The honest forecaster will admit that too many unknowns exist to allow for a dependable outlook. Here in the oil & gas business a few of the unknowns include weather, Saudi behavior, availability of debt, economies of a dozen countries, politics, war and alternatives. For example, in the world of alternatives, does an investor perceive that the future of oil is good, but the future of bitcoin is better? If bitcoin, then cryptocurrencies get the investment and oil starves for cash.
Here at the Spears world headquarters in Tulsa, Oklahoma, our family made two simultaneous investment decisions in 2020 – one was to buy a piece of a private oilfield service company and the other was to take the remaining funds and park it in bitcoin. The oilfield service company got 85% of the investment, and bitcoin got 15%. Both investments seemed equal in terms of potential long term outcome because we did exhaustive research on both – hey, it is what we do! – but we were more confident of the oilfield investment’s outlook, so it got the lion’s share of the funds.
The ENTIRE Spears organization is focused on measuring oilfield markets. Though we are small relative to the giant consulting firms of the world, we’ve been at it for a couple generations and are as good as mortals can get. Looking at just those two investments we made, here are a few of the unknowns we completely missed as we analyzed the opportunities – unknowns that dramatically impacted the value of our two investments:
Global pandemic leading to a collapse of oil demand and negative oil prices;
Multiple trillions of dollars of printed government money flooding into the economy leading to massive dislocations of financial markets;
Erosion of faith in the US dollar and in global trade mechanisms;
Both a Saudi oil output war AND a Saudi voluntary restriction of oil output.
As I look at this two-holding portfolio in the new year, I see what WAS an 85:15 value split now being a 50:50 value split… with the total portfolio value being flat despite MASSIVE changes to each. Who could have imagined bitcoin rocketing from $6k to $42k, oil moving from $50 to negative $35 and back to $50, and the Saudis voluntarily cutting the equivalent of 1% of the world’s oil demand?
Here’s how I’m looking at JUST these two portfolio holdings for the new year 2021:
Vaccine ends the global pandemic by Fall, but not soon enough to help oil demand;
Inflation ramps up and tax rates jump in order to pay for the globe’s unimaginable debt;
Oil SUPPLY becomes a far greater worry than oil DEMAND… you can’t produce from wells you didn’t drill;
Bitcoin’s current price is a bubble.
As a result, I expect my oilfield investment’s value to double this year and my bitcoin investment to fall in half this year… resulting in, once again, a flat combined valuation of the portfolio.
I’ll let you know how this works out… but you can follow it yourself by watching the stock market’s OFS index and the price of bitcoin.
By the way, watch for Spears’ rollout of a massive amount of proprietary oilfield analysis priced for the individual consumer. Coming Q1 2021.