anything particularly appealing to me at the moment

#7

Well it looks like the OPEC deal isn’t happening (no real surprise there with Iran and Russia). With Oil tanking (and the market on a post-election high and facing a possible correction), oil stocks will probably slide 5-10%.

This is problematic. High oil dividends don’t look sustainable if the big names keep losing money upstream at these prices. I think companies like Shell already kind of stretched it by keeping their dividend in 2016. I’m really nervous going into 2017.

My long-term hypothesis remains though so I’m not selling. Given the volatile nature of oil, it’s a matter of time before some news on an inventory draw hits and oil rebounds. It’ll probably take something special for crude to break $50 though. As planned, took my airline profits and holding cash.

#8

You’ve missed a heck of a rally while speculating on these positions. I hope you’re only speculating with a small portion of your wealth.

#9

S&P500 rallied from 2100 to 2200 (~5%) Southwest Airlines (LUV) rallied from $39 to $47 (~20%). United actually rallied even more. Indeces are speculation as well by the way. You’re speculating that history repeats itself and gives you that 5-7% CAGR. I hope you’re not 100% in that kind of low yield speculation.

#10

My mistake, I must have missed the part where you said you were 100% invested in those two stocks, nice job.

I’ll gladly ‘speculate’ that the laws of risk and return continue to exist over the next few decades

#11

Are airline stocks still that sensitive to oil? One would think that they should have traded some crude oil futures to hedge that by now.

#12

You’re right, oil shouldn’t affect airline stocks that much, specially given recent trends where oil only accounts for around 25-30% of OpEx due to greater fuel efficiency. Airline stocks usually take a beating when oil falls as part of the greater market-wide selloff. So the relationship is more due to systemic risk. Airlines took a beating during the February lows (United/American both had P/Es less than 6 even before tax adjustments).

#13

Naw bro. With $20K of speculative money you’re supposed to diversify with at least 20 stocks.

#14

Your totally right, diversifying with your speculative money is dumb. Which is why I said I hope you’re only speculating with a small portion of your wealth.

#15

With $20k, your portfolio is at least 5 times as large as purealpha’s. So there is that.