Oil Investment

It’s black, dirty and a part of almost every topic on TV or in the newspaper. It is not pollution although some cannot talk about it without talking about pollution. The subject is oil and these days, oil investment is looked on with the same disdain as oil itself. While the oil economy has become so huge that it boggles the imagination, oil investment itself should be considered by traders as a big opportunity for them as well.

An unnamed environmentalist once compared the oil companies and their executives to the heads of the tobacco companies who used harmful additives and denied that cigarettes were a threat to health. Without turning this into a moral forum, that simply isn’t a valid comparison and while we might not like the huge salaries of oil executives, their business approach is neither harmful nor addictive. The money management and soaring prices make for good business and good oil investment opportunities.

How are tobacco and oil executives different?

The environmentalist’s statement was merely a headline grabbing comment. The tobacco companies got very rich concealing information that proved tobacco was harmful and included chemicals that made it more addictive. The oil industry and its executives are guilty of nothing like this and oil investment is not immoral either. They produce and sell the most important commodity in the world. Oil companies are among the very largest companies in the US and have posted the largest profits in the history of investing. Whether buying company stock or investing in oil futures, an investor can find ways to profit along with the oil companies by oil investment.

How is oil the most important commodity?

Think about it; sure you could say food is more important but the big picture proves otherwise. In modern America, only a small percentage of the population produces food; the rest buy their food at the neighborhood grocery. How does that food arrive at the grocery? It is brought by trucks that use oil and gasoline. The two biggest factors on the price of food are the weather and oil. If the weather is bad, food prices rise. If the price of oil rises, food prices rise as well. The same is true of nearly all other products as well; shipping costs can be almost as much as production costs and any rise in the price of oil is likely to be reflected in the price of the product. Oil investment gives a trader the opportunity to make money investing in stocks or futures of the most used and needed commodity in the world.

If you take the theory further, the world would be completely different today if it weren’t for oil. Oil powers and lubricates the machines that build businesses, housing, hospitals and all of the other things we take for granted. Without oil most of the things we have today wouldn’t be possible. A key to investing in the stock market is finding a company with a product that people need and nothing in the world is in more demand than oil. Oil investments capitalize on the most used commodity known to man.

Opportunities in Oil Investment

Oil investment is going to continue being a wise move, whether investing in corporate stocks or oil futures. Oil related stocks are typically among the best stock picks and the normal ups and downs of oil prices can be very attractive to those who trade futures.

Conclusion

Depending on your perspective, the oil industry is not the evil empire that it is portrayed to be and oil investments can be very attractive. Whether stock investing or commodities trading, oil can be an excellent addition to your investment portfolio. Do your technical analysis, consider your trading plan and make your oil investment work for you.

The Long and The Short Of It – Balancing Today’s Business With Tomorrow’s Prospects

One of the biggest challenges in running a business is continuously finding the balance between short-term profits and monthly cash flow needs, and the business’ long term future. This can be a delicate tightrope walk indeed. However, you can use this balancing act to your advantage.

Managing for the short-term gain means making dollars-only-decisions, driving people hard and prioritizing cost over ultimate value. Cutting out or failing to add anything that does not yield an immediate benefit is the mark of a business being managed only to a short horizon. Much damage can occur under the cloak of seemingly sensible frugality. If you don’t buy any seeds to plant, how can you expect anything to grow?

An example of this is not investing in your people. You give your team incentives to deliver results based on the clear goals set forth. Results are measured daily, weekly and monthly, and you hold them to consistently delivering those results. While your passion for winning and your rewards to your employees for doing so are important, short-term results orientated thinking should be balanced with longer term investments in the training and development of your staff. Think of this as sharpening their axe. Would you rather pay your people to swing a dull axe all week long? Or would you rather pay for them to attend a week long training seminar to learn how to sharpen their axe, so they can come out swinging sharper next week and chop down twice as much? You would lose one week worth of work, but the benefits you would reap in the long run far outweigh this initial investment. Many small business owners have a hard time with this even though they may inherently believe in the benefits of training. It is hard to invest in the unknown and take that leap of faith, and that is essentially what operating from a long-term perspective requires.

In an increasingly short-term focused culture, it can be hard to fight the instant gratification instinct. Let’s look at some other dollars we spend today gambling that the future value of the net cash flow that investment generates will be greater than the present value of the cash today or the opportunity cost of doing something else with that money. Investing in research and development and marketing are other expenses that see cash out the door without a predictable or guaranteed repayment date. If you think that your organization can subsist forever off of the same product/service line you have today, you are deluding yourself. Smart organizations earmark cash for projects with long horizon’s; these are both high potential yield and high risk investments. Similarly, a CEO needs to realize that today’s successful marketing campaign is tomorrow’s sales revenue.

