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🦉 Trillion-Dollar Market Timing Mistake
Investors lost big by fleeing post-2008. Are you making the same mistake? Learn why staying in the market beats timing it. Discover the power of patience!
Jeff
September 16, 2024
Hi there… Today, we're diving into a feast of financial wisdom. We'll explore the costly dance of market timing, uncover oil's surprising resilience in the EV era, unmask the sneaky "ownership premium" in our portfolios, and drill into Occidental Petroleum's unique position. Buckle up for insights that might just revolutionize your investment thinking!
— Jeff
Wisdom of the Day
Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.
In the aftermath of the 2008 financial crisis, a curious phenomenon unfolded that would make even the savviest Wall Street veterans scratch their heads. Investors, still nursing their wounds from the market meltdown, pulled nearly $1 trillion out of equity mutual funds between 2008 and 2012. Talk about jumping out of the frying pan and missing the fire!
While these folks thought they were playing it safe, they missed out on one of the most remarkable bull markets in history. The S&P 500 surged by more than 100% from March 2009 to the end of 2012. It's like skipping a buffet because you're worried about indigestion, only to find out later it was the meal of a lifetime.
Remember, the market is like a roller coaster - it's going to have its ups and downs. But if you get off the ride every time you think there might be a steep drop coming up, you'll miss out on the exhilarating climbs too. So, instead of trying to time the market, focus on time in the market. Build a diversified portfolio, sit tight, and let the power of compound interest work its magic. — Jeff
The Inverted Lens
Invert, always invert: Turn a situation or problem upside down. Look at it backwards. What happens if all our plans go wrong? Where don't we want to go, and how do you get there?
Why the Age of EVs Won't End the Oil Era Just Yet?
As electric vehicles zoom into the spotlight, you might think oil's days are numbered. But let's flip this script and consider a more intriguing question: What if the age of EVs actually prolongs the oil era?
First, let's not forget oil's many hats. It's not just about fueling your car; it's the secret ingredient in everything from your smartphone to your shampoo. Even if every car went electric overnight, we'd still need oil for countless products. It's like trying to quit coffee but realizing it's in your chocolate too.
Now, here's a twist: EVs actually need oil to be born. From the tires to certain battery components, petrochemicals play a crucial role. It's like oil is the midwife to the electric car revolution.
And let's not ignore the elephant in the room - or should we say, the cargo ship on the ocean. Heavy transportation isn't going electric anytime soon. You can't exactly plug in a Boeing 747, can you?
So, while we're all cheering for a greener future, remember that oil isn't going away - it's just changing roles. It's like the character actor who's in every movie but never gets top billing. The oil era might not end; it might just get a rewrite.
MULTIDISCIPLINARY WISDOM
The endowment effect. This mental quirk can lead you to value stocks you own more highly than identical ones you don't, simply because they're yours.
Think of it like that old coffee mug on your desk. It's probably not worth much, but you'd demand a premium to part with it. Now, imagine that same irrational attachment applied to your stock portfolio. Suddenly, that underperforming tech stock isn't just shares in a company; it's your tech stock.
This ownership premium can lead to some pretty quirky behavior. You might hold onto a losing stock far longer than you should, or pass up opportunities to diversify because you're too attached to your current holdings. It's like refusing to try a new restaurant because you're loyal to the old one, even though its food has gone downhill.
So, how do you avoid this mental trap? Start by regularly evaluating your portfolio as if you were seeing it for the first time. Ask yourself: "If I didn't own these stocks, would I buy them today?" It's like hitting the reset button on your financial decisions. Remember, in investing, as in life, sometimes the most valuable thing you can own is a clear perspective.
THE MOAT
Occidental Petroleum Corporation stands as a unique player in the energy sector, blending traditional oil and gas operations with pioneering carbon management initiatives. Its dominant position in the Permian Basin, producing 587 Mboed in Q2 2024, forms the cornerstone of its economic moat. Occidental's integrated business model, encompassing upstream, midstream, and chemical operations, provides operational flexibility and risk mitigation.
The company's leadership in carbon management technologies, particularly direct air capture, positions it at the forefront of the energy transition. This strategic bet could translate into significant long-term value as regulatory pressures and market demands for lower-carbon solutions intensify.
However, Occidental faces challenges including oil price volatility, regulatory risks, and integration challenges from its recent $12 billion CrownRock acquisition. Despite these risks, the company's financial strength, with $2.4 billion in Q2 2024 operating cash flow, provides flexibility for growth initiatives and shareholder returns.
Trading at a slight premium to its estimated intrinsic value, Occidental offers investors a unique opportunity to participate in both traditional energy and the future of low-carbon solutions. While risks exist, the company's fundamental strengths, strategic vision, and potential to lead in the energy transition make it a compelling consideration for long-term investors seeking exposure to the evolving energy landscape.
Always Invert
How can Occidental Petroleum maximize its oil production and profitability in the evolving energy landscape?
Ask this:
How could Occidental Petroleum inadvertently accelerate its own obsolescence and become the fossil fuel industry's biggest liability?
1. Resisting energy transition
2. Neglecting environmental concerns
3. Overleveraging for risky projects
4. What else?
Ask Yourself:
1. Is Occidental Petroleum actively investing in a diversified energy future?
2. Is the company taking sufficient steps to mitigate its environmental impact?
3. Are Occidental's financial decisions balancing risk and reward appropriately?
REC
📚 Book: Oil 101 by Morgan Downey
Dive into this straightforward guide to understanding oil markets. It's like getting a crash course in black gold. With energy markets in flux, knowing the ins and outs of oil could give you a real edge in your investment strategy.
📰 Read: Social Security at 70
Explore the pros and cons of delaying Social Security benefits. It's like deciding when to cash in your retirement chips. Consider how this decision might impact your overall investment portfolio and retirement planning.
🎥 Video: Warren Buffett on Occidental Petroleum
Watch Buffett explain his investment in Occidental. It's like getting a masterclass in value investing in the energy sector. Gain insights into how the Oracle of Omaha views the future of oil and gas.
🎓 Course: Understand Banks & Financial Markets
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MY WATCHLIST
$AMZN, $GOOGL, $CELH, $DIS, $CHWY, $CROX, $ULTA
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