investing in energy equity as a hedge?

4 posts / 0 new
Last post
kartik.vad's picture
kartik.vad
Status: Member (Offline)
Joined: Mar 15 2009
Posts: 1
investing in energy equity as a hedge?

What about investing in energy equity as a hedge against the Peak Oil worst-case scenario? If that situation happens, energy stocks will go through the roof, so it should help at an individual level to prevent loss of wealth caused by a market collapse caused by peak oil. Note: This is not about whether energy equity gives better returns than a broad-based index fund if the status quo continues; it's more of a hedge against financial disaster caused by a market crash. How about an asset allocation of say 20% gold (via ETF) and 10% energy equity?

Farmer Brown's picture
Farmer Brown
Status: Martenson Brigade Member (Offline)
Joined: Nov 23 2008
Posts: 1503
Re: investing in energy equity as a hedge?

kartik,

I agree that's a great way to hedge against energy spikes and has been suggested by experts I consider worth following for some time.  The tricky part is which energy company to invest in, and if you invest in an ETF, being totally versed on the prospectus and understanding how it works.  I invest in RJN, a commodity ETN based on the Rogers commodity energy subindex.  An ETN is probably even riskier because it's an exchange-traded-note, not a fund.  That means the entire counterparty risk is born by the issuer of the note, in this case the bank of Switzerland.  I trust it because Jim Rogers trusts it.  Not a thorough analytical position, I know, but these days there aren't too many solid numbers to base anything on anyway.  You can look up the Rogers enrgy index through google.  He also has an agricultural index (RJA), which I am also invested in, a metals index (RJZ), and a broad index (RJI).

As for gold ETFs, I've been convinved away from them mostly by people on this very site.  The GLD is only required to hold physical bullion for holders of over $1 million of their fund.  Smaller positions can be "covered" by holding gold contracts through any third party they wish.  Sounds a lot like the Enron of gold to me.  Fortunately, I exited my position a few weeks ago when gold was at $960 or so. 

That's my 2 cents.

davidm's picture
davidm
Status: Member (Offline)
Joined: Apr 14 2009
Posts: 23
Re: investing in energy equity as a hedge?

 I wondered about this too. BUT, I don't know that energy companies will benefit from shortages. The only thing that really matters for stocks is profit. In short supplies, prices will go up, but profits may not. Hard to know. Commodity futures might be different. I don't know that at all, but owning future supplies at todays prices would be a different matter I would expect.

And this could be a sensible idea, but keep in mind that we could also be dealing with a currency crisis and that could make it hard to get your money out and have it be of any value if you could. So, I would consider it just a diversified position for some portion of investment. I also don't know how long you can hold the position. No one ever knows where prices are going over the short term. Over the long term it seems a good bet. But is there a way to bet on the long term?

David

red baron's picture
red baron
Status: Member (Offline)
Joined: Feb 9 2012
Posts: 4
I am thinking about this as

I am thinking about this as well. And frankly I am missing a discussion on this idea. Therefore I dug up this old thread. 

Thusfar I feel that main focus is on precious metals. But this has its limitations.

 The oilcompanies have proven reserves (OK maybe 12-15 years) but the profits are in line with the oilprice. SO this could provide you with an income and the reserves will be valued against the oilprice. And yes $200/barrel might be sooner then we expect. The only fear I have is the nationalisation by government in times of shortages.

The other risk is that expensives will be going through the roof because of the desperate searches undertaken.

What I am I overlooking?

 

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Login or Register to post comments