The Life Cycle of Securities & The Peak Oil Theory

President Obama Says in a Speech this Week That the US Recovery is Being Throttled by the Rising Cost of Gas at the Pumps.
Apparently the cost of a gallon of gas has risen from $3.17 to $3.40 from the start to end of 2011.

Some say that he is setting the stage for bashing big, bad oil companies in the upcoming Presidential election. Some say he is setting the stage for excusing bad decisions. Sounds like politics as normal. But the good old reliable knowledge that the price of oil will invariably rise, is flawed – seriously flawed.

The price of gas has not collapsed as some say it would, but it also has not risen dramatically – yet. Today Crude spiked to $110/barrel on fears of Iranian issues and supply disruptions. Seems like buy and hold is a reasonable policy for oil stocks – but I am not so sure about that.

The Peak Oil Theory
The peak oil theory says that the world is running out of oil, and the price of oil will escalate dramatically as a result, thereby throttling economic activity everywhere and bringing on the next big economic downturn.

This may be true, but more likely, it is false alarmist.

The point that I am making is that there is no surety in investing. In this age of instant communication, everything moves quickly. If you buy something and then forget about it, you are likely to get nasty surprises.

Investment Advisors Recommend Long Term Holdings
I have, in a number of blogs, cautioned investors about the folly of buying either a mutual fund or a managed account of some sort, with the notion that over a long period of time, true value will make the investment rise in value.

There are a number of reasons why this is a poor investing policy, including the Investment Advisor’s incentive of forever getting a monthly check (fee) from your investments, just because the investment was recommended whenever it was first made.

But aside from this personal pique of mine, let’s examine the life cycle of securities. There are numerous examples of the folly of this policy, and I will mention but a few here.

The Speed of Change
The point is, that investments must be reviewed on a regular basis, especially in light of a world that changes around us with frightening speed. In most cases, the macro indicators that any investor can see, are all around us. In this age of instant communication around the globe, and of everyone’s ability to research any subject or word at the click of a mouse, it is the obligation of every investor to keep in mind what sectors they are investing in, and review whether current changes in the world would mandate changes in investment policy.

Some Examples

The Belief That Oil is Running Out (Peak Oil Theory) & and that the Price of Oil Will Forever Rise
A common bit of ‘knowing’ advice heard frequently is that the price of oil will continue to rise. As a result, you should always have oil stocks in your portfolio.

Have you noticed that as the economy improves, as it is doing now, the price of oil is wavering? Middle East crises affect the price, but not dramatically.

As with all things in our modern world of rapid changes, nothing is forever. More natural gas is being found today in ‘unconventional sources’ (read ‘shale gas’) than can possibly be used in our lifetime. Estimates range upward from supplies adequate for 800 years and more.

The US reliance on oil imports is about to change, and about to change quite dramatically. Oil imports in the latest fiscal year were significantly LOWER than the previous year. If you are betting on the price of oil, use caution.

Future Blog – The world is changing around us and you need to be alert. Consider Shale Gas and its effect on Coal and on Environmentalists. Consider large equipment manufacturers.

We may or may not have positions in the securities we name. In making an investment decision numerous factors must be considered including portfolio balancing, timing, cash and capital reserves, asset allocation and other factors. Readers are strongly advised to do their own research. Matters discussed contain forward-looking statements that are subject to risks and uncertainties and actual results may differ materially from any future results, performance or achievements expressed or implied.

Views expressed are opinions and not investment advice. Persons investing should retain a licensed professional to guide them and  not rely on the opinions expressed herein. This report is neither a solicitation nor a recommendation to buy or sell securities. We are not a registered investment advisor nor a broker-dealer. The information contained herein is based on sources which we believe reliable but is not guaranteed as being accurate or a complete statement or summary of the available data.

By Larry Cyna

Mr. Cyna is an accomplished investor in the Canadian public markets for over 20 years, and has managed significant portfolios. He is a financing specialist for private and public companies, and has expertise in real estate and debt obligations. He has assisted private companies accessing the public markets, has been a founding director of public companies and continues as a strategic consultant to selected clientele. He is and has been a director, a senior officer and on the Advisory Board of a number of TSX and TSXV public companies in the mining, resource, technology and telecommunications sectors, and the Founding Director of two CPC’s with qualifying transactions in mining and minerals. He was an honorary director of the Rotman School of Management MBA IMC program, has completed the Canadian Securities Institute Canadian Securities Course & Institute Conduct and Practices Handbook Course, was a former Manager under contract to an Investment Manager at BMO Nesbitt Burns, a roster mediator under the Ontario Mandatory Mediation Program, Toronto, a member of the Institute of Corporate Directors of Ontario, a member of the Upper Canada Dispute Resolution Group, and the Ontario Bar Association, Alternate Dispute Resolution section. He obtained his designation as a Chartered Accountant in Ontario in 1971 and was the recipient of the Founder’s Prize for academic achievement together with a cash reward. He became a CPA in the State of Illinois, USA in 1999 under IQEX with a grade of 92%. He is a Member of the Institute of Chartered Accountants of Ontario and the Canadian Institute of Chartered Accountants. He holds certificates in Advanced ADR & in Civil Justice in Ontario, Faculty of Law, University of Windsor, certificate in Dispute Resolution from the Ontario Institute of Chartered Accountants. Previous accomplishments are Manager of Cymor Risk Consultants LP specializing in Risk Management Assessment; CEO of Cyna & Associates specializing in mediation and ADR; Founder & Senior Partner of Cyna & Co, Chartered Accountants, a fully licensed and accredited public accountancy firm with international affiliations; and was a partner in a large public accountancy firm. Mr. Cyna is well known in the Canadian Investing community. He is invited to, and attends presentations given by public companies usually 3 or 4 times each week. These presentations are intended by the various hosting companies to present their inside story to sophisticated parties and Investment Managers for the purpose of attracting funding, or of making parties more interested in acquiring shares of those companies. Being a part of this keeps Mr. Cyna deeply involved in the current market and leads to numerous investment opportunities.