BlastInvest
Blast Investor Real-time Plus           by Henry Lu

New Year Tough Start, Oil & Natural Gas

01/15/2005

2005 new year starts with horrible sell off

Stock market sold off horribly in the beginning 2 weeks of 2005. S&P500 is down -2.26%, NASDAQ is down -4%,  Blast Investor Model Portfolio also is down -3.81% in 2 weeks.  Energy stocks sold off, tech stocks sold off, asbestos stocks sold off. Most of the Blast Investor Model Portfolio stocks had a tough start, except for the golf stock ADGO, which ran up in past 2 weeks.

Oil and Natural Gas Stocks

Oil price had weak start. Since the peak oil price of $55 a barrel, oil price touched as low as $40 and now it is rebounding back to $48 again. Natural gas price was no different over the past few months. Since the high price of $9.5 per mmbtu, the natural gas price dropped as low as $5.7 and now it sits around $6.4 per mmbtu. Oil and natural gas sector was weak for the past 2 weeks due to the weak price behavior of oil and natural gas.

However, I continue to be very bullish on energy stocks such as WLL, CHK and NRG, which depends on high energy price to generate fat earnings and profits. High energy price is going to stay for quite long time. The day for $20 a barrel oil price or $2.5 per mmbtu natural gas price is long gone and I expect the current high energy price to stay as high as the current price if not higher. The reasons for past years' energy price running up is still at force right now. The US dollar continues to be weak. China's economy continues to grow fast. US economy continues to be reasonably good with decent growth. The geopolitics of Middle East continues to be chaotic. All these factors will continue to be the reason to allow companies such as WLL, CHK, and NRG to generate fat profit quarter over quarter for shareholders.

I want to differentiate energy equity investors such as WLL, CHK, NRG shareholders from the energy speculators such as those traders who speculate on the up or down of oil or natural gas prices in the commodity future market. We as energy investors do not rely on commodity short term price trend to make money. Sure, when energy price does rally, we do not make quick money as speculators do. However, If the energy price does not go up, the E-mini or future speculators (or longs) do not make money as we do. Even if the oil price stays at current price of $48, or natural gas price stays at $6.4 without going up,  WLL, CHK, NRG will likely to reward shareholders big time in next few years. This is because WLL, CHK, or NRG all are making close to 20% of return right now with current energy price. Regardless of energy price goes up or down, or stays same, as long as the energy price trades in the price range of past 1-2 years, we as WLL, CHK shareholders will likely to make big return year in and year out in the range of 20% or more.

That is the beauty of long term oriented value investing. I do not need to predict what oil price will be next month or at year end. All I have to do is to predict that oil price will not drop back to $25, or natural gas price will not drop back to $2.5 per mmbtu. That is all needed for making the 20% return per year on WLL CHK within the margin of safety.

The volatility of oil or natural gas price is not problem either.  A well-run oil or natural gas company such as WLL or CHK can take advantage of volatility by hedging.  Hedging makes a relatively smooth and fat earnings possible for oil and natural gas companies. Of course, commodity hedging is not same as speculation or gambling on energy prices. Recently, a Singapore listed Chinese government-owned oil company called China Aviation Oil Corp lost $550 million US dollar in betting the oil price down. Shareholders should never tolerate the speculative "hedging" activities, in which those arrogant managers or cheaters of China Aviation Oil Corp were engaged in.  As author of BIRTP, one of my jobs is to look out for any sign of misconduct in hedging activities for you so that we can all steer clear of the trap and make big money safely.

Tough start = tough year?

Year 2005 had tough start. I got many questions like below: "How are we going to expect the stock market for the year of 2005?",  "Can we make big money ahead?", " USG sold off big, what has changed?".

As value investor, I am not too concerned with price movement in short term. Because I get asked on those similar questions quite a lot  I might as well lay out my opinion below.

There is really no way to avoid the tough sell off like we had for the past 2 weeks. Market is always unpredictable in short term. As long term oriented investors, we need to separate short term market price movement from the long term movement of stock price. Although short term price movement is very unpredictable, the long term price movement is predictable in the eye of value investors.  Earnings, assets are the real reason to push up the price or push down the price in the long run. Over the long run, patience of a long term oriented value investor always paid off big. The value investing principle worked for Warren Buffett, for Ben Graham, for me, or for many other students of Ben Graham. It will continue to work for me and for you in the future. It is just matter of time to collect the big reward from value investing.

