So even if you are interested, buy slowly. Let yourself learn the company as you do. If the worst thing that can happen is that you miss out on one big return then that isn't so bad. Think of the other 90% of the time when approaching investing this way will enhance your returns or save you from letting yourself get excited about a stock and buy too much or too soon.
In mid-September I wrote about a Canadian company called Universal Power (UNX) that has some very interesting leases off the coast of Namibia.
Here was my article:
"Do you like a good story ? Do you want to invest today in the a company that is going to increase 50x in value ? Of course you do. Everyone does.
Somehow I managed to get myself on an e-mail distribution list that results in me receiving regular e-mails about a mystery microcap company that is sitting on oil deposits equal to what Petrobras has offshore Brazil. There isn’t much of a mystery really, by reading the promotion in the e-mail and then doing a search on a couple of key words you can quickly discover that the mystery company is Universal Power which is a Canadian company that holds a lot of acreage offshore the African country of Namibia.
The story behind Universal Power is that the acreage it holds off the coast of Africa is actually closely related to similar acreage offshore Brazil. If you look at how the tectonic plates of the earth have moved over time you can see that Namibia used to be right beside Brazil. In other words this acreage is of the same origin as the giant Tupi field offshore Brazil.
And there is some credibility to the story. Universal Power contracted independent reserve engineering firm DeGolyer and MacNaughton to evaluate just one block that Universal holds. D&M came back with prospective resource potential of 2.39 billion BOE of unrisked and 567 million risked reserves. The blocks adjacent to this are currently being explored by Petrobas and PetroSA. You can imagine what kind of upside there is should these reserves pan out for a company with a $200 million market cap.
So there is something to the story other than hype given the D&M report. And there is a little more to get interested about. Universal is partnering offshore Namibia with HRT Oil and Gas which is run by one Marcia Mello who is a 24 year veteran with Petrobras. He had this to say about offshore Namibia and Universal:
“Dr. Marcio Rocha Mello, President of HRT stated “In most areas of the deep waters from the Brazilian South Margin Basins, exploration has just exploded with the discovery, in the last three years, in the pre-salt sequence, of four of the biggest oil fields found in the whole world. The fields encompassing more than 20 billion bbls of oils of reserves are the Tupi, Jupiter, Guará and Iará, oil fields. As activity has increased in the Brazilian southern marginal basins, it became clear that the African counterpart basins such Angola and Namibia would share similar petroleum systems and also similar hydrocarbon source potential. For example, in offshore Angola, almost 16 billion bbl of hydrocarbon reserves have been found, in the post-salt sequence, in the last 10 years. By contrast, although Offshore Namibia is a significant hydrocarbon province that could rival that of Brazil and Angola, the Namibian offshore basins are entirely unexplored.
Given this perspective, it is worth mentioning Universal’s very prospective concessions in offshore Namibia. Specifically, the blocks close to the Kudu fields where more than two TCF have been discovered about 20 years ago. In those areas, if we compare with its Brazilian counterparts, the petroleum potential could be as much as 2 to 3 billion barrels of reserves. The HRT team dedicated to developing the Namibian opportunity is able to draw on decades of experience in the Brazilian context.”
Since the D&M report came out this spring the stock price has gone from under $1 to $2.50. That report and the involvement of Mello do add credibility. The problem I have is that I came across this through an embarrassingly promotional e-mail that does little to make me think anything other than scam. The delivery of the message reminds me of late night commercials that promise to make viewers instantly wealthy without actually having to do anything.
So hype, hoax or homerun ? I don’t know. Too risky for my money, but it will be interesting to watch. Maybe by writing about it someone will contact me and help me figure it out."
When I found the stock the company was trading at about $2. I bought an tiny number of shares just to track it. I wasn't all that interested, but the involvement of Mello and HRT who are credible was very intriguing to me.
A month has now passed, and I thought I'd check on the stock price as I hadn't been watching. The stock price today is $4.11 !!!
I've got a double in a month. The problem is that I have no real money invested, so it isn't going to make much of a difference.
Did I make a mistake not buying more when I found the company ? My answer is no way. I couldn't tell if the company was worth $1 billion or worth 1 cent.
They have prospects off the coast of Namibia. But this isn't like looking at Penn West with hundreds of thousands of acres in the Alberta Cardium and knowing that that is a resource play where the boundries have been defined (and are being widened). If you have land in the Cardium you have a pretty good idea what it is worth. There are acreage transactions every month by profit motivated and educated acquirers of surrounding properties in the play that can guide you. A big potentially oil bearing structure deep under the water is another matter.
So there you go. I missed a double in a month. I won't even try and calculate the annualized rate of return that implies. Thanks a lot Buffett, I should have been listening to penny stock newsletters instead of you.