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I started investing a couple of years ago in energy companies that are basically “pure plays” on unconventional or tight oil plays.
I’ve got exposure to the Bakken, to the Eagle Ford, Cardium, Duvernay, Swan Hills, Montney, Nordegg, Mississippi Lime and likely a few more.
My reasoning was that oil unlike natural gas is a global commodity with pretty steady demand growth, and that with prices of $70 plus going forward these companies were great bargains as the stock market (in my opinion) does not appreciate the value of the land that they own.
So far I feel like I’ve made a very good decision as the companies I own are growing production, cash flow and reserves at very rapid clips.
Mr. Market, however, keeps telling me I’m dead wrong as these companies, despite growing production, cash flow and reserves, have had falling stock prices.
So I keep buying either compounding my error or increasing my eventual return.
Two gentleman who are much smarter than and who also have exposure to the growth in oil production from tight oil are Warren Buffett and Bill Ackman. Unlike me however, these guys have profited from this exposure as detailed in this Bloomberg article:
Bill Ackman, the largest investor in Canadian Pacific Railway Ltd. (CP), is following Warren Buffett in profiting from growing oil and gas production in North America’s Bakken shale.
Ackman’s Pershing Square Capital Management LP, which bought most of its shares in late 2011 as the stock rebounded from a two-year low, stands to benefit as CP expands operations in the Bakken.
The railway is one of only two with tracks in the North Dakota part of the region, which also includes Montana and the Canadian provinces of Saskatchewan and Manitoba. Buffett’s Berkshire Hathaway Inc. (BRK.B) spent $26.5 billion in 2010 to take over Burlington Northern Santa Fe LLC, the other railway with lines running directly into the Bakken.
“Ackman was smart,” said Tony Hatch, an independent rail analyst in New York. “When he bought his shares he knew that an aggressive management could take advantage of opportunities in the Bakken shale.”
Link to entire article: http://www.bloomberg.com/news/2012-06-29/ackman-like-buffett-buoyed-by-fracking-in-bakken-freight.html?cmpid=yhoo
Ackman and Buffett Profiting from All That 'Frackin' of the Bakken
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What Worked in the Stock Market for Long-Term Investors?
Extensive research has found that the companies with predictable revenues and earnings outperform the market average; they also suffer lower probability of loss. As a matter of fact, this kind of companies are exactly what Warren Buffett wants to buy and hold forever. Please read the research about what worked in the stock market:
Part I: What worked in the market from 1998-2008? Part I: Predictability Rank
Part II: Role of Valuations
Part III: Intrinsic Value, Discounted Cash Flow and Margin of Safety
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