Saturday, May 31, 2008

What Is Making Oil Boil?

The other day I was speaking to one of my friends at a major investment house based in New York. He was telling me how they had made good amounts of money in oil and high oil prices were the best thing that could have happened for them. I jokingly hinted, "And I am assuming crashing oil prices would be the next best thing for you."

I'm sure many of you would have understood what both of us were talking about and referring to. High oil prices are not the best thing to have happened for the common Indian or common American, because they end up paying more out of their own pockets. It is the best thing for those who bought into it a few months ago and ended up making large amounts of money running into billions of dollars.

When it comes to crude oil, a lot of the prices are not actually based on the market demand and supply situation. One reason crude oil prices are going up is because of speculation and big investment houses giving higher targets for crude. If a big investment house has some analyst coming and saying crude will touch $ 200 it starts creating a speculative demand. People get influenced by this and rush out and buy. It makes the buying even more aggressive if the same fund house had predicted crude crossing $120 say several months ago.

Look back in history and you will see how oil tends to boil in the short term and then correct equally fast. North America continues having large amounts of oil and most probably they plan to make use of it once Middle East runs out of oil. At the moment I feel the rise in oil prices is not justified and in the near future they will correct. Oil demand is going to rise over time, but if oil becomes too expensive we all shall start looking at alternative sources of energy.

That is one of the reason Rakesh Jhunjhunwala invested in Praj. The other day we had a bright young gentleman telling us how he would be investing in a solar energy company due to the rising need of such energy sources over the long term. Every challenge brings and opportunity with it. As investors instead of cribbing about high oil prices we should look at opportunities which can be tapped into.

The other day I was hearing Mr. Naik of L&T and you could make out that he was very confident about the growth path ahead for companies like L&T. I suggest all of you should pay attention to their balance sheet and see how well they are doing, in case you haven't done that already. As I have always mentioned that companies which have something to do with India's domestic growth are much more secure than those who are linked to the West in any way.

L&T is a company that is doing great, but also at the same time it is quite visible to a large investor population. All those of you who have read Invest The Happionaire Way might be remembering my philosophy of buying into companies which are not noticed by the masses and thus being offered at a discounted price. And my other philosophy of buying into companies which benefit indirectly from growth in another sector. For example I bought into cement when everybody was constructing houses. These principles are very simple but not always easy to follow. I have learnt these from great investors like Warren Buffett, Graham, Peter Lynch and others.

I would want all of you to look at companies which will benefit by the growth taking place in L&T. I have been investing quite aggressively into one such company which I shared earlier with you here. The stock price of this has gone down in the past few weeks and it could go down further in case the markets correct. However by now we all know that as investors we don't let the markets control us and rather think like the owners of the business. The business continues to show huge potential. When it comes to such smaller companies, the thing I really like is that if things go as expected the returns can be exponential. It is very difficult to get a 4 bagger (400%) or 5 bagger (500%) returns on an established large cap.

Happy investing and learning!

Yogesh Chabria

Read what fellow Happionaires had to say about women and investing here!

9 comments:

nahid said...

I'm getting insights to the inner world of investing through you Yogesh. I'm really lucky because it is very hard for common people like me to find out about such things. I have read Invest The Happionaire Way and it is truly a revolution in the world of investing because it makes anybody understand investing so easily.

But as you are saying even though it is so simple to follow many people will not and once again will go the wrong way. I will now go and read the great books suggested by you. I will always remember you and your book which got me started into investing.

Thanks.

alok said...

Great post as always!

Just saw you on TV and it is great to see The Happionaire Way spreading so fast. I have told all my friends at work to go pick a copy of ITHW as it is something that will stay with them forever and can be handed down to their children.

Really lucky to be a part of the wonderful Happionaire family. I am looking forward to more lovely books and ideas from you Yogesh.

diya said...

Oil will surely be replaced by more efficient sources of energy. We can see it happening through history.

And I saw the TV promo for ITHW too Alok and somebody is looking very nice.

I'm sure it will spread the message to millions of more people. Eagerly waiting for your next book Yogesh which would surely be just as big as ITHW!

sameera said...

I wish I was in Bombay now so that I could at least see this ad all of you are talking about.

Can we have it uploaded on our site Yogesh please? I heard your next book is specially going to be for women. I'm sure all of us would really want to know what you haev to say.

Enjoy your weekend!

girish said...

Oil wealth also means ore money for mid-east. This needs to be invested and a lot of them have taken India to the fancy.

kirti said...

Finding the small fish who will support the big fish is a great concept. I'm goign to look for small suppliers to companies like RIL also.

Razak said...

I read ITHW and it is a great book. So simpl;e to understand but means so much. I will start investing with only Rs. 5000 and will keep reading your posts to learn more. I'm looing forward to many more books from you and thanks for running this great blog. I sent you and e-mail too but I do understand the millions of e-mails you must be getting.

Just wanted to thank you for bringing out such a great book and helping people like me understand investing.

jatin said...

I agree with your views on oil...but things seem to be difficult with inflation and fuel hike. Btu then as you said Yogesh I have read through history and noticed worse th ings have happened. I'm buying slowly knowing markets can go down more. But I have confidence for the long term thanks to the type of thought process you have shared with us.

madhu said...

I finished reading ITHW and it kept me glued. Very interesting way of writing and loved the stories which help people like me understand complicated issues realted to investing and money so easily.

I too am looking forward to more titles under the Happionaire way! It is grown really big, I saw you on TV Yogesh and you were looking great!