Long-term Equity Investment - Miscellaneous Facts
Discussion
Some of you might hold oil majors.
It is one way of not needing to be concerned about prices at petrol pumps.
Price increases on the filling station forecourt, will be accompanied by higher oil share prices.
Obviously that works in reverse too, but people are happy when petrol prices go down.
These charts, Brent Crude, BP and Shell, appear to reveal that Shell has performed better than BP.
Yes, hedging water bills in the same way, has also been successful with Severn Trent.
By luck, Severn Trent is considered one of the better water companies, so returns have exceeded bills.
The strategy might not have worked with Thames Water, although I don't know what the pre-takeover performance was like.
Unfortunately, I think all SSE retail customers have been transferred to another utility, whose administration is 'a bit wobbly'.
Funny that SSE agreed to their name to be used for a period, because complaints have been aimed at them.
Edited by Jon39 on Tuesday 5th November 13:58
Well any investment includes a warning that past returns don't indicate future growth blah blah.
Shell are only 'outperforming' since May though. Your second chart on a wider timeframe shows they pretty much track spot on. And if this is a long term investment you would want to consider the dividend history. I.e. if share price growth is similar but one is paying out more in divs.
I enjoy the psychology behind historic comparisons though. Some people will look at that and think to buy Shell as it is 'better'. Whereas others will buy BP as it looks comparatively low. Which you doing Jon!?
Shell are only 'outperforming' since May though. Your second chart on a wider timeframe shows they pretty much track spot on. And if this is a long term investment you would want to consider the dividend history. I.e. if share price growth is similar but one is paying out more in divs.
I enjoy the psychology behind historic comparisons though. Some people will look at that and think to buy Shell as it is 'better'. Whereas others will buy BP as it looks comparatively low. Which you doing Jon!?
ILikeCake said:
I enjoy the psychology behind historic comparisons though. Some people will look at that and think to buy Shell as it is 'better'. Whereas others will buy BP as it looks comparatively low. Which you doing Jon!?
As you suggest, historic charts can be of interest, but in my opinion of little help for future decisions, although possibly useful when looking to add during market crashes.
Some like to talk about 'Head and Shoulders', 'Double Top' and 'Support Levels', but future profitable growth is always the important ingredient.
To answer your question, I have held both for years. When the oil price increases, then obviously the share prices rise and profitability improves. The timing of that can never be predicted, so those holdings remain. A cyclical sector certainly, which is not my first preference, but demand for oil and gas will continue for some time yet, particularly when it is dark and the wind is not blowing.
Panamax said:
What is the relevance of those graphs? To my eye they don't seem to show anything significant - taking account of the fact BP lost out when it was compelled to abandon its investment in Russia back in 2022.
Simply showing the oil majors share prices closely tracking the global oil price.
Obvious of course, but when we were refuelling our cars at £2 per litre, holding oil company shares of course created a hedge, so no need for worry.
Perhaps of more interest to novice investors.
Jon39 said:
Some of you might hold oil majors.
It is one way of not needing to be concerned about prices at petrol pumps
Is the idea that one has enough shares such that on average the dividends cover the fuel bill, or merely mitigate it a bit, or do you buy/sell to take profit as seems fit?It is one way of not needing to be concerned about prices at petrol pumps
Very interesting idea.
The charts show the correlation but how does one practically mitigate the increased cost of energy? Surely you have to buy shares when energy prices are low and sell when energy prices are high. Not sure I can get my head around how you might model a workable strategy to implement this.
Then there's the risk inherent in being exposed to a small number of energy companies. There are plenty of risks that can cause an energy company's share price to plummet other than the price of crude. Accounting scandals, fraud, mismanagement, poor investment, industrial action and government action are a few that spring to mind.
The charts show the correlation but how does one practically mitigate the increased cost of energy? Surely you have to buy shares when energy prices are low and sell when energy prices are high. Not sure I can get my head around how you might model a workable strategy to implement this.
Then there's the risk inherent in being exposed to a small number of energy companies. There are plenty of risks that can cause an energy company's share price to plummet other than the price of crude. Accounting scandals, fraud, mismanagement, poor investment, industrial action and government action are a few that spring to mind.
I'm not sure how the hedging would work in practice.
Firstly the number of shares you need to own must be proportionate to the mileage you do. There's no point owning one share if you do 50k a year or 25% of BP if you do 10 miles a year
Secondly there's no guarantee that the income from the shares will mirror the prices at the pumps. You cant use capital increases as part of your hedging strategy because once you sell the shares your hedge position closes
In short it's a complicated way of trying to achieve something that probably won't work unless you're very lucky.
Firstly the number of shares you need to own must be proportionate to the mileage you do. There's no point owning one share if you do 50k a year or 25% of BP if you do 10 miles a year
Secondly there's no guarantee that the income from the shares will mirror the prices at the pumps. You cant use capital increases as part of your hedging strategy because once you sell the shares your hedge position closes
In short it's a complicated way of trying to achieve something that probably won't work unless you're very lucky.
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