My next investment play: small essay

[buzz]

Do you know anything about refining petroleum Scanner?

[Scanner]

I know sweet crude is the easiest refined into gasoline.

[Broken Arrow]

Yeah, I think it is inevitable that we all have to predict the future just a little bit. After all, investing is about looking forward, not back. However, I don't think it's something that should be the basis for our investment strategy. And if we are careful, we can still develop strategies without the need to predict the future.

To me, investing in something like a S&P index fund isn't necessarily trying to predict the future. There's no guarantee that it will always pay off. Rather, it's an investment in human innovation and our drive to succeed. And that's why, over the course of time, it can and does out-perform most other asset classes out there.

I do agree that our economy is "over-weighted" towards consumption. It's very damaging for all of us. I don't think consumption will shut down though, because it is also human nature to desire things. HOWEVER, what we do need is a bit of a "correction" towards responsible consumption. A healthier way to balance our spending with saving. But anyway, a shutdown is unlikely in my opinion.

It is also unlikely that the United States may be isolated from the global economy. China has been managing their trade surplus by buying vast quantity of U.S. Treasuries. Several countries have made substantial stakes in our financial sector with their Sovereign Wealth Funds. More and more people abroad taking advantage of our soft market and are buying up American businesses at a discount. What that means is that, far from being isolated, our involvement in the global economy has only deepened.

That said, we are still back to the original issue of alternative energy as an investment, and there, I remain uncertain. I am uncertain because I don't feel that I have clear enough understanding of it. But I think that's normal, because the market is a very big place, even when we're only looking at it on the sector level.

To me, the bigger something is, the harder it is to understanding it. That's why I prefer to go small. Like, down to a single stock, bond, or commodity. It may seem easier to just go with a big fuzzy picture than it is to try to get a very clear small picture, but in the end, I believe clarity is the key to successful investing, regardless of the scale. But if clarity is what we are after, then it is easier for me to get a clear picture from a small piece of the puzzle rather than tackle large chunks at a time.

But please don't let me stop you if you really want to invest in this. Just because I am uncertain, that doesn't mean it's a bad (or good) idea.

[Scanner]

BrokenArrow,

No. . .I just like these conversations, which is why I try to start them once in awhile.

China has been managing their trade surplus by buying vast quantity of U.S. Treasuries.

And how much longer you think China is going to allow that? Buy our debt so we can buy their goods?

I agree no investment is 100%. . .if the economy slows, oil drops short term. . .you have to hedge with items.

I guess it comes down to what you think your "core" risk should be. I think I'd rather "hedge" with the S&P 500 vs. making it a core holding going forward.

[JBinKC]

Regarding alternative energy technology I say buyer beware. I think the sector will go through a similar phase of what happened to the internet sector in the late 90s of massive overvaluation and you know what the eventual outcome of that bubble. I do own shares represented by the sector but it is a small percentage of my total portfolio at about 2 1/2 % and consists of 3 stocks with some hard to come by gains.

RE: oil refining it depends upon what your refinery can handle. The companies with the highest crack spreads are those who can efficiently process the worst quality crudes and the spreads lately have been much tighter now than this time last year so the sector does not have a catalyst but it is a sector to watch closely as it can change on a dime.


Regarding drops in prices on commodities and the weak economy. They would be dropping at a significant rate if demand will soften but for the most part have stayed resilient. What this tells me is the US economy is not the dominant economy it once was on the world scene.


I still think companies that are tied to commodities energy, agriculture, and most base and precious metals will continue to show extremely strong profits.