So Oil is massively off this morning following a busted Doha meeting. No agreement to cut production. But we knew Iran wasn’t going to go for that and we also know that there is a huge lag between these types of agreements and the reality of actual cuts feeding through. Oil climbed last week and is now back where it started. I’ve just gone long at 41.26 as these things always seem to overreact then bounce.
Long term Oil is a really difficult one to call. Huge increases in supply due to the U.S. fracking industry explains the move from $100 barrel down to the last few months hovering between $30-45. Not sure where it goes from here. Higher prices would be driven by Fracking Co’s going out of business / marginal costs becoming too high to drill plus some form of supply restriction by the OPEC / Russian group. But the Fracking companies seem to just keep going somehow, and OPEC is no longer the well organised cartel it once was. Saudi Arabia don’t appear to have the same level of control on their colleagues, and Iran in particular is very keen to get itself back up to higher production levels following the embargo lifting.
So volatility is my prediction, probably within a $35-50 range for the next 12 months.
Well more sideways movement recently which is partly why I haven’t posted for a while. Regular updates of “as you were” are about as interesting as “look what I’m having for lunch” Facebook posts.
One of my less impressive decisions was to buy £6,500 worth of Fitbug (FITB) shares which by magic have turned into £838 and a marvellous 87% drop. This brings up the interesting point of stop losses, which as you may have gathered from the above, I don’t tend to use. Problem with stop losses is that the market tends to continue dropping where you have found real value for a while. If you have done enough research and you think you have an angle, then it will naturally take time for the rest of the market to catch up. However, every now and then you get a FITB which just keeps on going. Then you dig deeper and realise that perhaps this company doesn’t have as much substance to it as first appeared. So a 35% stop loss on FITB would have saved me approximately £3,250. However, the same stop loss on my Glencore holdings would have cost me a lot more than that as I’ve subsequently moved into a healthy profit. Difference being that when I went back to review GLEN as the price fell the fundamental case was as strong if not stronger than ever. When I did the same with FITB it looked a bit sick.
So now I’ve blown through the grey area in the middle and I’m all the way down to 13% of the original value. So do I trade out and save my £838 or do I hold as a (nearly) free option? This isn’t a case of not admitting to myself I was wrong – clearly this one was a big loser and lessons to be learned. But now I’ve made the mistake, do I cut it whatever the price or do I wait to see if some spurious upward momentum helps me recover some of the idiot tax I’ve already paid for not doing enough research? Part of the decision has to be deciding what the option value is, and that means working out if this company is a bust. Going to do some qualitative testing and report back.