Learning to balance the daylight of today with the horizon of tomorrow is a skill that you will cultivate over time as a business leader. This is an ongoing process of learning so don’t expect yourself to be perfect today, but as you become more adept at running your business, you will become more attune to how the waves of time wash over your marketplace and you will learn how to ride the ebb and flow that your business surfs by. To learn more about how you can make your business and your employees flourish, visit http://www.flourishingbusiness.com.

Investing Vs Trading – A False Dichotomy

Recently, have you run across a growing number of references to the virtues of being a “committed” investor instead of a “speculative” trader? I know that I have.

Here is a typical statement: “You cannot succeed if you trade a lot. You can only succeed by being an actual investor. You must realize that by owning a share of stock, you are in fact a partial owner of a real business. No business owner wants skittish investors. Corporations want committed, interested investors who are going to look to the long term, support the company through thick and thin, and not sell the stock at the first sign of short-term problems or bumps in the road.”

Well. As they say in The Godfather, “It’s business, not personal.” Let’s look at a few facts.

First, some of the points in the statement above are true. If you buy a share of stock, you are, in fact, part owner of the business. Corporations generally would prefer shareholders with a long-term point of view. A long-term view does look right over and beyond mere bumps in the road.

But other ideas are false or misleading. For one thing, many active traders are, in fact successful. You can succeed or fail if you trade stocks. It is probably true that the majority of hyperactive traders do not beat the market, but that simply means they have faulty strategies, or that they execute their strategies poorly, or both. Many traders do beat the market, handily and consistently. Poor traders are often people who have insufficient knowledge, don’t do their homework, do not have a strategic approach that suits their goals and personality, and are impatient.

The “trading versus investing” dichotomy sets up a false premise: that there are only two ways to participate in the market, by being a “buy and holder” or by being a “trader.” The word “trader” often carries a negative connotation while “investor” has a halo.

Where does one cross the line from being a “trader” to an “investor”? Must you only buy–but never sell–to be an investor? If I turn my portfolio over ten percent per year, does that make me a trader? Twenty percent? One hundred percent? If I buy a stock and then sell it ten days later because its CEO just got indicted, does that make me a trader rather than an investor? Or does it make me a smarter investor? If I hold most of my stocks at least a year, does that make me an investor? Three years? Five years?

The fact is, there are places all along the spectrum between the extremes of “buy-and-holder” to “trader.” It does not advance the analysis to force any person into one category or the other. And self-defeating decisions are not limited to traders. Sometimes the most reckless thing you can do with an investment is hold onto it. The dot.com bubble proved that.

To me, the most sensible approach to being an investor is to establish a set of rules and principles that are intelligent and fact-based, and then execute them according to plan. Every so often, take a step back to re-examine your goals and strategies to see whether they still make sense. The bottom line is to take a long-term view, but recognize that will sometimes lead to short-term activity. There is no logical contradiction in that.

The Sensible Stock Investor holds some stocks for a relatively short time (measured in weeks) and other stocks for years. What label should be put on that? I would suggest a label like “sensible.” Or “buy-to-hold,” meaning that the intent when purchasing a stock is to hold it for a long time, but that you will sell it when it stops achieving the goals you set for it.

From the corporation’s point of view, what I (as a small investor) do with my shares of stock is irrelevant. Owning a tiny share of a business is not the same thing as having a controlling interest in the business. If I buy 100 shares of AT&T, I own .00016% of the business. My ownership of those shares gives me zero control over how the business is run. I don’t have a seat on the Board, and management doesn’t listen to anything I say.

Now if I were just starting out my own business, and I had five angel investors, of course I would want them to be committed to my business, stand behind me, and not pull their investments out at the first sign of trouble. They would want me to do well, and they would recognize that the best chance for me to do well is for them to help me.

But with a large public corporation, the trading of their shares does not affect the running or financial foundation of the corporation in the slightest. The corporation got its capital at the IPO, via secondary offerings of its stock, or by borrowing. If you and your neighbor trade the shares back and forth, the corporation isn’t affected and shouldn’t care. There is nothing morally virtuous about being a buy-and-holder. Trading is morally neutral. The question whether to trade or not is a business decision, pure and simple.

Each party acts in his or her best interest as each perceives it. It is true that many investors who trade a lot, or who react emotionally to short-term “noise” in the market, do worse than others who hold their investments longer. But so what? That does not mean that you have to make those mistakes. At other times, traders do better than buy-and-holders. Neither approach is inherently better than the other.

The fact is, “investing” is the buying of a security. No more and no less. If that security serves my purposes for a long time, I may well hold it for years. But if the security fails to meet my reasonable expectations for it, or if the corporation that issued it screws up and starts to hurt me, I owe no obligation to continue to hold that security. I can sell it and look for a better place for my money. In fact, my fiduciary duty to myself demands that I do so.