Finally, one word: PATIENCE.


Blast Investor Model Portfolio Update

(as of 01/15/2005)

Model Portfolio - Performance


Portfolio inception date
 12/31/2003
Portfolio inception value
 $89,000
Portfolio 12/31/04 value
 $141,981.00
2004 Portfolio Performance
 59.53%
2004 S&P500 Performance
 8.78%
2005 Portfolio YTD Performance
 -3.81%
2005 SP&500 YTD Performance
 -2.26%


Model Portfolio - Open Positions
Symbol Last Shrs Value Paid Gain
ADGO.OB 1.55 9,000 $13,950.00 0.78 $6,920.00 +98.44%
CHK 16.58 1,100 $18,238.00 13.90 $2,938.00 +19.20%
EXX-A 1.55 6,500 $10,075.00 1.638462 -$595.00 -5.58%
LIBHA.PK 4.80 1,200 $5,760.00 5.10 -$370.00 -6.04%
NRG 34.23 670 $22,934.10 23.05 $7,480.60 +48.41%
NTES 51.17 150 $7,675.50 36.60 $2,175.50 +39.55%
SOHU 15.91 700 $11,137.00 24.882857 -$6,301.00 -36.13%
USG 35.49 950 $33,715.50 18.425789 $16,191.00 +92.39%
WLL 31.30 600 $18,780.00 22.683333 $5,150.00 +37.78%
$$CASH -5,694 -$5,694.00 - - -
10 symbols Total(USD):
$136,571.09




Model Portfolio Transactions


Date  Type Symbol Shares Price Comm Amount Notes
Nov 24, 2004 Sell HRB 350 47.35 10.00 16,562.50 - 12.31%
Nov 4, 2004 Sell NTES 100 46.50 10.00 4,640.00 + 27.05%
Oct 19, 2004 Buy EXXa 1,500 1.60 10.00 2,410.00
-
Oct 6, 2004 Buy EXXa 5,000 1.65 10.00 8,260.00
-
Oct 6, 2004 Sell NEN 100 80.00 10.00 7,990.00 + 48.15%
Oct 5, 2004 Buy USG 250 18.75 10.00 4,697.50
-
Oct 5, 2004 Sell NTES 100 39.12 10.00 3,902.00 + 6.9%
Sep 30, 2004 Buy USG 700 18.31 10.00 12,827.00
-
Sep 29, 2004 Sell NEN 100 79.65 10.00 7,955.00 + 47.5%
Aug 5, 2004 Buy WLL 250 23.50 10.00 5,885.00
-
Aug 2, 2004 Sell NEN 100 69.95 10.00 6,985.00 + 29.5%
Jun 17, 2004 Sell HCA 250 40.30 10.00 10,065.00 - 4%
Jun 17, 2004 Buy NRG 670 23.05 10.00 15,453.50
-
May 24, 2004 Sell ADGO.OB 13,000 1.55 10.00 20,140.00 + 98.7%
May 10, 2004 Sell HCA 250 39.97 10.00 9,982.50 - 4.8%
May 10, 2004 Buy SOHU 200 15.59 10.00 3,128.00
-
Mar 5, 2004 Buy WLL 350 22.10 10.00 7,745.00
-
Jan 26, 2004 Sell WRP 700 17.40 10.00 12,170.00 - 5%
Dec 31, 2003 Buy CHK 1,100 13.90 10.00 15,300.00
-
Dec 31, 2003 Buy NEN 300 54.00 10.00 16,210.00
-

Date  Type Symbol Shares Price Comm Amount Notes
Dec 31, 2003 Buy HRB 350 54.00 10.00 18,910.00
-
Dec 31, 2003 Buy NTES 350 36.60 10.00 12,820.00
-
Dec 31, 2003 Buy SOHU 500 28.60 10.00 14,310.00
-
Dec 31, 2003 Buy LIBHA.PK 1,200 5.10 10.00 6,130.00
-
Dec 31, 2003 Buy ADGO.OB 22,000 0.78 10.00 17,170.00
-
Dec 31, 2003 Buy HCA 500 42.00 10.00 21,010.00
-
Dec 31, 2003 Buy WRP 700 18.30 10.00 12,820.00
-
Dec 31, 2003 Cash In -
-
-
-
 89,000.00 Inception