InvestingDaily.com

Account Information

  • My Account

    Manage all your subscriptions, update your address, email preferences and change your password.

  • Help Center

    Get answers to common service questions, ask the analyst or contact our customer service department.

  • My Stock Talk Profile

    Update your stock talk name and/or picture.



Close
FEATURED STRATEGY

How To Collect Your Share of My Million Dollar Giveaway

How To Collect Your Share of My Million Dollar GiveawayWe recently kicked off the most outrageous initiative in the history of investment research. It’s called the Income Millionaire Project. And the goal is simple: create 1,000 income millionaires. That’s a $1 billion goal! No one has ever tried it before, but that doesn’t bother me. I’m so sure you can use this program to make a million bucks… I’ll pay you $1,000 to start your journey. Go here for details.

 

Don’t Underestimate The Energy Sector

By Robert Rapier on April 18, 2017

Today I want to touch upon one final theme from my presentation at this year’s annual Investing Daily Wealth Summit. Ponder this question for a moment: How has the energy sector fared long-term compared to the other sectors of the S&P 500? 

In speaking with investors, I find that the energy sector often gets a bad rap. That’s because we investors can have short memories. Too frequently we flock to a hot sector until the bubble bursts, and then we go searching for the next hot sector. But we sometimes lose sight of how detrimental this sort of sector-chasing can be to our portfolios. Allow me to demonstrate.

Exchange-traded funds (ETFs) are investment funds that trade on stock exchanges. Select Sector SPDRs are ETFs that divide S&P 500 stocks into ten sector index funds. Nine of the ten index funds commenced trading on 12/16/1998. The 10th, the Real Estate Sector ETF (XLRE), started trading in October 2015.

If you had invested money in one of these ETFs near the end of 1998, where might you have put that money? Technology? Health care? Financials? Certainly not in the energy sector, because oil prices had traded in a narrow band around $20/bbl for most of the previous decade.

Thus, you may be surprised to learn that as of year-end 2016, in addition to being 2016’s top performer (also surprising?), the top-performing all-time Select Sector ETF is the Energy Select Sector SPDR ETF (XLE), with an annualized average return of 8.56%:

 

By comparison, the Technology Select Sector SPDR ETF (XLK) and Health Care Select Sector SPDR ETF (XLV) have all-time average annual returns of 3.81% and 7.48%.

The reason is that despite generating huge returns at times, these sectors have experienced major corrections that wiped out years of positive returns. The technology stock bubble of 1999 to 2001 wrecked long-term returns in the technology sector for more than a decade. Even if you had invested in a great company like Cisco Systems (NASDAQ: CSCO) in late 1999 through the end of 2000, you would be still sitting on losses even after holding it for 17 years. Think about that before you go chasing a high-flier like Tesla Inc (NASDAQ: TSLA).

The energy sector has also had a couple of major corrections over the past 20 years, but this was a time period that saw oil prices move up significantly from the long-range average of around $20 a barrel (bbl). The “normal” price for oil is now significantly higher than it was two decades ago, and the long-term performance of energy sector companies reflects this. Of course, if you invested in the energy sector in mid-2008 or mid-2014 — both time periods just before oil prices collapsed — you are probably still nursing losses.

But the question going forward is whether $50/bbl is the new normal. Long-term, I don’t think so. I don’t think a price below $50/bbl is sustainable for very long. That’s why, following last month’s drop below $50 a barrel (bbl), I reiterated Buys on several quality oil companies in The Energy Strategist portfolio. In the short term at least, this looks like the right decision. Since then oil prices have recovered back to above $50, and the fundamentals seem to indicate higher prices for the rest of the year.

As an investor, I learned long ago that it’s tough to time the markets. I learned to be a deliberate and patient investor. I place my bets and then wait until either my thesis bears fruit or the fundamental outlook changes.

One thing is certain. The world’s appetite for energy will likely continue to grow. History suggests that if you aren’t investing in the energy sector, you could be missing out on long-term market-beating returns.

Follow Robert Rapier on Twitter, LinkedIn, or Facebook.


You might also enjoy…

 

Forget Buy and Hold. Here’s how to retire faster…

I’m not a fan of “buy and hold.” Gurus like to tell you that patience is the key, but I call horse puckey.

We’ve discovered an investing technique that consistently pays out easy-to-repeat profits.

One that’s proven to beat the market 2,082% in head-to-head testing.

And one that’s generated over 488 winners since 2011.

This method is so powerful, in fact, some of the investors we’ve let use it reported back to us saying they’ve made $71,425… $82,371… and even as much as $151,000 in a single year thanks to this “trick.”

That’s how powerful this investing technique is!

What what exactly is this mysterious method? I’ve put all the details together here.

Stock Talk — Post a comment Comment Guidelines

Our Stock Talk section is reserved for productive dialogue pertaining to the content and portfolio recommendations of this service. We reserve the right to remove any comments we feel do not benefit other readers. If you have a general investment comment not related to this article, please post to our Stock Talk page. If you have a personal question about your subscription or need technical help, please contact our customer service team. And if you have any success stories to share with our analysts, they’re always happy to hear them. Note that we may use your kind words in our promotional materials. Thank you.

You must be logged in to post to Stock Talk OR create an account.

Create a new Investing Daily account

  • - OR -

* Investing Daily will use any information you provide in a manner consistent with our Privacy Policy. Your email address is used for account verification and will remain private.